How to get ahead with new mortgage rules!

If you are you still “stretching” or “saving up” to buy into the Vancouver real estate market? Here are some tips!

stretch-your-dollar

At first glance, the new mortgage rules appear to be stretching some people right out of their targeted housing market. However, a great young mortgage broker pointed out the silver lining in the new mortgage rules. If you will be making a down payment anywhere from 5% to 19.9%, with the new rules, you will be paying down more principle in 25 years than you would have paid in a 30 year amortization period according to the previous rules (which means less interest paid to the banks or mortgagor). I know this is a cold consolation if you can’t even get into the Vancouver market! Here are some tips for those of you working and saving hard to reach your goal of buying into the Vancouver real estate market and helping you once you get there.

Pay your-self first!

 

Many books have talked about this, for example: The Wealthy Barber, and The Richest Man in Babylon. Here is the basic idea: For each and every pay cheque make sure to save a portion of it off the top before doing anything else with the money. Many banking institutions like Tangerine and Ally (go to https://www.tangerine.ca/en/index.html or http://www.ally.ca/en/index.html) have accounts with better interest rates than the traditional banks, which sometimes advertise “high interest savings accounts.” It is possible if desired, to set up an automated savings plan to regularly transfer money to the savings account without fail.

 

Vendor Take Back Financing

In slower markets there is more opportunity for Vendor take back financing. Essentially the seller provides a private mortgage out of their own equity for all or part of the funding to the buyers. This may eliminate some or all of the need to borrow from the bank or mortgage companies. You still pay interest and still buy the house but it is more like buying a car with financing provided by the dealership instead of your bank. This type of lending may not work for all sellers but it doesn’t hurt to ask the question!

Talk to your family and close friends about buying real estate.

Often times they will have been through the process before and may be able to provide valuable advice. From a financial side I am not necessarily suggesting you ask for charity but they may be able to help loan funds at a better rate than the bank, especially if you need just a bit more to get in the game. (Banks are not offering much in the way of interest on GIC’s, bonds or money market funds these days so setting up a private loan with someone you know could be a win- win situation.) If you do choose to look at creative options like this, it is a really good idea to spend a bit of money on an accountant and use a lawyer to draw up the documents just to keep everything above board and clear for all involved.

Agree on Costs and Write it into the Agreement for Sale Contract

While we are talking about creative ideas, consider writing it into your contract “the costs” related to your property purchase, to help lower your out of pocket expenses. For example, if the seller is really motivated they may pay for your legal fees, or you could ask for them to pay for the inspection?! It is not all that common to do but don’t be afraid to negotiate – just ask the question! It may turn out to be one less expense for you in the long run.

Fixer Uppers

Buying an older home that needs a lot of work may be an option as well. Often older homes can be bought for a discount, or comparatively less money, due to all of the extra work required to up-grade the property. If you are considering buying a property with expectations of renovating it, did you know that you can get a mortgage that will cover the renovation costs? There is a process that needs to be followed so make sure you know a good agent that can work through the particulars with you. The idea here is to buy a home for less and redecorate it the way you would like it!

Revenue Income

 

Once you own a piece of property look for mortgage payment relief in revenue opportunities from your properties. Most people automatically think about a rental suite, but in some area’s storage is highly sought after or maybe parking … so look at renting out an extra parking space, garage or of course the suite to make extra revenue on the latent value in the property.

Budget

Set up a budget! Yes, I know, I know. These are not fun to deal with but if you analyze what you are spending the money on, you may be surprised at where your money all goes! Start by first keeping all your receipts for a month and then you can work out where and how to flow your money.

What is your latte factor?

Review your spending and find your latte factor. This phrase was coined by David Bach in his book called The Automatic Millionaire . I don’t drink coffee but the principal applies to anything. I love pizza so instead of ordering in pizza we buy it at Costco instead. If you eat out for lunch a lot perhaps brown bag it or if you do drink coffee make it at home instead of buying it at your favourite coffee place. Briefly the idea is that if you pay $3.50 a day x 5 day a week ($17.50) x 52 weeks a year that is $910 a year!

Cash is King

Try just paying cash. Credit cards and debit cards are very convenient but I find that I am not all that good with budgets. If I only have cash to spend it helps from over spending because when the cash is gone, it’s gone.

Garage sale Anyone?

Consider having a yard or garage sale – it’s not that difficult. If it is stuff you own that is not being used liberate it and pocket a few extra bucks. Then collect interest instead of dust!!! Also consider selling higher value items on Craig’s List or eBay if you don’t want to practically give it away at a yard sale.

At the end of the day, collectively all of these little creative ideas together start to have a large impact. Mostly what we are talking about is using a bit of smarts, asking a few extra questions and using a bit of discipline. It can be uncomfortable but any place worth going is worth the effort.

If you have any questions or comments please feel free to get in touch with me as I am always here to help.

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