Can I Still Afford a Home in a Big City in Ontario?
You’ve heard about the attempts to slow down rising home costs in Toronto, Ottawa, and other cities in Ontario with the use of a tax. The fact that the median price for a home in Ontario is now around $389,000 and the average cost per square foot works out to $251 has also left you a little worried.
Is it even possible for someone like you to purchase a home in one of the larger cities in Ontario? In spite of what others may have told you, the dream of owning a home can become a reality. Here are some things you need to know if buying a home is what you really want.
Your Financial Circumstances and Purchasing a Home
When you approach lenders about qualifying for a mortgage, they will look at a number of factors. One of the first things traditional lenders check is your credit score. Banks and similar lending institutions typically require that applicants have scores that are above a pre-determined level. What this means for you is that if your current credit score is over that minimum requirement, the mortgage application successfully passes the first hurdle.
Lenders will also look closely at what is known as your debt to income ratio. In other words, do you have enough money coming in each month to pay your present bills and cover a mortgage payment too? Here the lender will focus on how much of your net income does go to pay all your current obligations. If you are currently carrying a significant amount of credit card debt and have two or three active car loans, there may be some hesitation to approve the application. This is true even if you are current on all of your debts.
There’s more, but you get the idea. Before a traditional lender will work with you, the credit score must be within an acceptable range and you must demonstrate the ability to make mortgage payments on time. If you are not able to meet these two qualifying factors, the lender is likely to stop right there and reject the application.
What Can You Do?
The traditional advice is to go away and do what you can to improve your financial circumstances. This does take time and effort on your part. It will mean making some sacrifices during the next year or so. Here are some of the things you can do.
The first and usually the most practical is to pay off some of the existing debt. Change the way you use your credit cards and start whittling away at those balances. If necessary, work with a financial planner to come up with a schedule for paying off some of your open balances and reducing others. If you set aside a year to reduce your overall unsecured debt by half, that will free up quite a bit of your net income. Traditional lenders will be more open to working with you. As you pay off debt, that results in more favorable comments on your credit reports. Those comments help to increase your credit score. If you were just barely below the minimum score traditional lenders require, that change over the next 12 months could be enough to put you back in the running for a mortgage.
Keep in mind that in order to accomplish this goal, your spending habits must change. As you pay down those credit card balances, refrain from creating new debt. That could mean living a frugal lifestyle in order to manage the household budget without using your credit card accounts.
It will be difficult for a time, but many people find they adjust after a month or two. The reward is seeing those account balances decrease and know that you are getting closer to qualifying for a mortgage.
How About Alternative Lenders?
You should also investigate alternative lenders who are willing to work with clients with less than perfect credit. You may be surprised to learn there are lenders who offer poor credit mortgage in Ottawa. While there are still qualifications that must be met, it never hurts to see what can be done.
When you approach this type of mortgage lending institution, remember that you will still need proof of income and must provide information about your current financial status. Your credit rating is still a factor but these lenders are more interested in how well you are managing your finances at present. The fact that you are up to date on all your obligations will weigh heavily in terms of finding a lender who is willing to approve a bad credit mortgage Kitchener or for other Ontario cities.
What Will Be Different?
The mortgage programs offered by traditional versus alternative lenders are similar. Both must be in compliance with the regulations set in place by the provincial government. You will find a few areas where the two differ.
One that will catch your eye immediately is the rate of interest that applies to your mortgage loan. Whether you are seeking a first-time mortgage or want to explore options for a second mortgage Ottawa, expect the offer from an alternative lender to include a higher mortgage rate.
You may also be required to supply a higher deposit or down payment as part of the mortgage arrangement. This is a strong sign of your commitment to the home purchase and your resolve to keep the mortgage in good standing.
The reason for these measures is simple. Alternative lenders take on a greater risk by doing business with you. The higher interest rate and greater down payment mitigate some of that risk and pave the way for a mortgage approval.
If you are wondering if buying a home in one of the larger cities in Ontario is possible, the answer is yes. Depending on your income, the financial obligations you already have in place, and your credit score, the options for financing may be somewhat limited. Instead of assuming you cannot qualify for a mortgage, contact a mortgage broker today. You may find that there is more than one lender who is willing to work with you even if your credit is not the best.