I’ve noticed a trend lately. The usual client that darkens my door is changing. There is a marked increase in Single person – home purchase applicants. And this trend is being led by the ladies. And I’m not the only one noticing this. Single ladies hooking up with homes is coming to a neighbourhood near you.
Mr. CBB asked me to share the experiences of the unique requirements of how the Single person approaches purchasing a home. He was very emphatic in ensuring this covers single women, men, and single parents. As there are potential additional risks and vulnerabilities with a single income and/or dependents – I submit this information to you with great respect and full gravity.
With this said – I am very excited at what is transpiring here! Making the move from renting to home ownership carries a direct historical correlation to wealth accumulation and an increased net worth. And one thing all of my single clients are in agreement on is having an opportunity to increase their financial position. So with this in mind – here are some simple steps to increase your shot at owning your home.
It All Starts With A Budget – And A Plan
There are always two aspects of every plan – what do I want and what do I have to work with? As a Single person (and potentially with kids) sometimes what we want and what we have seem farther apart than the opposite Poles. This should never stop you from creating your home ownership plan. Even the greatest journey begins with taking the first step. So what do we need to consider.
a. Mortgage Costs – this is the largest item to budget for and will consist of the principle and interest components making up your periodic mortgage payment.
b. Property Taxes – another cost to be budgeted for and one that will never go down – only up. A rough rule of thumb is to take the price of the property you are budgeting for and multiply by 1.25% to get an idea of how much this will cost.
c. Utilities – if you are currently renting you may or may not already be responsible for your own utilities. If you are not – just add a minimum of another $100/month as this is the industry standard in qualifying as part of GDS or the gross debt service towards the mortgage.
d. Maintenance/Appliances – the transition to home ownership brings some additional costs as well from the lawnmower to paying for a new dryer when the drum burns out. Making a budgetary entry for this is a prudent way to ensure this never creeps up on you when something breaks down unexpectedly. Some may choose a leasehold property where some to all maintenance is covered by a condo corp. or a co-operative. This cost varies again from property to property so verify and add room in the budget.
Pulling Your Credit – The Tricks and Tips
The next step to moving closer to your goal of homeownership is to pull your credit rating. Single people are empowered and ask a lot of questions as a demographic. It came as no surprise to me then when I was peppered with a barrage from my latest client “Cassidy”.
In our initial conversation, we covered off the basics and got right into this critical step. I showed her that for $24 + tax you can pull your own Equifax Credit Report complete with beacon score. With this in hand – she learned that the five areas that affect her credit were (a)paying her accounts on time, (b) account balances to high credit limits, (c) credit history, (d) account types, and (e) new credit. With this information Cassidy now knew that she had to use the system to her advantage in order to position herself in a positive light with the banks.
What is less apparent to my Single home buyer (and Cassidy was not immune here) is the new Federal Mortgage rules implemented and how they affect all Canadians but especially those who are looking to enter the housing market as a single income earner. Here is what you need to know.
i) Credit Score needs to be 680 or higher – this enables the maximum debt service ratio of 39% of your gross annual income to be able to go towards your housing costs effectively giving you more room on the purchase price.
ii) Amortizations are maximum 25 years – some single income earners need an extended amortization to ensure the mortgage is affordable. To remedy this, it is prudent to just reduce your purchase price although in some metropolitan markets this may price you out of the market.
iii) Self Employed – if you are a self-employed single then you will need to take special care with your credit as if your credit score is below 680 – you will be forced to utilize your taxable income and this is where you will suffer as the advantages of the write-offs you enjoy will not help you in the home purchase process.
iv) Credit Accounts – your credit account needs a minimum three trade lines with a solid two-year history without blemish for access to the best mortgage products available today. Look at a high credit limit of a minimum $2,500 on the first with minimums of $1,000 on the other two accounts to be safe and do not use them above 30% of their available high balance each month before paying them off to zero.
In the next post I will cover off other areas to consider as a potential Single homeowner in the property and the mortgage itself.
Guest Post By: Michael Smele: I am a passionate educator about mortgage and finance. I also am an investor in asset backed and real estate based investments. My wife and three boys live with me on a 30 acre horse farm up in Barrie, Ontario where we enjoy all four seasons. Find me at www.mortgagetruth.ca
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