Getting a Home Loan in Tough Times

In Canada, the interest rates continue to climb, and everyone is wondering when it will cap, especially those who are shopping for mortgages.  At this point, even with good credit, it can be tough to get a home loan.

Unfortunately, when times get a little rough, we turn to our credit cards to tide us over.  So, whether you are getting ready to refinance, buy a new home, or renew, start by looking at your credit report.  Clear up any discrepancies.  If you can show that you manage various types of credit well, then you have a leg up.  If not, see how you can improve your score before you start shopping for a lender.

Financing Your Home Purchase: Navigating Down Payments, Loans, and the Pros and Cons

With a new buy, you will generally be expected to fork over a down payment.  You may need to get a loan for that, too, if your savings are not sufficient.  There are pros and cons to this approach.  It saves your cash reserves for unexpected expenses, and you can begin your equity build sooner.  The downsides are that you may be charged a higher interest rate on the mortgage itself, plus you are incurring more debt.

There are some other alternatives to a down payment loan.  Check to see if you qualify as a first-time home buyer.  This is a federal program that, if you qualify, allows 5% or even 10% of the property’s purchase price to act as the down payment.  This amount must be repaid in full when the house is sold or after 25 years.

Alternative Funding Avenues: Exploring the Home Buyers’ Plan and First Home Savings Account Options

There is also tapping into the federal Home Buyer’s Plan (HBP) that will let you withdraw funds from your registered retirement savings plan (RRSP) up to $35,000.  Another option is a First Home Savings Account (FSHA), which is a hybrid of an RRSP and a TFSA.  You are permitted to make tax-deductible contributions, and the withdrawals are also exempt from taxation.  There is a $8,000 per year cap and a lifetime limit of $40,000.  This is available for 15 years, or until the end of the year the individual turns 71.

Don’t overlook optional lenders.  If you are declined by an A-list lender, try a B lender.  Their criteria are usually less rigid but probably will come with a higher interest rate and down payment requirement.

Another option is rent to own.  This is particularly beneficial if the seller is motivated to move the property.  In this arrangement, the buyer/renter has a percentage of the rent allocated to a down payment, referred to as rent credit.  This is an easy savings method for many.  This will mean your monthly rental payments will be slightly higher, and you can lose all the credit if the sale never goes through.

There is a lot of pondering in these tough times and many details to consider.  Check with, and they will have the latest information available and will gladly look at your situation to help you make the best decision possible.  They have access to a wide range of potential lenders and can help you with the paperwork, too.