Credit is so vital in today’s economic world…. better credit not only gets you cheaper mortgage rates but also better credit can get you cheaper car insurance, home insurance, home gas etc. So protect and build your credit as my friend Kelly below shared with us. Well said Kelly

9½ Steps to Repair and Improve Your Credit

Though credit scores aren’t always an indicator of financial health, they are used in a variety of ways that could have a major impact on your life. Interest rates (including mortgage rates) are almost always determined by your credit score. Some employers & landlords may require a credit check to see if you have past credit issues.
Remember this is your credit report, not your “I’m Fiscally Responsible” report. Lenders want to know how you have historically handled credit in order to determine if you are a good credit risk. Higher risk = higher rates!

The Rule of Two:
• You should always have 2 “tradelines” going. This can be a combination of 2 credit cards OR a credit card and a line of credit/ loan etc.
• Credit lines should have a minimum $2,000 limit
• Minimum of 2 years old

So, if your credit score sucks, it could be costing you.
The good news is, you don’t have to live with bad credit forever. There are plenty of things you can do to improve your credit score. Use the 9½ tips below, to improve your credit score

#1) Know Your Credit Score and Credit History
Request a free copy of your credit report from both of Canada’s credit agencies (TransUnion and Equifax). You are legally entitled to one free credit report yearly from each credit agency. Check out my BLOG How to Get a FREE Copy of Your Credit Bureau

#2) Review both TransUnion & Equifax Reports for Any Errors or Discrepancies.
If you find any errors in your credit report, you should dispute them with Equifax or TransUnion and request to have them correct any errors.

#3) Pay On Time, EVERY time!
This might seem obvious, but you need to make your payments on time, every time! This is crucial to repairing and maintaining your credit rating. The largest percentage of your credit score is based on your payment history!! Even being a couple of days late will have a negative impact on your score. Staying current with your payments has a huge positive impact. If you can’t pay the balance off in full, pay the minimum amount on time!

#4) Don’t Go Over Your Card’s Credit Limit
Going over your credit limit, even once will have a huge negative impact on your credit score. You need to be aware of your credit limit and your current debt levels to avoid this.

#5) Pay Off Any Overdue Accounts ASAP
Paying off a collection account will not remove it from your credit report, so do your best to avoid going to collections. If you have any overdue accounts that have gone to collections, negotiate to pay them off ASAP.

#6) Reduce Your Debt
Easier said than done, but if you want to increase your credit rating, you need to reduce your debt. The closer you are to your credit limit, the lower your score. In a perfect world you only want to use about 30% of your available credit. If you have a lot of credit card debt you might consider a loan (with lower interest rates than the credit cards) to consolidate your debts.

#7) Limit Your Inquiries for New Credit
You lose points from excessive hard inquiries on your credit bureau. Any attempts to take on multiple loans/credit cards will look bad in your report.

#8) Avoid Closing Credit Cards
Account age is a factor that reflects positively on your credit score. Too many new accounts lowers your average account age and negatively impacts your credit score. For the same reason, you may want to keep an old account open, even if you are not actively using it.

#9) Time is your Friend
When rebuilding your credit, time will be your best friend. The impact of past credit problems lessens with time, so that a late payment from a year ago will have much less weight than a late payment today. Get current and stay current.

#9.5) Protect Your Credit from Identity Theft
As more of our personal information gets circulated via the internet, there’s more room for “bad people” to steal your personal details so that they can make fraudulent purchases in your name. This can be extremely damaging to your credit history. You can protect your credit history from this by paying for a service that can alert you to fraud.

If you have any questions, contact a Dominion Lending Centres mortgage broker near you.

This is a great BLOG for First Time Homebuyers written by my colleague Brent Shepheard.  Thanks Brent, well written article.

10 QUESTIONS FOR FIRST TIME BUYERS

As a first time home buyer, the process of purchasing a home can seem very daunting.  From a financing standpoint, here are 10 common questions I hear from first time home buyers.

1. What’s your best rate?

This is by far the most common question.  Rate is a small part of your mortgage contract but its often the most talked about.  People become “rate sensitive” when they hear their neighbour or co-worker got 2.49% and they want the same rate.

Some lenders will dangle these low rates to entice you but don’t be fooled.  The lowest rates almost always come with conditions such as high pre-payment penalties or quick 30 day closings.

Is saving $15/month on your mortgage payment worth paying a penalty up to 9 times higher when you sell or need to refinance in 3 years?  No broker or website can secure a rate without a full application and credit bureau.

2. What’s the maximum mortgage amount for which I can qualify?

My suggestion is set a budget your comfortable with and let your Dominion Lending Centres mortgage professional tell you how much mortgage your budget allows.

The two ratios used to determine how much mortgage you qualify for are the Gross Debt Service Ratio (GDS) & the Total Debt Service Ratio (TDS).  Your GDS is composed of your new housing cost such as your mortgage payment (principal & interest), property taxes, heating costs and any strata fees.  Your TDS includes your GDS as well as any other monthly liabilities such as car loans, credit card debts, lines of credit etc.

Depending on your credit score, the maximum GDS/TDS ratio is 39/44.  This means your GDS shouldn’t be more than 39% of your gross income.  Your TDS shouldn’t be more than 44% of your gross income.  If your gross income is $100,000/yr you could allocate $39,000/yr to GDS & $44,000/yr to TDS.

3. How much money do I need for a down payment?

For owner-occupied homes, the minimum down payment required is 5% of the purchase price for homes under $500,000. For homes over $500,000 10% down payment is required on the amount over $500,000 up to $1M.  Anything over $1M requires 20% down as a minimum.  If you want to avoid CMHC mortgage insurance then 20% down payment or greater is needed.

Any rental properties require a minimum of 20% down.

4. What happens if I don’t have the full down payment amount?

As a first time home buyer you are eligible to use your RRSP as a form of down payment to a maximum of $25,000. Your RRSPs can be used without being taxed if you pay back within 15 years.

Another popular option is a gifted down payment.  A gift can come from an immediate family member to form part or all of your down payment.

Some lenders will also allow a flex down program.  This means you borrow the money from a line of credit and this loan is factored into your debt service ratios.

5. What will a lender look at when approving me for a mortgage?

Generally speaking, the lender will want to look at your source of income, employment history, debt levels and repayment history and the actual property itself.

Lenders want stability.  By vetting and checking the above, the lenders feel confident you are able to make your mortgage payments and in the unlikely event you default, they know the property is marketable.

6. What’s better, fixed or variable rate?

Not everyone qualifies for a variable rate because the qualification rate is currently 4.74% vs the 5 year fixed of 2.54%.  That’s a big difference!

Assuming you qualify for a variable, it boils down to risk tolerance and your plan for the property.  Fixed rates give you stability over the term of your mortgage where a variable rate is tied to the prime rate, currently 2.70%.  This means your mortgage payment could decrease or increase depending on what the Bank of Canada decides.

Variable rates can save you thousands if you sell or refinance during your term.  The standard penalty on a variable rate is 3 months interest.  The penalty on a fixed rate is calculated using the interest rate differential and depending on your lender can sometimes be in the tens of thousands of dollars.

Your Dominion Lending Centres mortgage professional can discuss all the differences and benefits for you.

7. What credit score do I need to qualify?

Anything over 680 is considered AAA with most lenders.  A score above 680 gives you access to all the discounted rates.  If your score is below 680 there are options but often at higher interest rates.

8. What happens if my credit score isn’t great?

Take action immediately to increase your credit score.  If possible pay off all your debts on credit cards and lines of credit as this will increase your score substantially.  Its a good idea to always pay your balance in full each month as this creates a pattern of positive repayment.

Don’t take on anymore new debt such as car loans or new credit cards.  Make sure everything is up to date meaning no overdue collections or old Telus or Rogers bills outstanding.

9. How much are closing costs?

Closing costs vary but lenders typically want to see that you have 1.5% of the purchase price on hand for closing costs.  If you bought a condo for $500,000 you’d need $7,500 for closing costs.  This is only a guideline and costs vary.

Closing costs will cover things like, inspections, lawyer fees, property transfer tax, appraisals, and title insurance.

10. How much will my mortgage payments be?

Obviously this depends on your mortgage size, rate, amortization, repayment schedule, any CMHC insurance and if your lender is collecting your property taxes for you or not.  My suggestion is stick to your budget!

If you have any other questions, please feel free to contact Dominion Lending Centres – we are always happy to answer all your questions.

Super good read from my colleague Karen ….. I think this is worth checking out so I shared it on my site. Well done Karen.

A guide to your Home Buyers’ Plan

Start at the beginning…
Registered Retirement Savings Plan = one of the best ways to save for retirement and your down payment and continuing your education. With an RRSP, your contributions reduce your taxable income. This is different from your TFSA (Tax Free Savings Account) which does not reduce your taxable income, but it does give you the added benefit of tax-free withdrawals. What does that mean? Well, with the RRSP you get a tax deduction meaning money back to you!
This is different from your TFSA, Tax Free Savings Account which does not reduce your taxable income, but it does give you the added benefit of tax-free withdrawals. But, reality is the RRSP will have a lower tax rate in retirement.
Everyone can save for their RRSP with as little as $50 per paycheque or more, depending on your budget. You can also go to your bank, sometimes your broker and see about a line of credit, that would be essentially secured by the RRSP, so that you contribute as much as you can qualify for. With this option when you get your refund, put those funds toward the RRSP loan, DON’T use it for the get away we all deserve!
An RRSP line of credit based on a 5-year term at prime rate +/- would equate to about $10,000 in a refund, based on 40% tax margin. If you retire in 25 years you would have approximately $107,296 in your RRSP and that is based on an estimated 6% annual rate of return.
Did you know that you can use up to $25,000 from your Registered Retirement Savings Plan, for each applicant, towards your down payment and closing costs this is the Home Buyers’ Plan (HBP)?
Do you meet the RRSP withdrawal conditions?
• Resident of Canada at the time of withdrawal

• You cannot withdraw more than $25,000

• Only the person who is entitled to receive payments from the RRSP can withdraw funds from an RRSP. You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP. Your RRSP issuer will not withhold tax on withdraw amounts of $25,000 or less.

• Normally, you will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP.

• Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP. If this is not the case, the contributions may not be deductible for any year.

• Neither you nor your spouse or common-law partner or the related person with a disability that you buy or build the qualifying home for can own the qualifying home more than 30 days before the withdrawal is made.

• You have to buy or build a qualifying home for yourself, for a related person with a disability, or to help a related person with a disability buy or build a qualifying home before October 1st of the year after the year of the withdrawal.

• You have to fill out Form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP for each eligible withdrawal.

Under the HBP, the home must better fit the needs of the disabled person than his or her current home. You can withdraw funds from your RRSPs under the HBP to buy or build a home, if:

• you are a person with a disability;

• you are buying or building a home for a related person with a disability;

• you are helping a related person with a disability to buy or build a home.

Regardless of the situation, you are responsible for making sure that all applicable HBP conditions are met. If, at any time during your participation period, a condition is not met, your withdrawal will not be considered eligible and it will have to be included as income on your income tax and benefit return for the year it is received. Valuable information at your fingertips and from your broker.

Check for more information at Revenue Canada here. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.