Rent, Own, Or Do Both?

Mortgage basic's 27 Sep

Grande Prairie’s Rental Market is hot: will you rent, own or do both?

Grande Prairie’s Rental market has very low vacancy rates right now. When a home goes up for rent, it can rent very quickly and sometimes the price isn’t cheap. Dominion’s Ryan Oake talk’s a little about what to consider when your making home buying decisions.

RENT, OWN, OR DO BOTH?

There are generally three different situations you can find yourself in when it comes to living situations; living with parents, renting, or owning.

A lot of the times the first decision someone will need to make is whether they buy a home to live in, buy a home to rent to someone else, or buy a home to live in while also renting out a portion of it. There are lots of pro’s and con’s to both. Below are some of the numbers and things to consider when looking at each of them.

Buying with The Intention to Rent

Buying a property for the purposes of renting it out to someone else comes with different qualifying criteria and different mortgage product options. The following are some of the important points to consider:

  • The minimum down payment required is 20% of the property price and this down payment must be from your own savings. It cannot be gifted from someone else.
  • Only a portion of the rental income can be used for the qualifying of how much of a mortgage you can afford to borrow. Some lenders only use 50% of the income and add it to yours. Others may look at taking 80% of the rental income and subtracting your expenses which can have a much higher impact on how much you can afford.
  • Interest rates usually have a premium on them when the mortgage is for a rental property compared to a mortgage being requested for a property someone plans on living in. This premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

The following is a typical scenario you can expect to qualify for in a rental situation:

$450,000 purchase price
$90,000 down payment (20%)
$360,000 mortgage
$1,665 monthly mortgage payment

$1,400 in monthly rental income
$66,500 a year in income
$0 month in consumer debt payments

Buying with The Intention to Own

Buying with the intention of living in the property as your primary residence is the most common and the guidelines are well known:

  • 5% minimum down payment from own resources or from gifted funds coming from an immediate family member.
  • Insurance premium for having less than 20% as a down payment
  • Lowest interest rates available for high ration purchases of home becoming owner occupied (Loan-to-value of more than 80%)
  • If first time home buyers, you may be able to utilize grants and avoid property transfer taxes which you will not receive on the purchase of a rental.

The following is a typical scenario you can expect to qualify for in an owner-occupied situation:

$450,000 purchase price
$22,500 down payment (5%)
$444,600 mortgage
$2,039.63 monthly mortgage payment

$97,000 a year in income
$300 in monthly debt payments

Buying with The Intention of Both

Owner-occupied properties with a rental are really the best of both worlds. Only issue is, it needs to be a self-contained suite. Therefore, second bedrooms in town-homes or condos do not qualify. It is typically only detached homes with rental suites that are allowed but the rate premiums and minimum down payments fall under the owner-occupied side. Below is a typical scenario you could expect with this kind of purchase:

$1,000,000 purchase price
$100,000 down payment (10%)
$927,900 mortgage
$4,256 monthly mortgage payment

$1,200 in monthly rental income
$175,000 a year in income
$750 month in consumer debt payments

Please reach out to a Dominion Lending Centres mortgage professional in Grande Prairie today if you would like to discuss the different options that are available to you and whether or not any one of these scenarios could potentially work for you given our local market.

 

 

Ryan Oake

RYAN OAKE

Dominion Lending Centres – Accredited Mortgage Professional
Ryan is part of DLC Producers West Financial based in Langley, BC

Mortgage Protection Plans

Mortgage basic's 14 Sep

MORTGAGE PROTECTION PLANS

Insurance coverage is something that everyone is “pitched” at some point or another in their life, even if you live in the little city of Grande Prairie or far up north. Unfortunately, a lot of us have a negative attitude towards insurance or warranty as it is perceived as being a cash grab. Yes, if you are purchasing a flat screen T.V., that extra 2-year warranty for $100 might be a little excessive. However, when it comes to covering monthly mortgage payments or the outstanding balance of your mortgage upon death or injury, yes, it is important to have.

Every single person is offered life and disability insurance when applying for a new mortgage. As a mortgage broker, it is our obligation to offer you a Mortgage Protection Plan, most of the time here in Grande Prairie it will be from Manulife. Even if it is something you do not want or do not have a need for- we still require a signature confirming it was offered. Reason being, is when John Smith breaks his foot two years down the road and can’t work to cover his mortgage payments, Manulife needs to confirm that the client passed on the opportunity to have their payments covered.

Now, is Manulife’s mortgage Protection Plan, or, MPP as it is known, the most comprehensive coverage out there? No.

Is MPP better than any coverage you are ever going to receive from a bank directly? Yes.

Manulife’s MPP is a 60-day money back guarantee, with coverage that follows you lender to lender. It will cover disability injuries preventing you from work, and is underwritten before your coverage begins, not when a claim is made.

Most banks do not allow you to take their mortgage insurance to another lender. So, if after 10-years of paying your premiums you decide to leave your bank and go to a credit union, your coverage is no longer in affect and all that money you spent on your monthly premiums is now worth nothing. Scariest part about bank coverage, is the health evaluation is done when a claim is made, not when you sign up. Can you imagine not making a claim for 20-years and then being declined on coverage because you have developed health issues not relevant when you signed up in your 20’s?

If Manulife Mortgage Protection Plan is not for you, there are insurance brokers out there we have access to who can offer alternative solutions. The biggest thing though is to make sure you have SOME coverage, because you won’t know you need it until you do. If you have any questions, contact a Dominion Lending Centres mortgage professional in Grande Prairie for help.

Ryan Oake

RYAN OAKE

Dominion Lending Centres – Accredited Mortgage Professional
Ryan is part of DLC Producers West Financial based in Langley, BC

All About Pre-Approvals

Mortgage basic's 3 Sep

ALL ABOUT PRE-APPROVALS

Why is a pre-approval important to people who live in Grande Prairie? Well why wouldn’t you want to make your home buying process simpler?

If your in the market for a new home, that’s great – but if you’re not already pre-approved from your mortgage broker, be sure to read on.

Pre-approvals are very important for two reasons.

They give you confidence in knowing that a specific amount of financing is available for you.
A pre-approval can put you in a positive negotiating position against other home buyers who aren’t pre-approved.
Not all pre-approvals are the same, though. There are essentially three different kinds.

  • The first occurs when you meet with a mortgage professional and tell them how much you make. They’ll say something along the lines of “Great, you’re pre-approved.” The mortgage professional has only looked at your income. There is no real pre-approval.
  • The second kind is when a mortgage professional asks you how much you make and then pulls your credit bureau. This allows a mortgage professional to lock in your mortgage rate for up to four months. This pre-approval still isn’t a sure thing.
  • The third kind of pre-approval – and the one that we do – is a lot more encompassing. We get all of your papers prepared right off the bat, which allows us to eliminate any unforeseen issues with your approval. Sure, it’s more work up front – but we do this because it’s the right thing to do.

If you’d like to get a pre-approval, contact a Dominion Lending Centres mortgage professional! We’re here to help.

Eitan Pinsky

EITAN PINSKY

Dominion Lending Centres – Accredited Mortgage Professional
Eitan is part of DLC Origin Mortgages based in Vancouver, BC.