Want a house so bad :(

[saradouce]

Every loan and credit card you have lowers your credit score. My advice would be, like others, save like mad to get the downpayment. Buy a fixer-upper. And cancel as many credit cards and other loans as you can, so you don't look like you're already cash poor. And have you tried going to a mortgage broker? Often they can find someone to lend you the money when banks won't. Also, would you be willing to live outside of Montreal and comute in? I know people who live in small communities near the Ontario border, or in Ontario and drive to Montreal for work. The houses are a lot cheaper there. Maybe you could live there for a few years until you're in a better position to buy a house closer to Montreal? The drive from the Ontario border to Montreal might be about 45 minutes.

You have to make sure that you DON'T cancel your oldest credit line/card. This prove you are great payer.
Also... Don't take me wrong... But did you do a little bit of search about owning and mortage?
Did you know that buying with minimum cashdown will lead you to pay for insurance (mandatory) that is really costly?
My suggestion is to go see your local ASEF. They will help you budgetting and help you with your credit issue.
You don't seems to be really aware of what is going on...
I have NO credit history (too young), a few late payments and I still have better rates than you!!
Go see someone to make the points. You cannot continue alone.

[NuCoupon]

Every loan and credit card you have lowers your credit score. My advice would be, like others, save like mad to get the downpayment. Buy a fixer-upper. And cancel as many credit cards and other loans as you can, so you don't look like you're already cash poor. And have you tried going to a mortgage broker? Often they can find someone to lend you the money when banks won't. Also, would you be willing to live outside of Montreal and comute in? I know people who live in small communities near the Ontario border, or in Ontario and drive to Montreal for work. The houses are a lot cheaper there. Maybe you could live there for a few years until you're in a better position to buy a house closer to Montreal? The drive from the Ontario border to Montreal might be about 45 minutes.

Funny, when we were getting our mortgage two banks told us that they couldn't give us a better interest rate because we didn't have enough products (meaning loans) that we could transfer to the bank. No line of credit, no car loan, nothing. All we had was 3 credit cards (one shared) that we had for about 3-10 years. We've used them at least bi-monthly, paid off in full each time. But we still didn't have the best credit score, so you know never know...

[NuCoupon]

Also, a big problem for people is that houses are so expensive due to easy credit. I would think if the banks limited credits, house prices would be way lower. Average people would have a chance to save a large percent of the home and not have a mortgage FOREVER. If people can really buy a house for 5% no wonder there is so much competition to buy houses at crazy prices!

[MortgageQueen]

Every loan and credit card you have lowers your credit score. My advice would be, like others, save like mad to get the downpayment. Buy a fixer-upper. And cancel as many credit cards and other loans as you can, so you don't look like you're already cash poor. And have you tried going to a mortgage broker? Often they can find someone to lend you the money when banks won't. Also, would you be willing to live outside of Montreal and comute in? I know people who live in small communities near the Ontario border, or in Ontario and drive to Montreal for work. The houses are a lot cheaper there. Maybe you could live there for a few years until you're in a better position to buy a house closer to Montreal? The drive from the Ontario border to Montreal might be about 45 minutes.

I hate to disagree, but the above is wrong. You do NOT want to cancel your credit crds. If you do, you will have no "active" credit from which Potential Lenders can access your credit activity. In otherwards, they like to see people with a loan/lease or credit card(s) that pay/use them properly.
You may be surprised to know that many Lenders will not even lend to a person that doesn't have at least 2 types of credit. . .some Lenders will only accept people with 3!
I'm not encouraging people to go out and spend on credit, but if you had let's say a gas card and a major credit card that you use at least once a month and then pay on time, it actually improves your rating. . . .

[Newtothisbutloveit]

You have to make sure that you DON'T cancel your oldest credit line/card. This prove you are great payer.
Also... Don't take me wrong... But did you do a little bit of search about owning and mortage?
Did you know that buying with minimum cashdown will lead you to pay for insurance (mandatory) that is really costly?
My suggestion is to go see your local ASEF. They will help you budgetting and help you with your credit issue.
You don't seems to be really aware of what is going on...
I have NO credit history (too young), a few late payments and I still have better rates than you!!
Go see someone to make the points. You cannot continue alone.

Was this really necessary? Bref... Passons....
Thanks for the rest of your advices.

[Newtothisbutloveit]

Again thank you everyone, your advices were really helpful and I now know better how to plan the whole process to make it work.

And about cancelling the credit cards.... although I have heard that it is better to cancel some of them if you have more than 3, I would not cancel the ones that I have now since they are my only way to prove my good behaviours since my consumer proposal. In 5-6-7 years from now, it might be an interesting option for me to cancel the newest ones to free my credit file of loans under my name but as of now, no they are my only "good" points

Happy Holidays to all of you and a Year 2012 filled with all that your heart desires

[freefreefree]

Happy Holidays

[MortgageQueen]

Again thank you everyone, your advices were really helpful and I now know better how to plan the whole process to make it work.

And about cancelling the credit cards.... although I have heard that it is better to cancel some of them if you have more than 3, I would not cancel the ones that I have now since they are my only way to prove my good behaviours since my consumer proposal. In 5-6-7 years from now, it might be an interesting option for me to cancel the newest ones to free my credit file of loans under my name but as of now, no they are my only "good" points

Happy Holidays to all of you and a Year 2012 filled with all that your heart desires

Yes. Exactly! You are correct.

[travel-mum]

I didn't mean for you to cancel all your credit cards. Yes, keep one or two of the best ones, but I know people who have 10 credit cards! And if you have a lot of loans, you can consolidate them into one. Also maybe go see a credit counsellor? Good luck!

[sarah_cio]

It is unfortunate that someone told you to do a consumer proposal for that little debt and when you are so young...unfortunately I think that is a lesson you had to learn the hard way. I would not recommend buying a house withouth the 25% we didn't and it has been a tough road with home ownership. I think you have a right to be angry that's for sure!

[freefreefree]

It is unfortunate that someone told you to do a consumer proposal for that little debt and when you are so young...unfortunately I think that is a lesson you had to learn the hard way. I would not recommend buying a house withouth the 25% we didn't and it has been a tough road with home ownership. I think you have a right to be angry that's for sure!

Yeah, someone is being inconsiderate of others' future for recomending a consumer proposal.

[ashedfc]

Yeah, someone is being inconsiderate of others' future for recomending a consumer proposal.

There's nothing inconsiderate in the recommendation. In my opinion it's pure business for them. They have done their job. They have done exactly what you wanted them to do.

[TeriB]

Good luck with your saving. It maybe frustrating now, but if you put your energy into learning frugal skills and the habits of frugal decision-making, it will make a huge difference in your lives together. It's more than just a house, it's freedom from financial stress, freedom to retire a few years early, and gifting your children with an example of how to live their adult lives in the same way.

[brwonsugal]

I'm not sure about the interest rates or anything, but I saw this website in a real esate magazine gtapowerofsales.com. They claim no income verification on credit check, but sounds like the interest is killer. I don't know how reliable they are, as I said I just saw an ad in the paper.

[brunt]

I have mulled over this thread for a bit, and decided that it was time to post something here. One has to be careful upon taking a stand as housing is the most emotional of expenses. Note that I used the word "expense" rather than "investment" as it really should be (the majority of the time). Sorry for the length of my post, but there are a lot of things that I wanted to say.

First off, there is nothing wrong with wanting a house. You get one kick at this can that we call life, and do try to make the most of it. That includes spending money on things that will improve your quality of life. Just make sure that you only spend a reasonable amount, and that it really will improve your quality of life. You really cannot take it with you, but do not fall into the trap of using that line of reasoning to spend too much of it now. That is the number one tool used by advertisers to separate you from your money.

There are a few things that I would like to get out of the way here, so here goes. If you believe that real estate only goes up, and will continue to increase at a pace far in excess of inflation, you will not like what I have to say. But if this is the case, I implore you all the more to read it then.

1) Sometimes owning a house makes sense, and sometimes renting makes sense. I could buy a house right now, but I choose to rent. It is cheaper (by far) than owning in my particular region and circumstances. I'll talk a little later about costs.

2) By all means, get input from your family. They have lived through the process of buying and owning houses and are quite familiar with what is required to keep them running. But keep one important fact in mind - advice from elders reflects what worked for them. From the 1950's through about 2008, you pretty well could not lose money by simply buying a house then selling it later. A blind chimpanzee throwing darts at the real estate section of the newspaper could make a small fortune.

There are primarily three reasons for this, none of which will continue going forward.

First, there was demographics, or the age profile of North American society. The Baby Boomers are much talked about because it is this bulge of people born from 1946 through 1962 that drove much of society. Parents bought small inexpensive houses as these first children were born. As their incomes (and families) grew, they moved to larger houses. As the parents started retiring, the Boomers themselves started buying their houses, and their sheer numbers dictated that a housing boom would take place. As people reached their peak earning years, you could track increased values in McMansions and cottages.

But then they aged further. Think of what happens when people retire at age 65. They are empty nesters and generally have a smaller income. That means that they sell their big house to buy something smaller. When do the first Boomers hit the age of 65? It was 2011. This will cause a huge drag on housing prices.

And those who argue that immigration is going to pick up the slack are barking up the wrong tree. Rich immigrants are relatively few in number compared to retiring Boomers.

Second, there was just a simple increase in the costs of houses. It used to be that two to three times your income would buy a solid brick home. Now, in many cities it takes seven times your income to buy a vinyl sided particle board house that will fall over if you look too hard at it. House prices increased just because demand was driving prices up for inferior products.

And third and lastly, from 1982 to now there has been a relentless and steady decline of interest rates from 22% to the current 4%. This has made the carrying costs of mortgage interest fall like a rock. Thus, people with a fixed amount of money to buy spend on a house per month could buy more house for the given payment. Thus prices when up to compensate – as always happens with a growing number of dollars chases a fixed number of goods.

Bottom line, prices cannot possibly continue to increase past the point where the average person cannot afford the average house, demand is no longer increasing and mortgage rates will no longer be falling. It did for the previous generations, and it will not for you. Their advice may be well-intentioned, but it may not be the best for you.

It's going to be your obligation, your money and your house. Use your own judgement, don't make decisions based solely on the recommendations of others.

3) Watch out for cliches that are used instead of using your noggin. The worst offender in my eyes is the horrid "paying rent is throwing away money". No, it is not. It is exchanging money for housing. By the same logic, owning a house and paying mortgage interest is throwing away money. As is paying property tax, maintenance, lawn care, replacing windows and shingles, resurfacing the driveway along with the myriad of other expenses one finds when owning. But you never hear about those.

Housing is a good. You can buy it, or you can rent it. Neither one is inherently better than the other, just different. Don't listen to cliches. Do you own analysis, and make your own reasoned decisions.

4) Don't buy into the classist tripe thrown around regarding renters. You sometimes hear people state "no millionaire has ever been a renter". Absolutely false. People don't get to become (and remain) millionaires by spending money as other people tell them to, or to overpay for things. They see what is cheapest for their needs, and do it regardless of what others think. Plenty of millionaires rent right now.

5) Don't fall for the trap into which millions of Canadians have plunged headlong. Do not confuse small carrying cost with affordability. As I mentioned earlier, interest rates have fallen (due to government intervention) to historically low levels. This has caused mortgage payments to fall for a specific price of house. THIS HAS NOT CAUSED THE HOUSE TO BECOME CHEAPER. This is a mistake that Canadians (like their American cousins) will be regretting for decades to come. Interest rates can (and will) increase in the future. Keep your eyes on the cost of the house, not the minimum mortgage payment.

This is another trick used by advertisers to get people to spend more. Don't fall into it.

6) Another favourite reason put forward to buy a house is that it is a forced savings plan. While this is true, it is probably one of the absolute worst reasons to buy a house. If you won't save money that you earn and don't have to send off the bank in the form of a mortgage payment, then that is your biggest problem, NOT the lack of a home.

Financial discipline takes effort and requires sacrifices. There is no easy way out. And the way out certainly ain't paying mortgage interest to your local bank and property taxes to the nice folks at the municipality.

7) Make certain that you understand your reasons for wanting a house. Our brains can often fool us by making up its mind, then looking for justifications after the fact. A good example is young couples stating that they want to buy a larger house for their growing family. Generally this is rubbish. The parents want a larger house, and are simply using the children as a convenient excuse to justify it.

I am not trifling with this point. I grew up in the 60's and 70's in a house with five active boys, along with two parents. Literally not one single time growing up did I think that our house was too small. Our house was 800 square feet with an unfinished basement. Kids don't care, parents do.

I am not saying that you shouldn't buy a house or a bigger house because you want to. But at least be honest with yourself as to why you are considering it. Resist the temptation to attach it to a reason that makes it non-negotiable.

8) Real Estate agents are your enemies, not your friends. This is not to say that they aren't honest, hard working, and actually working for your best interests. But they are ultimately motivated by selling you a house, not doing what is best for you. They are in the business of selling houses, so their actions will demonstrate this bias. Their point of view is one that the only solution to your housing needs is for you to buy a house. Please don't beat me up for painting agents negatively, I don't intend to, I merely want to instill a healthy desire for a potential buyer to think for themselves.

Do your own analysis. There is nobody in the world who cares about your money than you do. A realtor is first and foremost a sales person. Every time that you listen to what one says to you, repeat the previous sentence until your guard comes back up.

9) If you cannot afford the down payment, you cannot afford the house. This is another mistake that people have been making in spades. A down payment (preferably 20%) is not an inconvenience that you should try to circumvent if it prevents you from buying a house, regardless of what your realtor and banker tells you. Sure, you can officially do a 5% down payment, then get a mortgage for an overvalued assessment that allows you to really have zero down, but it is a monumentally bad idea.

A substantial down payment is a tried and true method for ensuring that you are buying a house that you can afford. Remember this at all times: the larger the down payment that you pay, the less money that you will ultimately pay for the house.

If you cannot afford a house with a modest down payment, how are you going to afford it when the first financial disaster hits you? A leaking roof, a blown transmission, a surprise pregnancy, a job loss, reduction in hours, cut in pay will push you over the edge. If you do not buy with a margin of safety, then you will be pushed over the cliff by the first wind that blows your way.

10) Do an honest comparison of the costs of owning versus renting. And don't short change renting by only considering apartment buildings.

Again, far too many people ignore the full costs of owning. Count 1.5% every year for property taxes. And 2% for maintenance (you won't spend that every year, but one furnace or reshingling will take many years of this rate all at once, make sure that your house inspector points out large jobs that are going to have to be done soon). Add in costs of grass cutting and snow clearing if this is covered in your rental (it is in mine). Add 4% per year for mortgage interest. Don't forget that if your down payment is low, you will need an additional 2% or so per year for CMHC insurance. Plus 0.25% for house insurance. Don't forget homeowner's association fees if applicable, condo fees (make sure your lawyer checks if there are any hidden association shortfalls that you will have to make up as well). The rates may be slightly different in your area, but the above should be starting points.

When you buy, you will be paying land transfer tax (rate depends on your jurisdiction), plus legal fees of about $3,000 or so. And don't forget that when you sell, you will be paying 5% commission (plus HST) if you sell. Plus legal fees of about $1,500 or so. Sure these are one-time costs, but if you don't stay in that house for a lot of years, it can add very significantly to your costs of owning.

And watch out for online rent versus buy calculators. They may look like they are complete, but they often assume a rate of increase of the value of the house of 5%+ per year. It is not going to happen, and may very well be negative for a while to come. If you are buying a house based on its affordability based on this rate of increase, then you cannot afford the house.

11) Don't underestimate expenses nor should you overestimate income. Renting out a basement apartment may look like a wonderful idea to help you pay for your house. Often it works out great, but sometimes it is a huge nightmare. It takes a lot of time, and can cost a lot as well.

So if your buying decision is based on the premise that you are able to rent something out, it's probably not a good idea.

12) Now is where I will probably catch the most flack. I believe that the outlook for real estate is overwhelmingly negative going forward. I know that this goes 100% contrary to what you hear on the news and read in the papers.

Canada basically remains alone as the last standing overvalued real estate market. We are not this way because we are immune due to our moral superiority, or our more stable banks. It is not our immigrants, nor our thriftier nature. It is not that we had fewer riskier loans, or lower debt loads. In every way imaginable, we are as bad, or worse, than our American cousins were in 2006.

And yet the average house price in Canada is almost exactly twice the average house price in the US. And we have lower pay, higher taxes, have interest rates that reset every five years versus 30 in the US, neither mortgage nor property tax deductions on our taxes. We are not immune, nor are we bullet proof. We are just last. Every country has gone through a stage justifying their high house prices by how they were different from the countries that already fell. And then they fell.

Bottom line is this: house prices in Canada in two years will be less than they are now. And in the meantime, you will have had two more years to save up a down payment.

You may disagree with what I have said here, but if I have at least caused you to pause and consider my points, then I have accomplished my goals.