Early preparations for buying a house

[auntiewoo]

Hi there,

I have a few questions to run by you all. DH and I are looking to purchase our first home in 2017. DH is the breadwinner in our family. I do not work outside the home and I do not have any credit in my name. We have been actively saving up for a down payment and will continue to do so throughout 2016.

Is it going to be a problem when we apply for the mortgage that I have no credit? Should I apply for one of thsoe Capital One Mastercards now (the one where you'd give them security funds) just to build up my credit? Or would that not even be a possibility since I do not work?

Any other words of advice you'd give to a couple in our situation? We have zero debt (we put everything on DH's visa and then pay it off completely each month). Our vehicle is paid off. We have RESPs set up for each of the kids that we contribute to monthly and we have a separate savings account for emergencies. DH contributes to his RRSP each month and we both have a TSFA. I have a healthy-sized LIRA from my previous employment but of course I can't touch that until I'm 55.

Thanks kindly.

[beckie.c]

It sounds like you have worked hard to be in a good financial position... So first off, Congrats on that! I'm not 100% sure of the direct impact that your current situation would have on applying for your mortgage, there are some great people with that knowledge on this forum so hopefully they will jump in on that. I know that it is important that a person has a good credit score when both incomes are required for the mortgage, but I'm unclear when it will be only your DH's income that is factored in.

I just wanted to comment because I am definitely of the opinion that each person should have their own financial identity. (i.e. their own credit score) I would encourage you to open up some type of credit in your name and continue with what you have been doing with DH's credit card but using your own card as well. Sometimes credit serves other purposes when setting up utility bills with a company that you don't have previous history with, or even in an emergency situation where you may have to take on some sort of financial burden. My example was not having to give a $500 deposit on my TV/Internet/Wireless account when I first signed up because I had good credit already.

On a quick search, the capital one guaranteed MasterCard has a annual fee. I always get a bad taste in my mouth from paying an annual fee on a credit card, so check out some other options secured card option on the credit walks site. Find which one works best for you!

https://www.creditwalk.ca/secured-credit-card/

[Frugalbigmama]

Totally agree on the part on getting your OWN credit card in your name to establish credit as well as many other reasons!

[MortgageQueen]

Hi Auntiwoo

Yes, it would be a very good idea for you to be establishing your credit asap. As mentioned by other posters, you should always have your own credit profile. Never, never, never depend on a mate's as we are all mortal.

I don't know much other than what you posted in the way of what credit your hubby has but he should have at least 2 major forms of credit that he uses on an ongoing basis. That doesn't mean you have to go into debt. Just use your credit and pay it off when due.

Do some research and try and find the best credit cards out there. I think you will find many previous useful info on that subject in this forum. Many of my savvy clients use their credit card for everything and accumulate points for various things, such as groceries or travel. ( I see you do that too but maybe extend it to 2 cards) It really costs you nothing but an annual fee (which should be reasonable, or why bother?) You simultaneously build a credit rating and you get free stuff!

A word of caution though. . . discipline is an absolute must If you don't have self-control, stay away from this method.

Regardless, you both should have 2 forms of credit that are used regularly to achieve a decent credit rating. This is especially important for your hubby if he is the sole applicant for your future mortgage. A "good" credit score can be deceiving when it comes to applying for a mortgage. Most lenders will require "active credit" to get an approval. You could have a good score but not have any actual active credit, so this is important to keep in mind. . . .at least when it comes to applying for a mortgage.

[matty's mom]

I third the idea of establishing credit. My mom went through something like this when my dad passed at the age of 41. She managed to qualify for a card because the mortgage was put into her name, and she paid it on time. It was about 6 months before she had her own card. The bank was being kind back then- I don't see that happening so much now.

My hubby went through a bankruptcy (business, bad partner- very messy) quite a few years ago and when we needed to get him back on track, we got him a secured credit card. Then, we had a couple of monthly bills charged to it every month. We set up his account to pay them off every month and put the card aside. He never used it outside of the bills. (I was on Mat leave so no overspending!) It didn't take long to see his rating go back up. This maybe an option for you if discipline is an issue. ( We kept his card on our lock box.).

[Shwa Girl]

OP, one suggestion about credit cards, use one to help you with your taxes. We give Salvation Army $20 per month. We do it by credit card. So, we know that we have $20 to pay every month and never miss a payment. We don't use our credit card very often though.

Come income tax time, we get a charitable donation receipt from Sally Ann for $240, to offset our taxable amount owing.

[brunt]

Always a good idea to build up good credit, don't think that I am saying anything against that.

That said, to deal with your question as to whether or not your lack of credit is going to hurt you, the answer is not at all. You are applying for the mortgage as a couple, I assume, and as such, of greater concern is the higher credit rating of the two of you. Since the bank would be able to, worst case, go after either one of you for missed payments, they are only worried about the best credit of the two of you.

One friendly suggestion. It is often suggested that you get pre-approved for a mortgage. While this is a good idea in general, there is a psychological trap associated with it, and it is very important that you don't fall for this trap.

The trap is this - you are casually house shopping with no deadline, you are just looking for the right place for the right price that makes sense. You get pre-approved, and suddenly you have a deadline attached to the terms of your pre-approval. This suddenly lights a fire under your butt to find a house before the expiry date of the pre-approved mortgage. Don't fall into this, buy on your terms, not the bank's terms.

Another point, do your math on the purchase. In most markets, it currently makes far more financial sense to rent than to buy. By any measure imaginable, houses are in nosebleed territory. Not only the purchase price, but make sure that you take into account the costs of selling a house too - the days of one job for life are long gone.

One last point, be brutally honest with yourself regarding the house purchase. I said above that it is cheaper to rent in most places than it is to buy. That doesn't mean that you shouldn't own (fair disclosure, I own), but rather admit to yourself that you want the house more than you want to save the difference between owning and renting. No sarcasm here, you don't always have to take the cheapest option, but make sure that you really want the more expensive path more than you want to save the money.

This honesty should extend to all aspects of purchasing. For instance, I grew up in a house with four older brothers and both of my parents. This was an 800 square foot house. And I can quite honestly tell you that not once during the 18 years that I lived in this house did it occur to me that the house was small. We all had a ball, and it was far more important to us to have empty fields around than it was to have a bigger house.

The reason I mention this is that many parents express a desire for a larger house "for the kids". Well, I can tell you from experience, that the kids don't care. You may want a bigger house, the kids don't. Now again, it's OK to buy a bigger house, but be honest about it - the parents want the bigger house, not the kids.

There are many psychological "gotchas" regarding home ownership that it can be difficult to think clearly about it. So, forewarned is forearmed. Watch out for these sorts of rationalizations, and tell yourself that it is OK to want them, but be honest about why you want them.

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edit: One more point that occurred to me after I posted. Never, ever, ever get mortgage life insurance at the bank. Seriously, don't do it. You would be far cheaper off by buying simple term insurance from a regular insurance company, particularly if you are youngish. Banks charge way too much for this, and while the payments remain the same over the length of the mortgage, your coverage decreases as you pay down your mortgage (which as a smartcanuck you should endeavour to do as quickly as humanly possible).

[Shwa Girl]

nice to see you posting again brunt

This honesty should extend to all aspects of purchasing. For instance, I grew up in a house with four older brothers and both of my parents. This was an 800 square foot house. And I can quite honestly tell you that not once during the 18 years that I lived in this house did it occur to me that the house was small. We all had a ball, and it was far more important to us to have empty fields around than it was to have a bigger house.

good point about small houses
growing up, our house had 1 bathroom for 5 people
and we did o.k.getting ready in the morning etc
no problems

[auntiewoo]

I have read all of your responses, and I thank you kindly for all of the information. It would appear our next step would be for me to get a credit card in my own name, and to start using it responsibly.

Thanks so much for the info! I appreciate it.

[dougboswell]

As mentioned you should have 2 active trade lines showing on your credit report when you apply for a mortgage. Check with the bank where you have your savings account and TFSA account. They should be willing to give you a bank cc without a fee. Use it each month and pay it off immediately. Ask about a small line of credit and do the same thing. Try doing this sooner than later as age of the card and LOC have some influence on the overall credit score. Your husband definitely needs a second credit source as he would be the primary applicant. You would have your name on the mortgage as well in order to have it on the title.

[beachdown]

Yes...but nobody was trying to keep up with the Jones's back then i.e. no iphone, pretentious designer gear e.g. Jimmy Choo, Michael Kor bag, etc. Oh, entitlement wasn't a big thing back then.

Nowadays, due to how kids are being raised, and the baby boomers who had them, everybody is looking for the easy way out, or something for nothing. Nobody wants to work hard for the good stuff

nice to see you posting again brunt

good point about small houses
growing up, our house had 1 bathroom for 5 people
and we did o.k.getting ready in the morning etc
no problems

[walkonby]

I have read all of your responses, and I thank you kindly for all of the information. It would appear our next step would be for me to get a credit card in my own name, and to start using it responsibly.

Thanks so much for the info! I appreciate it.

yes MOST of the replies are quite helpful. Good luck!!