I am 42.
My husband is 50.
We have a 21 year mortgage on which we have 13.5 years left to pay it off.
At that time I will be 55ish, and my husband will be 64ish.
(Knock on wood, fingers crossed, throw salt over your shoulder, live on a street named after salt.)
Our home value has almost doubled in 7 years by virtue of its detached existence in Toronto.
SO? WHO CARES?
Well, we do. And depending on your age, and how close you are to retirement as you read this,
you might care too.
We want to retire. No, we want to retire comfortably, without worry, so we continue to put everything we can into our home (instead of clothes or gadgets) because, so far, it has been the most reliable and lucrative saving vehicle we have ridden thus far. When an investment property opportunity popped up, we faced it head on.
It was a rental bachelor suite that we (ironically) renovated for a client who is now planning to sell. I asked them to give me a week or two to put an offer together, and broker my own deal. They were gracious and on board with our offer if we could make the numbers work. No bidding war. Just a straight up sale. Sweet, right?
The plan was simple:
- get a separate home equity loan for the down payment
- have the renter pay off the new mortgage
- pretend that there won’t be any obstacles in our way
- laugh all the way home to count our money, jiggity jigg!
The NOT so simple parts of the plan:
- for a rental purchase you need to use your NET income to qualify
- since we are self employed we have low NET incomes, mine in particular, was obstacle #1.
- we already HAVE a property/mortgage
- we needed a minimum 20% down payment for a rental property...possibly 25% depending on the lender
- we needed more cash than that because of the approximate $4000 in closing costs , $6000 refinance penalty at the current lender, 1-2% B lender fees ($2000-$4000) for the new mortgage (because we only *almost* qualified for a B lender with our self employed GROSS income.
- our current property (however) needs a new roof and driveway and, when I say need, I mean NEED, so the refi was getting bigger and bigger by the second.
- we would have to pay a CMHC insurance premium on the additional funds (around $3000.00) because our original mortgage was insured and a full refi (instead of a line of credit) was the only scenario that brought us in line.
- THIS WAS SUPPOSED TO BE SIMPLE!
- we were limited by B lenders who might not fund a condo that was shy of 500sq.ft. This is hard enough in A lending because the Toronto market is becoming overwhelmed with mini condos, let alone open space bachelor pads without a separate bedroom. I did it for a client, but our financial scenario was making it difficult for us.
- and then (!!!) we would be left with a NEW 30 year mortgage, larger than the original one on our first property, that we wouldn’t have paid off until ages 72 and 80.
- after all that, our ratios were still not entirely in line to qualify fully (there is always the option to beg directly with the business district manager)
- due to the higher interest rate of the B lender (4.25%), we would have to charge rent higher than market value which would make it harder to find/keep a tenant.
- our own monthly expenses would increase outside of our comfort zone due to the new, LARGER mortgage on our first property and no room for the unexpected.
- also, if we ever needed to live off of the equity in our current home in a reverse mortgage, a large portion would be eaten up by this new refinanced scenario.
We had all of this equity, but in the end the numbers said, this is not going to happen today. Our retirement vehicle #2 would have to stay in the show room for a little bit longer.
I’m frustrated that I was not prepared enough for this perfect opportunity.
I’m frustrated that I have not saved enough for another down payment.
I’m frustrated that I haven’t (yet) invested in a new retirement vehicle.
I’m supposed to be f*$king rocking this property thing!!!!!!
But the risks, the list of penalties and costs, our ages, our fluctuating incomes, TWO 30 year amortizations on TWO properties, however, out weighed the gains in this moment.
In other words:
We would not sleep at night with this financial frame work swirling around us.
I wanted it to work, and the fact that I was able to convince my husband to keep the conversation going longer than a day was what I thought was the sign form the universe that this was going to happen!
IT SHOULD HAVE HAPPENED.
What WOULD have made it work?
A CASH down payment.
Higher NET income (for me)
If we had had that CASH down payment, or if my NET income was higher, we would have narrowly qualified in a way that would create a more manageable scenario. We would not have had to refinance the same way, we would not have incurred fees, we *might* not have had to go to the B side with higher rates, our renter would have paid off everything at market value, AND our current property vehicle would not have been jeopardized. Ironically, the money we put into our current house is also why we have so much equity in the first place. There’s a little bit of chicken & egg scenario going on here.
The NEW plan?
- Don’t give up
- DO keep swearing like a trucker about this for a little bit longer
My goal is to write a happier ending in about 3 years, but until then, I encourage my readers to continue to seek out financial success stories and keep ME posted on how YOU plan to get ahead.
Thanks for reading and sharing!
note: all opinions expressed on this blog are
solely my own and do not express the opinions or
views of Mortgage Brokers City.
After a good computer clean up, freezing screens, swearing, and a toddler-esque meltdown (me, and the computer) the conclusion was to get a new one instead of investing in an overhaul. (Damn it, AGAIN!)
My gut reaction to these unexpected $$$ expenses is always the same:
- tell everyone about my panic
- research how panicking will get me the best deal
- tell everyone how I (sort of) beat the system (by panicking, clearly) and saved $300
- be funny or sarcastic about giving in to the lure of shiny new things, ignoring the fact that others are worried about where their next meal will come from. (This is me inserting a little perspective.)
I know this is not a big deal...to some...but to me, I can’t help but react to ANY financial upheaval, no matter how insignificant to the observer, any other way than the way it was modelled to me as a child. And, I’m not alone. I see it in some of my clients, too; holding their breath, or tearing up, thinking they haven’t done, or saved enough, no matter how hard I try to prove the contrary.
This gut reaction stuff is why I started the blog, which helped me start a business (run on empathy), and it’s why it now only takes me 12 hours (instead of days) to wake up, and hit the yellow brick road again despite the Wicked Witch of the West’s attempt to paralyze me with financial fear. And when I say wake up, I mean it. At 3:30 in the morning, after going to bed with a hefty new visa balance, my brain did me the favour of making me juuuuuuust conscious enough to be aware of the the voice inside my head, saying,
“You’re an adult, you’ll figure it out, you always do.”
The next morning I clicked my heels, headed out to pick up my airy new apple, and came home to emails from two new students (who would pay off my bill in short order). I figured it out instead of feeling bad about:
- buying shiny new things (that’s another story)
- myself and how I still have the shadow of old, negative financial blueprints written all over me in invisible ink
Gut instincts (or learned reactions), be they financial, emotional, or any other ‘fill in the blank’ category, are what make us unique, but they can also do double duty and make us (me) feel out of place when our (my) reactions to a problem seem out of scale to the situation at hand.
I’m living proof that reactions can change, evolve, and turn into an asset, instead of a hindrance ....well...they can if you’re awake enough at 3:30 in the morning to hear the uncharacteristically logical advice from the voice inside your (my) head.
It might only be a small victory but it’s a victory, nonetheless, and I’ll take it, thank you very much.
This blog was brought to you in part by my jazzy new gadget (no regrets!!!!),
and my VISA card.
The Coles notes response is: YES
The 900 page, unabridged response is: YES, I can get you the best rate for YOUR FINANCIAL SITUATION.
The difference between those two answers is subtle but important. Rates are NOT the only factor to consider when you are preparing to jump into the property game.
- Mortgage Rates are directly connected to a mortgage product
- That product must be the best for your situation
- Everyone’s situation is DIFFERENT
Take cell phones, for example: The lowest RATE out there might be $9.99 a month, but the PRODUCT is a rotary dial flip phone, no data, no texting, and no incoming calls.
Mortgages are exactly the same: Sometimes the lowest RATE puts you with a mortgage PRODUCT that is just as archaic as a your Dad’s first car phone that you plugged into the lighter jack. YOU GET WHAT YOU PAY FOR.
In our current financial climate, however, we are facing a boon of awesome rates paired with fantastic mortgage products. BUT, and there is always a BUT, you, and your financial situation need to qualify. Yes, your neighbour’s brother in law’s cousin SAYS he has the lowest rate but, again, what is the product that goes with his flip-phone mortgage?
When I am scoping out a rate + product out of the 30(+) lenders available to me, there are many things to take into consideration that will affect what you qualify for:
- Income (and type: salary, contract, self employed, stated income)
- Credit score
- Down payment
- Previous Bankruptcy?
- Gifted Down Payment?
These factors are the tip of the iceberg for qualifying. What you may not realize is, when I’m scoping out your options, conditions and road blocks tend to pop up that indicate that we might have to take a different route. Some clauses include:
- Must quick-close in 30-45 days (there will be a 90 day close % rate, and a 120 day close % rate)
- No Self Employed or Stated income deals (generally, we know which lenders to avoid)
- No pre-approvals
- No rural properties
- Credit score above 650
- Must have minumum 5% of own funds for down payment
- No rentals
- Conventional deals only (20% down payment)
- High Ratio, insured mortgages only (less than 20% down payment)
- Live deals only
- 25 year amortization only
- No 15% top ups to net income
And the list goes on. If you don’t meet just one of those conditions, it’s back to searching (and, p.s., that’s what I’m here for.)
When it comes to PRODUCTS, you and I also need to consider your future options:
- If I refinance in 5 years at different lending institution, what are my EXIT fees?
- Is this a STANDARD mortgage or a COLLATERAL mortgage?
- If I want to put a lump sum on my mortgage, what are my pre-payment privileges?
- If I have a growing family, can I extend my mortgage if I buy a bigger house?
- Is this product portable? Can I take it with me to my new condo in the middle of my 5 year term?
Again, the list goes on, but THIS is why the 900 page, unabridged answer is so important for YOU, especially if YOU are an artist. We work in such an abstract and creative world, we forget that when it comes to finances, more specifically YOUR FINANCES, there aren’t any shades of grey. Your numbers go into an algorithm and come out as a profile. It won’t look like anyone else’s (which is the only artistic aspect of the process).
I’m only scratching the surface on this topic but, I sincerely hope this helps when the time comes to get you suited up with hundreds of thousands of dollars (run away screaming!!!) to buy your first home.
Thanks for reading!
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All opinions expressed on this blog
are my own in their entirety .
Growing up is not as fancy as I once thought it would be.
Turns out, my grown up universe of music, costumes, and fun gigs, is currently being combined with real life decisions not previously indicated in my score.
Parents, AGING Parents
There are no rules on how to do things RIGHT;
how to make things FLOW without any BUMPS or BRUISES,
no TIMELINE, no PREDICTIONS.
How does this specifically apply to you, the young artist hitting the big time?
Well, I can only speak for myself, but I’m very grateful that I followed my gut instinct and prepared ahead. I could not have predicted what would be on the other end of my preparations, but, I guess, that’s the point.
YOUR PARENTS + THEIR MONEY + THEIR HEALTH
As you are saving, and making sure that your money is growing, please have an undeniably uncomfortable conversation about: YOUR PARENTS’ WISHES for managing THEIR MONEY and THEIR QUALITY OF LIFE if they are UNABLE TO MAKE DECISIONS FOR THEMSELVES.
My conversation with my mom went a little something like this:
- ME: Do you still have debt?
- ME: Have you updated your WILL?
- ME: Power of Attorney, Health Proxy, Health Directive....do you have any of these so that I can legally make decisions if you are no longer able?*
After a lot of “discussion” these legal updates were, well...updated. If * the time ever came, decisions could be made based upon written requests, and not emotional guess work by me, or the province.
Probably the hardest subject to broach, due to the myriad of conflicting information, is the topic of inheriting parental debt. An hour with a financial expert or your lawyer could potentially make life much easier for everyone simply by having confirmation about what goes where, and who will be responsible for what when the time comes.
Clearing parental debt with the aid of a financial trustee may be something to investigate if needed; lessening the chance of finances becoming a burden down the road. It also helps to take YOU out of the financial equation. Family + money can end in tears. Let someone else manage it so that you can put your energy into the care and well being of your loved one. As well, a saving plan for future move(s) and related expenses means that there will be a better chance of maintaining the best possible living situation for everyone.
QUALITY OF LIFE
WHERE and HOW do they want to live if it ever gets to the point that they need more daily assistance than first predicted, (p.s. you can’t predict this) and how will THEY / YOU pay for it?
Nobody wants to have this conversation but, if push comes to shove, and the decisions need to be made within 24 hours (under the strain and emotional stress that poor health, and family situations may foster) you’ll be glad you did.
I am a catch 22 by being an only child (to my mom, anyway). On one hand, it’s easier because there’s no question about what will happen with finances, health, and living situation for her. On the other hand: I am THE decision maker, signature signer, and faxer of all things official...now where did I put that silly rule book?
If you have siblings (and/or aunts and uncles etc.), having a group discussion with your parents about:
WHO can best manage WHAT
may create an easier transition for everyone. At this point I would advise passing around some food. Money talk (can) get people riled up (or so I’ve heard). Having something to shove into their pie hole ( ie: pie ) can’t hurt.
Admittedly, a big topic but, I write about what I know, and this is what I know, about 20 years sooner than predicted.
Thanks for reading.
Now go get some pie, talk to your people, and get’er done.
NOVEMBER 2015 UPDATE:
At this stage in the game, I have moved my mom 3 times within 18 months and I have had to put into play the financial trustee, health proxy, power of attorney, and health directives. All of these papers gave me the power to say yes for my mom, and, in the case of her living situation, I was also able to say no.
The province wanted to put her into the sketchiest home in Winnipeg, on Donald St. (the equivalent to Queen and Sherbourne in Toronto) and, if I hadn’t had power of attorney, it would not have been my choice, especially since I don’t live in Manitoba and these directives are coming from me, one province over. We waited it out and now she’s in a beautiful, new facility across from Assiniboine Park where her friends take her over to see Ballet in the park and the symphony. Is it glamourous? Absolutely not. Is it the best we could do? YES. She’s safe, well liked, well cared for, and I only feel guilty ALWAYS.
Now, I make decisions about wheel chairs and seat belts (SEAT BELTS!!!) pureed food, a visiting volunteer dog from St.John Ambulance (her name is Montana), making sure her hair is cut, nails are done, and that she’s wearing ALL of her jewelry ALL of the time (those who know my mom know how important this is).
WHY DID I REPOST THIS BLOG?
Because this is a topic that everyone will face in some form or another and, in my mind, an ounce of prevention is worth a pound of care.
- All artists
- Some successful buyers (new keys!)
- Some on hold (to be continued)
- Some going back to the drawing $ board (tax prep)
One of my surprise success stories was supposed to be in the “on hold” category. After my initial meeting with Mimi in August (we’d been emailing since February) it was clear that she was:
- A super savvy $ saver
- An Organized, thoughtful planner
- And a “Get out of my way, world, I’ve got a goal!”
...kind of client.
One of the main points for her property goal was that there had to be some form of RENTAL INCOME on the other end of the purchase. She was prepared and not spooked by the task in front of her. She wasn’t in a hurry either - there would be no money wasted, there would be a house where she would live, rent out the basement or top floor, no insurance premium, and if it meant saving more, well that’s what she would do. (Can I get an AMEN?!) We were scheduled to chat 5 months later at the end of January 2016 with a little more singing money in hand. (Whoot! You go girl!)
A few weeks later, however, we were on the phone about a sweet, 410 sq.ft bachelor, work-live loft located in Leslieville’s highly sought after iZone building. It would be a 100% rental opportunity, totally NOT the original plan, that she would view at 4pm that day (!)
I quickly set her up with a real estate agent who I knew had a long history with that particular building....and...as we soon found out...was also the SELLING agent. Weird, I know, but it turned into a huge advantage for both seller and buyer in the end.
The TIMELINE of the deal looked a little something like this:
- Viewed condo
- Coffee talk about condo + numbers the next day
- Gathering of HER most recent tax documents
- GROSS income (line 162) looked AMAZING!
- NET income, after deductions (line 150) amazing enough until *ugh* one new doc appeared in my inbox: a tax re-assessment (good for tax purposes, bad for home buying) turned plan A upside down.
- WHY? I could only use her NET income (line 150) for a straight up rental mortgage (self employed or not) and the re-assessment to her taxes the previous year had lowered her NET income just shy of what we needed. #swearing
- Cue a co-signer to support her NET income (enter money savvy $ tenor, Chris)
- Gather all of HIS documents
- Give them the go-ahead to make a bid
- Bid accepted (with 5 day financing clause)
- Send in their application to Lender #1
- Lender #1 refused property (not enough square footage)
- Immediately send in application to lender #2 & #3 (I believe in back up plans)
- Approved by both lender #2 & #3 (if condo passes appraisal conditions)
- Meet all of their insanely DIFFERING financial conditions: YES (bloody miracle, people!)
- Order 2 appraisals, one for each lender
- Appraisals won’t be until the following week (gah! 5 day financing clause is ticking away)
- Ask real estate agent on for extension on financing clause (total 10days, so far, in TORONTO!)
- Accept lender #2’s commitment
- Start emailing friends to find my clients’ a tenant needed to close the deal for either lender
- Appraisals STILL not done
- Found a tenant for them in less than 24 hrs. Yup. Full service mortgage agent, folks!
- Ask real estate agent for ANOTHER 5 day extension to the financing clause because the appraisals STILL aren’t in YET (total, 15 days financing) I told you the dual agency of the real estate agent would come in handy. WIN/WIN
- Appraisals FINALLY in
- Accept Lender #2’s offer (sign)
- Sleep well at night
- Day 15 of financing clause - Lender #2 - after clients have already signed off financing waiver - tell me there was a human error on their end and they were adding a $6000.00 insurance premium charge on to the mortgage (!!!)
- Have mini heart attack
- Remember back up plan (yes!)
- Accept Lender #3’s offer, slightly higher rate, $10 more a month = $600 over 5 years, we’re ok with that, no other charges
- Everyone takes a deep breath. Officially get a good night’s sleep.
- Obtain MORE documents including lease from new tenant
- Sign MORE documents
- Mimi & Chris go to lawyer (SIGN even more papers)
- Mimi & Chris get keys
- SOMEONE ELSE PAYS MIMI’S MORTGAGE (Booyah!!)
I’m not going to lie, it was a bit of a nail biter with the lenders being fussy about this petite condo in the BEST location, not to mention the delays of the appraisals (out of our control) and then the last hiccup by lender #2 (who fully admitted their $6000.00 error - but STILL didn’t budge.)
Why did I want you to read all of that?
1. Because real estate is not cut and dry. Our first conversation will sound nothing like our final conversation. If you can handle that, you’ll get keys.
2. Because (AND THIS IS IMPORTANT) after putting only 20% down on this condo, Mimi’s renter(s) will pay off the remaining 80%
Her first nest egg will be paid for by someone else.
Why I left that particular sentence to the end of the blog makes no sense, it should be the opening line but, I want readers to see that she fought for this. She saved like a rock star. She was persistent, undaunted by all of the roadblocks and, in 30 years, she’ll have hundreds of thousands of dollars in her pockets because she made a small down payment on 410 square feet of cement and windows.
AND. AAAAAANDAHHH. If it hadn’t been for that re-assessment on her taxes, bringing her income down (on paper), she would also have done it ON. HER. OWN. Without a co-signer. That’s pretty freakin’ jazzy, my friends. That’s what I call A RENTAL ROLE MODEL.
Thanks for reading AND sharing...you did share this post, right? : D