Ready to buy your new home Presented by

Ready to buy your new home? Presented by Nikki Kwiatkowski & Bret Wolfer

Agenda Ready to buy your new home? 1. Are you ready? 7. Your Real Estate Agent 2. The 5 C’s of Credit 8. Property Tax Adjustments 3. House Buying Process 9. Protecting your Family, 4. Pre-Approval 5. The Down Payment 6. Principal & Interest Payments Credit Rating and Home 10. Additional Considerations: Cost & Time Frames 11. Q & A

Are you ready? • Exciting decision • Ownership and building equity vs. Paying rent • Saving for a down payment • Calculate how much your home will cost each month and practice living on that budget now

The 5 C’s of Credit • Character • Credit • Capacity • Capital • Collateral

Character • Know your member • Credit history • Job and residence stability • Attitude toward borrowing and repaying the debt

Credit • Repayment history • Existing obligations and proposed loads • Account and loan history with your financial institution • Credit repayment history • Credit Bureaus

Credit Bureau Report 0 No Score 400 Very Bad 500 Bad 600 OK 650 Beacon minimum for lending 700 Very Good 800 Excellent

Capacity Can you afford the payment? Ability to Repay the Debt: • Gross Debt Service – Max 32% • Total Debt Service – Max 40% Proof of Income – 2 years of income and employment history to be recorded and verified in the form of: • Recent pay stub • Letter of employment • Income tax returns or financial statements

Capital Net Worth: • Assets – liabilities • Types of assets • Value of individual assets Down Payment: • Amount of the down payment you are putting into the project or purchase

Collateral The security pledged to the lender to support the loan • Your signature • Co-signer • Serial numbered assets • Real property • Cash, bonds or certificate of value • Shares in publicly traded company

House Buying Process • Pre-Approval • Down payment • Qualifying payments • Payment calculators

Pre-Approval Calculate the maximum house price you can afford based on: • Your current credit rating • Available income/ability to make the payment • Your down payment

Loan to Value Ratio (LTV) Purchase price – down payment/purchase price = LTV % $300, 000 - $15, 000 = $258, 000/300, 000 = 95% LTV

Conventional Mortgage Owner Occupied Residential Mortgage Maximum Amortization First Charge based on the lesser of the purchase price 300 Months (if applicable) or the “established value” as defined** Up to 80% of the first $750, 000 and 50% of any balance

High Ratio Mortgage Owner Occupied Residential Mortgage Maximum Amortization First Charge based on the purchase price (if applicable) 300 Months or the member stated value Up to 95% based on the Insurer’s program in place at the time of borrowing

The Down Payment • Can be a gift (immediate family member) • Proceeds of the sale of another property • From savings (RRSP, account, TFSA)

Down Payment Calculation Conventional Mortgage House $325, 000. 00 Purchase Price x 80% Maximum financing = $260, 000. 00 Maximum mortgage Down Payment = $65, 000. 00

Down Payment Calculation High Ratio Mortgage House $325, 000. 00 Purchase Price x 95% = $308, 750. 00 Down Payment Maximum financing Maximum mortgage = Can be a gift from an immediate $16, 250. 00 family member Financing $308, 750. 00 $8, 490. 63 Mortgage (above) Mortgage Insurance: ($308, 750. 00 x 2. 75%) $317, 240. 63 Total Financed

Qualifying Payments Include: • Principal and Interest • Property Taxes • Condo Fees (50% of monthly fees) Budget for: • Life Insurance • Disability Insurance • Property Tax Adjustment

Principal and Interest Quick Calculation - Conventional Example: $260, 000 mortgage at 3. 25% on 5 -year term with a 25 -year amortization Principal & Interest Payment $1, 264. 04/month Property Taxes (approx $2, 400/y) $200. 00/month Utilities $200. 00/month Total Housing costs $1, 664. 04/month

Can you afford the payment? Monthly Income Example $7, 000. 00/month (single or combined income) Gross Debt Service (housing) – Maximum 30% $7, 000 x 30% = $2, 100/month max Housing Payment: $1, 664. 04 / $7, 000 = 23. 77% Total Debt Service (all debt payments) – Maximum 40% $7, 000 x 40% = $2, 800/month max All other debt (including credit cards, car loans, etc) = $570 Housing Payment = $1, 664. 04 Total = $2, 234. 04/month / $7, 000 = 31. 9% Result: The members in this scenario can afford the monthly payments

Principal and Interest Quick Calculation – High Ratio Example: $395, 000. 00 mortgage at 3. 25% on 5 -year term with a 25 -year amortization Principal & Interest Payment $1, 920. 36/month Property Taxes ( approx $2400/year) $200. 000/month Utilities $200. 00/month Total Housing costs $2, 320. 36/month

Can you afford the payment? Monthly Income Example $7, 000. 00/month (single or combined income) Gross Debt Service (housing) – Maximum 30% $7, 000 x 30% = $2, 100/month max Housing Payment: $2, 320. 36 / $7, 000 = 33. 15% Total Debt Service (all debt payments) – Maximum 40% $7, 000 x 38% = $2, 800/month max. All other debt (including credit cards, car loans, etc) = $570 Housing Payment = $2, 320. 36 Total = $2, 890. 36/month / $7, 000 = 41. 3%

The Servus Advantage • Flexible payment options • 20% lump sum each year based on your original mortgage • 20% increase each year in payments • Profit Sharing Program

Offer to Purchase • View potential homes • Make an offer to purchase your dream home • Negotiations

The Offer to Purchase • Negotiate the purchase price of the home • Legal contract • Deposit is offered • Condition of Sales • Financing date • Possession date

Your Lawyer • Your lawyer • Property Tax Adjustments

Your Lawyer • Prepares Transfer of Title Documents for Land Titles registration • Prepares and registers mortgage documents for registration at Land Titles • Ensures that all previous liens on title are removed and you have a clean title • Calculates property tax adjustments and other fees and ensures they are paid

Property Tax Adjustments Property Taxes (e. g. : $2, 400) are calculated for the year and paid annually: JAN MARCH Possession March 30 JUNE SEPTEMBER DECEMBER Due June 30 Example #1 • You take possession of your new home at the end of March. Taxes are due annually in June • The seller owes you tax money for January, February and March ($600) • You have to pay the full amount ($2, 400) in June • You need to save $1, 800 in 3 months to pay the full amount on June 30 or you can add the amount to your mortgage and pay $266. 67/month • In January of the next year, you can start paying your property tax to your municipality directly each month or you can add it on to your mortgage

Property Tax Adjustments Property Taxes (e. g. : $2, 400) are calculated for the year and paid annually: JAN MARCH JUNE Due June 30 SEPTEMBER DECEMBER Possession Sept 30 Example #2 • You take possession at the end of September • Taxes are due annually in June and were paid by the seller • You owe the seller for October, November and December taxes ($600) • You have to provide the $600 to your lawyer in September • In January of the next year, you can start paying your property tax each month to your municipality directly or you can add it on to your mortgage

Protection • Protect your family • Protect your credit rating • Protect your home

Protecting Your Family Life Insurance • Pays off your mortgage if you pass away • Premiums on a $260, 000 mortgage for a 27 -year old non-smoker in good health = approx. $25/month • Peace of mind

Protecting Your Credit Rating Disability Insurance • Covers your mortgage payment if you suffer an illness or injury • A $1, 578. 47 monthly mortgage payment for a 27 -year old non-smoker in good health = $43/month

1. 888. 732. 1494 Servus. ca/homeinsurance

The Additional Costs • Fair estimate = 1. 5% of house price • Remember: • Legal Fees • Appraisal cost • House inspection • Moving expenses • Utility hookups • And, your Property Tax Adjustment

Tips to Remember This is an exciting time, so remember to have fun!

Questions? Thank you! Nikki Kwiatkowski – Branch Manager, West Lethbridge Bret Wolfer – Branch Manager, Scenic Drive