-
DOWNLOAD STEP THREE FULL WORKBOOK HERE
-
The credit module is a bit of a doozy. As you can well imagine there is a lot of variables that come into play… I actually offer a MASTER MY CREDIT PROGRAM that is specifically tailored to this part of the program because everyone can use help with building or rebuilding their credit!
For this reason, the credit module specifically is going to take you into a new area, set up as its own program within the overall Mortgage Mentorship Program. however this will always be your access point to that section.
Each credit module can be accessed using the following links, set out in three separate sections. *** Please note these modules are password protected. The passwords are located beneath their respective link.
MMcredit@1
MMcredit2@
MMcredit@3
Your workbook for this section is located within your STEP THREE FULL WORKBOOK DOWNLOAD
-
Your overall debt load is going to be the second most important item to address when it comes you qualifying for your mortgage. Addressing debt is going to have a direct reflection on your credit as well.
DEBT SERVICING
In Canada the government sets out specific guidelines that lending institutions must follow when lending funds to the public. There are many guidelines set out by the government, but in this module we will discuss those directly related to outstanding debt and debt with respect to the home purchase. These guidelines are knows as Debt Servicing Guidelines or Ratios. These guidelines outline the debt to income ratio allowable- and all lenders and insurers must abide by these guidelines.
When qualifying a client for a purchase, mortgage professionals use 2 main ratios to decide if borrowers can afford to buy a home: Gross Debt Service (GDS) and Total Debt Service (TDS). GDS is the percentage of your monthly household income that covers your housing costs. TDS is the percentage of your monthly household income that covers your housing costs and any other debts.
Typically GDS should not exceed 32% and TDS should not exceed 40% HOWEVER If your credit score is over 680 then those ratios extend to 39% GDS and 44% TDS.
DEBT + DEBT SERVICING- VIDEO LINK
In the above video I mentioned how working to understand how GDS and TDS affect your purchasing power its beneficial to work through the numbers for actual scenarios. It can sound complicated, but like any math formula once you have the variables laid out in place, it becomes very easy to work out your own GDS and TDS for purchasing.
DEBT REPAYMENT
The next chapter in this module is going to take you down the path towards down payment, but before we start to look at down payment and savings plans it is truly best to address your current debt load first. The reason being that most, if not all debt has interest attached to it. This interest is compounding.
Compound interest is the addition of interest to the principal sum of a loan/ debt. In simple terms it is interest on interest. Compounding interest is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the original sum plus any previously accumulated interest that wasn't paid out. Think CREDIT CARDS.
Compounding interest can be beneficial if you are on the receiving end... like with an investment. However, it is not beneficial for the borrower when you are paying it on a loan or credit card. It is because of compounding interest on these debts that making ONLY the minimum payment on a credit card could mean a balance of $1000 takes 10+ years to pay off!
While it may seem like a good idea to try to tackle both debt repayment and saving for a down payment at the same time, your best course of action is to address the debt first, and then work towards your down payment goals afterwards. This way you pay the least amount of interest, and make the most out of your savings efforts.
*** The only time this might not be true is if your savings account or investment was paying you a higher interest rate than your debt company was charging you in interest. BUT, THIS BASICALLY NEVER HAPPENS! ***
There are many methods and strategies to paying off debt. There is no one right way to do it - it truly depends on what your goals and budget allow for.
The following video does a fantastic job of explaining a debt reduction calculator. Its one of the best I’ve seen, or worked with. After the video, you will be able to explore their personal use version of this calculator if you choose to. I highly recommend utilizing their knowledge to help you to understand in a better light how different methods and strategies can make the most impact on your debt repayment efforts. WATCH VERTEX42 DEBT REPAYMENT VIDEO
-
ACCESS YOUR COPY OF THE DEBT REPAYMENT TOOL HERE
-
Down payment is third on the list of importance when it comes to preparation for your purchase.
You might think that it should come before credit and down payment, or even somewhere between- as you can't really complete a purchase without a down payment. And, while this is true, it technically could be true for placement of any of the pieces of the home buying puzzle. We can't get to the finish line without all of these items in check.
When listing in order of importance we are looking at making the most impact in the least amount of time, and with the least amount of extra effort to get to the same place. Here is the reasoning behind the order as laid out in the program:
CREDIT- if previously mishandled, or there is a lack of credit history this can take a significant amount of time to repair, rebuild, or build from scratch. We start with credit in order to get the ball rolling, and can work on the other items while also working on credit.
DEBT- if handled properly, and with a plan debt can be managed quite efficiently by utilizing a budget, and a method like the Snowball or Avalanche methods from Lesson 2. Debt repayment will also work on increasing credit score in the background. Two Birds- One Stone.
DOWN PAYMENT- saving money towards a down payment can take a significant amount of time, similar to rebuilding credit... however, it is important to ensure you are making the most out of your time and money. If you still have debt with interest attached to it but are choosing to put your extra funds into a savings account rather than towards that debt.. you are hindering the process. The best way to get to your down payment goal is to address your high interest debt first so that you are not wasting money on interest that could have gone to savings.
MINIMUM DOWN PAYMENT REQUIREMENTS
VIDEO: HOME BUYERS PLAN EXPLAINED
HOME BUYERS PLAN CHEATSHEET DOWNLOAD
VIDEO: FIRST TIME BUYER INCENTIVE PROGRAM
FIRST TIME BUYERS INCENTIVE CHEATSHEET
DIRECT LINK: FIRST TIME HOME BUYERS INCENTIVE PROGRAM
There are many ways to save towards a down payment, and there is no one right or wrong way to go about this task.
Remember that saving takes time, but once you have addressed your credit and debt you will be well equipped to start putting a bigger chunk of money into your savings accounts towards your down payment. This is exactly why we address those two items before we start to talk in depth about down payment strategies.
Often when I speak with clients they tell me that they don't have an additional $500 or $1000 a month to put towards down payment savings... not realizing they are paying well above this amount towards other outside debts like credit card balances, or older loan accounts.
There is a method to the madness! Once those debts are managed, and paid down or off there is a new place for this money to go... SAVINGS!
Over the last 15 years there are a few little tips and tricks I have personally used and proven that are effective and can make a significant difference to your savings without you having to do much work. CHECK THEM OUT HERE
Check out the next section to access the m-powered living savings planner tool to create your custom formula for success!
-
ACCESS YOUR COPY OF THE SAVINGS PLANNER TOOL HERE
-
Income and employment are number 4 on our list within your custom plan. Not to say that these aspect are less important, but for most people within a typical salaried or hourly job, proving income is one of the easier tasks in the home buying process.
For those that do not have a typical income, such as those who are contract or self employed there are some additional rules that need to be followed and some aspects that will need to be addressed further to ensure a smooth process and the ability to fully utilize all available sources of income in your application.
I’ve specifically created a separate video for each of the typically seen types of employment so that you can easily picks yours and review what kind of detaisl and documentation will be required of you. In the event you are thinking of changing careers, or types of employment over the next 3-5 years or maybe you are just curious…. feel free to take a look at the other videos as well.