You have fallen on hard times.  You  were out of work for a few months, You had to take time off to look after an ailing relative,  You got injured at work and did not have disability insurance.

Basically You have not been able to meet your mortgage payment obligations and  have fallen behind missing multiple mortgage payments.

The bank has sent you letters demanding that you get your payments up to date but you simply have not been able to.

Things escalate and the bank refers their mortgage file over to their high paid lawyers.

The lawyer now sends you a letter stating that you are in default and that the bank is beginning power of sale proceedings.

Now not only do you owe your regular payments to the bank but their administration fees and lawyers fees plus interest is being added to all of this compounded.     This starts to add up very quickly.  Lawyers know how to bill.

Your choices are  to take control and list your house for sale as quickly as possible reducing these extra administration fees.

If you are lucky you are able to sell your home and payout the mortgage and extra expenses before there is no equity left.

At this stage you regroup, perhaps rent or if there is enough equity purchase another more affordable home.   More than likely your credit is shot but if you have enough of a down payment you can still qualify for a mortgage at rates that may be 1 to 2% higher than the best rates.

Or

you put the cash in the bank and  rent until things improve.

OR

You have the possibility of paying out the lender with a  new lender mortgage.

OR

The other option is the bank takes control and lists your house under power of sale.  They obtain two appraisal (at your cost) and provide their listing agent the listing.   The listing agent makes note on the listing that the house is being sold under power of sale with no warranty.    A feeding frenzy is about to begin that will most likely drive the price of your home down.

Once it is sold and all fees deducted you may be lucky enough to get some equity paid to you that is left over.

How do I pay for everything?  I am finding it hard to budget, enjoy life and get ahead!  How Can I afford to buy my first home?

This is a burning question and stressful feeling inside most of us.

In order to help you understand and put perspective on this a little better I put together the following scenario:

Assuming a New home Purchase of $500,000 that includes a Self contained apartment.

Using the Stress Test – 5% down payment,

Home owner incentive,

Renting the upstairs – $1500 per month

credit score above 680 ( no outstanding debts)

Household Income of approximately $90,000 will allow you to purchase for up to $500,000 with a little wiggle room depending on the lender and their rental offset calculation.

Qualifying using 39/44%  debt service ratios

The more money your household brings in the larger the purchase price can be provided you have the saved down payment.

Now you ask yourself is this realistic.  Each waking hour you are presented with ways to spend your hard earned income and you wonder if you can afford it and how it will impact your future.

I really like my Starbucks Grande Chai Tea latte at $4.25 x 3 per week I really like a half bottle of Chianti after work at $10 per half bottle or three Bud Lights before the game. X 5 week

I really like my afternoon Tim Hortons with soup and sandwich at $10 x 5 per week

My trip to Marshalls or Winners just cost me $50 x 1 per week

A dinner out at the Keg is $100  x 2 per week

Gas for my car at $70 per week

Groceries, Daily health items, Insurance, car payment, Rent, heat, cable TV, Netflix, Crave TV, movie  rental add up to approximately $2,700 per month

Does the above sound familiar to you?

All in all the above totals                                               $3,831 per month  AFTER TAX DOLLARS of $45,972 per year.

This means  you have to earn approximately $65,000 per year gross before income tax to afford the items listed above.

If you are earning $90,000 before tax you should be able to put aside approximately $10,000 per year towards the down payment taking you approximately 4 years to save up the appropriate down payment. Remember to put these savings  into an RRSP to take advantage of the First time home buyer RSP incentive.  Known as the Home Buyers Plan RSP.

Assuming  your income and home prices increase equally with inflation.

If it is a condo you are looking to buy the Condo fee has to be calculated into the affordability.

It is complicated but possible.

With the help of a mortgage professional to run your own personal scenario we can make sure you obtain the dream of home ownership.

Contact your local mortgager agent to provide you with your own personal outline.

Picture this…Its a hot market with multiple offers on limited supply.  Your Real Estate Agent advises that without an unconditional offer you will have no chance of winning the bid on the new home.  You know that you cannot purchase the home unless your home is sold but you take a chance believing that your home will sell quickly and at the price your agent is advising.   The odds are in your favour but if the economic timing is off you could lose big.

Your unconditional offer is accepted and now you go about listing your home for sale.

Happy ending – Your home sells and you only require bridge financing to bridge the gap on the closing date.   Unhappy ending 2) . The bottom of the market falls out, or the government makes a mortgage rule change and you are unable to sell your home at the price you need to have enough equity to purchase the new home or the qualifying criteria for the new mortgage puts you in a situation where you no longer qualify.

An Ontario Court of Appeal delivered an expensive lesson to a GTA homebuyer who made an unconditional offer that was later retracted.

Back in 2017, Shahla Sheikhtavi had made an unconditional offer on an East Gwillimbury, Ontario, home for $1,871,000. Following the introduction of the province’s 15% Non-Resident Speculation Tax (NRST), Sheikhtavi found herself in the midst of a market downturn and unable to sell her current home to obtain mortgage financing for her new purchase.

After rescinding her offer, property owners Richard and Sylvia Perkins were forced to re-list their home for $1.251,888—nearly $620,000 below the original offer.

A lower Ontario court ordered Sheikhtavi to pay damages of $619,112, despite pulling out of the purchase offer. She appealed the judgment and just last month an Ontario Court of Appeal sided with the lower court and ordered the original payment, plus $15,019 in legal costs.

“In this case, the appellant deliberately chose not to include a condition that she had to be able to sell her home and obtain mortgage financing before closing as a term of her offer to purchase,” the court wrote in its judgment.

“She would reasonably have known that there was a risk her home would not sell at the price she sought but made an unconditional offer to purchase the respondents’ home because she wanted her offer to be accepted (although she was not the highest bidder)…The appellant’s contract was not frustrated; it was breached by the appellant.”

Lesson Learned

It was an expensive lesson for this homebuyer, but one that other buyers should take into consideration when making unconditional offers.

Buyers can’t rely on “supervening events” like mortgage regulations or regional foreign homebuyer taxes to provide grounds for backing out of a mortgage contract,” noted Brendan Monahan of Babin Bessner Spry in a review of the case.

“However, because the appellant’s offer was not subject to any conditions, the announcement of the NRST (however unexpected it may have been) did not force the appellant to do something different than what she agreed to.”

Buying  a Unique property can come with financing hardship.

Thinking of buying a romantic rustic Log home?   A Home with acreage?  A house with a large workshop? Or what about a fixer upper?

All of these types of properties can cause challenges when it comes to the mortgage financing.

Finding the right lender will take extra time, may require large down payments or may not be suitable at all to some banks.

For example;  It is a general requirement that If the property you are purchasing has more than 5 acres the lender will request that the appraiser adjust the value of the property to reflect only the house and  5 acres.  You will be required to come up with the difference in cash to close.

If the home has a large outbuilding that would not be considered a typical garage the lender will request that this be deducted from the property value or purchase price requiring you to come up with the difference in cash.

If buying a home that is described as being a Fixer upper the bank may require a quote for the repairs and then will holdback those funds from the mortgage until the work is proven to have been completed. (note: it is possible to include the extra renovation money into the new mortgage through the mortgage default insurer)

Make sure you are preapproved and before presenting your offer and send your broker a copy of the MLS listing  for their review so they can advise you on the amount of time required for financing and any pitfalls that may be present or a strategy to make sure the funding of the mortgage happens smoothly.