Balancing Mortgages and Income
When buying real estate, you will find that mortgage rules have become tougher recently and home prices are rising at a steady rate, making it difficult to purchase. A recent increase in mortgage rates by Bank Of Canada make it even tougher for mortgage seekers.
A recent study covers 12 professions, including cashiers and lawyers, in ten cities including Calgary, Vancouver, Halifax, and Toronto to determine mortgage affordability. This study looked at whether someone with an average income of $50,000 could afford an average-priced home without going over the 35% gross debt service ratio.
Which Professions Can Afford a Single-Income Mortgage?
The study showed that most jobs, with the exception of bankers and cashiers, can afford a mortgage in any Canadian city. However, Vancouver and Toronto showed that many would have trouble paying a mortgage on a single income.
One of the highest earning professions, a lawyer, was determined to not even make enough to pay a mortgage on their own. Even though lawyers earn about $155,203 each year, it is not advantageous for them to buy a home in Toronto. In Saskatoon, you will find that their earnings are only about 5% less and the income necessary for a mortgage is 230% less.
Which Professions Have a Hard Time Purchasing Real Estate?
The study showed that cashiers only earn about half of the average Canadian salary. However, in some cities such as Fredericton, a cashier would be able to afford the low real estate prices.
Bank clerks have also shown to have a hard time buying a house on a single income. They can earn between $34,000 and $49,000. The best cities for a bank clerk to purchase real estate are Ottawa, Edmonton, and Fredericton.
British Columbia Eases Vancouver Foreign Homebuyers’ Tax
Good news for Vancouver home buyers. The government is making a change on the tax on foreign home buyers in Vancouver.
- Workers who come to Vancouver through the BC Provincial Nominee Program are exempt from the 15% tax. This exemption is available to those who purchase a home in Metro Vancouver. If you have purchased a principal residence after August 2, 2016, you can apply for a retroactive exemption.
- Also, within one year of purchasing your home, if you become a permanent resident or a citizen of Canada, you could also receive a rebate for the property tax. In order to apply, you must be at your property for one year. You can apply for the refund after August 2, 2017.
- The British Columbia government has used this tax to help calm the current housing market.
How Your Mortgage Can Affect Your Credit Score
If you are planning to purchase real estate, and you have a great credit score, you might be approved for some of the lowest mortgage rates. However, does one of the largest purchases in your lifetime affect your credit score?
Your credit score is calculated using various factors. 30% of how your credit score is calculated includes the amount of debt you own.
Once you obtain a mortgage, it could affect your credit score. However, once you prove that you are able to make payments on time each month, you will see your credit score improve. Payment history makes up 35% of your credit score. Therefore, making consistent payments is the fastest way to improve your score.
If you miss mortgage payments or make late payments, you will see a negative effect on your credit score. According to studies by FICO, a payment that is 30 days late can deduct 110 points from your score. It could also take up to three years for your credit score to fully recover from that mistake. This could also make a difference of having a “good” credit score or a “very good” credit score.
After taking your mortgage, you should not apply for another loan for at least six months. Applying for a loan sooner could prevent you from getting the best rates. You also want to keep your debt-to-income ratio as low as possible. Here are a few things to keep in mind:
- Your monthly housing costs should be less than 32% of your monthly income
- Your monthly debt should be under 40% of your monthly income.
When it comes to your credit score and your mortgage, you will find that your credit score will suffer at first, but if you are on top of your payments and continue to maintain good credit, you will see a bounce back. Check our Mortgage Affordability Calculator to see how you stack up.