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How To Clean Up Your Finances

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The new year is here, and it’s time to look in the mirror and see how we can improve our lot in life. A lot of people will start the year with dreams of property ownership, but are limited by their financial capability. Let’s have a look at some practical solutions you can implement to get yourself on the right track.

Make Sure You Pay Your Bills On Time

Might seem like a simple suggestion, but you would be surprised how many people struggle with this. A good way to overcome is simply to pay the bills immediately once they arrive in the mail. This leaves you with no other alternative, and keeps it nice and simple.

An alternative structure is to set up automatic bill payment in your bank account. All banks offer this service via their online platforms, so unless using computers is a challenge for you this method is a sure fire way of making sure your bills are paid in a timely manner.

Get Rid Of Your Debt

The first school of thought on debt is to just always make sure you make your minimum payment, no matter what. This is definitely a requirement, credit providers don’t like seeing missed payments on your docket. When you go to apply for a mortgage the lenders will look at your debt servicing ratio, so it is important to keep this ratio as low as possible.

The second school of thought is to pay off your debt as quickly as you possibly can. This requires some belt tightening, but at this time of year that’s on everyone’s mind already! Getting rid of your debt completely is always the best possible scenario, that goes without saying.

Save For A Rainy Day

Automating your savings if at all possible is the best possible solution. In this day and age it’s difficult for people to put money aside, but if you’ve committed to it and it happens automatically there isn’t much room to spend. People are creatures of habit, and if you get in the habit of knowing that $250 is being put into savings every pay period it’s likely you will get used to it before you know it.

It’s important to have a fair amount of money tucked away when you are heading into the market to buy a property. How much is needed will depend on your credit situation, how much you are willing to borrow, how much the home you are looking to buy costs, and the closing costs associated with the transaction.

Get A Better Job

Loyalty is this day and age is kind of irrelevant. Most people expect that their employer has a certain amount of loyalty towards them, but that is often not the case. Everyone’s circumstances are different, but as a rule of thumb it’s always best to look out for yourself.

Advancing your career, and most importantly your salary, can help with all aspects of your finances. Getting rid of debt suddenly becomes much easier when you are earning $10,000 a year more, as does saving towards a down payment.

Listen To The Experts

Sometimes it’s best to learn from the pro’s, and when it comes to finances this is quite simply the truth. A qualified mortgage professional will always be able to give you great advice on the best steps to take towards home ownership.

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How to Improve Your Credit Score and Make Yourself Eligible for Canada’s Best Mortgage Rates

CRA forgiveness

There are numerous ways of improving your credit rating in Canada for the purpose of obtaining a better mortgage rate. Your established credit history is essential for achieving the best Vancouver mortgage rates for your next mortgage. A lower credit score can reduce your maximum qualification, or even make you ineligible for a mortgage. A good credit history will always help you be approved for the best rates in Canada. Here’s how to ensure you are eligible:

HOW TO IMPROVE YOUR CREDIT SCORE:

  1. Ensure bills are paid on time. All missed payments are documented on your credit bureau and affect your credit score considerably. If bills are left unpaid, they may be sent to Collections, which drops your credit score even further. Always make your minimum payment on time.
  2. Have at least two (2) credit products in your name. Absence of a credit score occurs when you either a) have very poor credit history, or b) have less than two credit products reporting to your bureau. Acceptable credit products include cell phone bills, credit cards, auto leases, or credit lines.
  3. Avoid having credit card/line balances above 75% of the maximum limit. High balances will reduce your credit score, even though you are making your payments on time.
  4. Pay off high interest debts first. Debts can reduce your maximum qualification for debt serving on a mortgage application. Try to pay down the high interest products as fast as possible prior to obtaining a mortgage. Fewer monthly liabilities will maximize your mortgage qualification.
  5. Use a Vancouver Mortgage Broker. Avoid disclosing your credit history to more than one lender while you search for your new mortgage. Numerous inquires on your credit bureau can affect your credit score substantially. Use one professional that can direct your credit report to one lender at a time without having to re-pull your bureau.

The points mentioned above should be reviewed and followed accurately between the time of your pre-approval qualification to the time of your mortgage funding. Familiarizing yourself with #2 and #3 will ensure you establish a credit score. Apply all the other points to ensure the credit score is substantially high.

Note that your credit score can deteriorate within a monthly span, and lenders will consider dropping a mortgage approval on the day prior to funding if the credit score of any of the applicants has decreased substantially prior to funding.

The Impact Your Credit Products Have on Your Mortgage

The relationship between your credit card and your credit score is the most crucial one of all credit trades. Credit cards, auto loans, and recently added Credit Lines are your highest interest debts and the strongest determining factor of your credit score. Regardless of the balance amount, any balance close to the product limit will effect you considerably.

Lenders cannot review the frequency of your payments or any other payment amounts prior to the latest while reviewing your credit report. Regardless of the history behind each individual trade, all that is stated in your credit report is the credit product limit, it’s current balance, and documentation of your late payments on all of your credit products. A sub-average credit score determined by high balances or maxed out credit card means that you are considered a financial risk by the mortgage lender almost as much as someone with late payments.

Maintaining a $0 balance, or paying off credit cards on a monthly basis is a very difficult task, but keeping your credit cards under $1,000 is a substantial benefit. Attempt to pay off your credit cards as much as possible prior to qualifying for a mortgage in order to maximize your purchase power.

Recently, the Bank of Canada passed a regulation for all mortgage lending institutions to calculate payments of unsecured Credit Lines using the same method as for credit cards. This means interest only Credit Line payments being used to debt service for a mortgage are no longer recognized, and now must also include principle repayment (totaling 3%). We can expect all conforming lenders to have this policy implemented by December 2013.

The Cons of Credit Repair Companies

Another suggestion is to avoid using credit repair companies, that either offer these services for free, but especially when a fee is required. There is no shortcut to repairing your score without the points mentioned above, hence the same procedure must be followed. We advise that you check your credit history online or through a mortgage broker prior to putting an offer on a property.

When you have poor credit history, the Vancouver Mortgage rates you are eligible for can turn out to be higher than best rates, lowering your affordability for the property in mind.
Rather than determining the denial or approval of a mortgage, the credit score also determines the interest rates to be charged. It is very true that credit card balances can damage your credit score, so a person’s credit score is very important especially during a mortgage loan request.

Should you have any questions, feel free to contact us at any time!

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