Last updated: May 2019
When talking with prospective buyers, I use a term called Time-to-Mortgage or "TtM" as a way of illustrating how long it will take for them to get their own home. Follow along with the math.
Mike wants to quit paying rent and own his own home. Starter homes are about $300K in his area (THP=$300K). He has $10K in current savings (CS=$10K). Unfortunately, after obtaining his credit report, he discovers he has a $1200 ambulance bill that he forgot about and went to collection and an $800 unpaid cell phone bill when he switched providers (UPC=$2K). Mike has been thinking about a new truck at $600/mo, but that could be used for savings instead and he'd probably be able to save $200/mo more. His AMS is therefore $800/mo.
$300,000 (THP) X 0.065 = $19.5K, which is the minimum down payment and closing costs. $19.5 less $10K already saved (CS) plus $2K he owes (UPC) equals $11.5K remaining to save, divided by his available monthly savings of $800/mo (AMS) = 14.4 months Time to Mortgage. Mike simply needs to set up an out-of-sight-out-of-mind savings program that automatically packs away his $800/mo or $400 every two-week pay-cheque, whatever works best. If he is really smart, he will save in a RRSP and use the First Time Home Buyers Plan to get the government to help out with bigger tax refunds, which are then added back to the savings account.
Other considerations. Mike understood why it was important to address the collections immediately to clean up his credit report. By using $2K of his current savings now to "pony up", he can see that in 15 months the collections will be showing on his report as paid well over a year earlier and his credit score will be in much better shape. That's what the mortgage lenders want to see - that you pay your bills as agreed!
There you go - Mike has a plan and time frame to get a mortgage. It all starts with a pre-assessment and a strong desire to own his own home!
By the way, if there are credit report items to fix, 9 times out of 10, the credit report can easily be fixed before a down payment can be saved.
If you have any questions whatsoever about mortgage financing, please check out Can I Get a Mortgage or contact us for free pre-assessment. If you are ready for a mortgage, we can help there too!