Your mortgage broker is here to help

For many people in Canada, they are first-time home buyers. Or if they are new to Canada, it’s their first home purchase in a new country. They may not be aware of the rules and guidelines. It’s the job of your mortgage broker to make you aware of what is expected from you to avoid disappointment.

Mortgage Documentation
90-day bank statements – It’s important to make your clients aware that they need 90 days of bank statements to show they have saved the funds needed for the down payment and closing costs. Closing costs vary by province, so it’s important to let out-of-province buyers know exactly what the costs are in their new home. I like to explain that the 90-day statements is meant to prevent money laundering. A few years before this law was enacted, gangs would find an elderly couple and offer them the down payment funds asking only to be allowed to grow a few plants in the basement.

Some people are very private and don’t want you to know how much they spend on lottery tickets. They will blank out everything on the statement except for the down payment funds entering the account. This will not be accepted by lenders and is a big red flag for them.
Another problem that can arise with statements is if the clients print them online. As a security precaution, many banks allow printouts but they remove the name and/or account number from the statements. The easiest thing to do is to have them go into a branch and ask for a printout and have it stamped by a teller.

Employment Letters- Many small employers will give a hand written employment letter. This is acceptable but a letter written on company letterhead is better. The letter should state the name of the employee, their job title when they started with the firm, if they are full or part time and what their gross annual income is. If there’s an overtime or bonus component to their pay, this should be clearly explained and how much of their gross is straight salary.

After the Mortgage is approved
It is important for home buyers to know that while the mortgage has been approved they need to avoid doing anything to change their financial situation before possession day. That means they should not quit their job, buy lots of new furniture or a car. Lenders will often check the credit bureau a few days before possession day to see if there’s been any changes. If the debt ratios are out, the mortgage could go sideways. Taking a few minutes to explain this is prudent but it also shows you care. Dominion Lending Centres mortgage brokers are not big banks, we are people who live in the community and we want to see our clients in homes and living happy lives. It matters to us.

David Cooke

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Clarity Mortgages in Calgary, AB.

What happens when your credit card account is closed

I have been working in the mortgage industry since 2005. I have had all sorts of clients over the years. Every once in a while I get someone who has a car loan , a couple of credit cards but there’s a collection from a credit card, a dentist or some other creditor. When I ask why this has not been paid, I am told that they had a dispute with this firm and they are not going to be pushed around. The client doesn’t care if the account is sent to collection, they won’t pay it just on principle.

While I admire people who stick to their guns, they are on a slippery slope and things will not work out well for them. Sometimes they think that because the account is closed they don’t have to pay anymore. This is totally wrong.

CREDIT SCORES WILL DROP
As the creditor has reported your late or missing payment, your score goes down with the credit reporting agencies every month until you get to 120 days late or the creditor closes the account. However, they may send your account to a collection agency who will add their fees to the account and threaten or harass you. While you may not owe the money to your original creditor, they have sold the debt to someone else. You still owe your original amount and probably more with interest accruing every month.

Something that most people do not realize is that this refusal to pay an account means that you won’t get a mortgage or any new credit lines until the problem is resolved. The longer you hold out, the more likely that you will need to use a B lender for your next mortgage and car loan. I have seen car loans with 26% interest and mortgage with 16% interest over the years.
My advice is don’t ignore the problem. Get it resolved as soon as possible. I know that you want to stick to your guns but it’s going to end up costing you a lot of money. If you have any questions, contact a Dominion Lending Centres mortgage broker near you.

David Cooke

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Clarity Mortgages in Calgary, AB.

Toys and buying a home

In 2005, I was asked to do a pre-approval by a couple hoping to buy a home. I went through the application with them and pre-approved them for $320,000. They were astounded. They told me that their bank told them that they were qualified to a maximum of $260,000. They wanted to know how I could get them more money. I looked at their credit reports and quickly found the answer.

I pointed out to them that they both had $10,000 unsecured lines of credit. They said that the bank had offered this to them several years ago but they had not used them. The zero balances confirmed their story. What they didn’t know was according to the bank’s rules, they had to consider these lines of credit as being fully utilized. The bank considered them as each carrying $300 in monthly payments that did not exist. My lenders took a zero balance as being a zero balance and I was able to get them more money and more house.

Last year I had a young man who wanted to buy a new home. He was very surprised when I told him he couldn’t afford it according to the new stress test rules. The reason being, he had a $950 a month truck payment. The only solutions available were to sell the truck, or negotiate a new payment plan by stretching out the payments for another year.

The moral of the story is that it’s important to let clients know that other debts outside of their mortgage can affect how much house they can qualify for, and that buying a vehicle or new toys like a trailer or boat before going to see their local mortgage broker, can be a costly mistake. Your Dominion Lending Centres mortgage broker can help you through the whole home buying process but you need to have them involved early in the process. Our job is to make people’s dreams come true and we do it a lot better than the banks.

David Cooke

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Clarity Mortgages in Calgary, AB.

5 THINGS TO KNOW BEFORE BUYING A RURAL PROPERTY

After several years as a home owner, my friend was set to buy the home of his dreams. He always wanted to own an acreage outside of town. He had visions of having a few animals, a small tractor and lots of space.
As a person with experience buying homes, he felt that he was ready and that he knew what he was getting into. Wrong. As soon as you consider buying a home outside of a municipality there are a number of things to consider, not the least being how different it is to get a mortgage.

Zoning – is the property zoned “residential”, “agricultural” or perhaps “country residential”?

Some lenders will not mortgage properties that are zoned agricultural. They may even dislike country residential properties. Why? If you default on your mortgage the process of foreclosing on an agricultural property is very different and difficult for lenders. Taking a farm away from a farmer means taking their livelihood away so there are many obstacles to this.
If you are buying a hobby farm, some lenders will object to you having more than two horses or even making money selling hay.

Water and Sewerage – if you are far from a city your water may come from a well and your sewerage may be in a septic tank. A good country realtor will recommend an inspection of the septic tank as a condition on the purchase offer. Be prepared for the inspection to cost more than it cost you in the city. Many lenders will also ask for a potability and flow test for the well. A house without water is very hard to sell.

Land – most lenders will mortgage a house, one outbuilding and up to 10 acres of land. Anything above this amount and it will not be considered in the mortgage. In other words, besides paying a minimum of 5% down payment you could end up having to pay out more cash to cover the second out building and the extra land being sold .

Appraisal – your appraisal will cost you more as the appraiser needs to travel farther to see the property. It may also come in low as rural properties do not turn over as quickly as city properties. Be prepared to have to come up with the difference between the selling price and the appraised value of the property.

Fire Insurance – living in the country can be nice but you are also far from fire hydrants and fire stations. Expect to pay more for home insurance.

Finally, if you are thinking about purchasing a home in a rural area, be sure to speak to a Dominion Lending Centres mortgage broker before you do anything. They can often recommend a realtor who specializes in rural properties and knows the areas better than the #1 top producer in your city or town.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Clarity Mortgages in Calgary, AB.

CMHC CHANGES TO ASSIST SELF-EMPLOYED BORROWERS

As a self-employed person myself, I was happy to hear that CMHC is willing to make some changes that will make it easier for us to qualify for a mortgage.
In an announcement on July 19, 2018, the CMHC has said “Self-employed Canadians represent a significant part of the Canadian workforce. These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates.” — Romy Bowers, Chief Commercial Officer, Canada Mortgage and Housing Corporation. These policy changes are to take effect Oct. 1, 2018.

Traditionally self-employed borrowers will write as many expenses as they can to minimize the income tax they pay each year. While this is a good tax-saving technique it means that often a realistic annual income can not be established high enough to meet mortgage qualification guidelines.
Plain speak, we don’t look good on paper.

Normally CMHC wants to see two years established business history to be able to determine an average income. But the agency said it will now make allowances for people who acquire existing businesses, can demonstrate sufficient cash reserves, who will be expecting predictable earnings and have previous training and education.
Take for example a borrower that has been an interior designer with a firm for the past eight years and in the same industry for the past 30 years, but just struck out on his own last year. His main work contract is with the firm he used to work for, but now he has the ability to pick up additional contracts from the industry in which he has vast connections.
Where previously he would have had to entertain a mortgage with an interest rate at least 1% higher than the best on the market and have to pay a fee, now he would be able to meet insurance requirements and get preferred rates.

The other change that CMHC has made is to allow for more flexible documentation of income and the ability to look at Statements of Business Professional Activity from a sole-proprietor’s income tax submission to support Add Backs of certain write-offs to support a grossing-up of income. Basically, recognizing that many write-offs are simply for tax-saving purposes and are not a reduction of actual income. This could mean a significant increase in income and buying power.

It is refreshing after years of government claw-backs and conservative policy changes to finally see the swing back in the other direction. Self-employed Canadians have taken on the burden of an often fluctuating income and responsible income tax management all for the ability to work for themselves. These measures will help them with the reward of being able to own their own home as well.

KRISTIN WOOLARD

Dominion Lending Centres – Accredited Mortgage Professional
Kristin is part of DLC National based in Port Coquitlam, BC.

BREAKING A MORTGAGE – CAN YOU DO IT?

Do you have a mortgage? So do I! Looks like we have something in common. Did you know that 6 out of 10 consumers break their mortgage 38 months into a 5-year term? That means that 60% of consumers break a 5-year term mortgage well before it’s due…but do you also know what the implications are of this? Let’s take a look!

People need to break a mortgage for a variety of reasons. Some of the most common include:

· Sale and purchase of a new home *without a portable mortgage
· To take equity out/refinance
· Relationship changes (ex. Divorce)
· Health challenges or life circumstances are altered

And a whole other variety of reasons. So what happens if you have one of the above reasons, or one of your own occur and you have to break your mortgage? Here is an example of what would happen:

Jane and John Smith have lived in their home for 2 years now. When they bought the home, they recognized that it would need some major renovations down the road, but they loved the location and the layout of the home. They purchased it for $300,000 and have 3 years left but would like to access some of the equity in their home and refinance the mortgage to afford some of the bigger home renovations. This refinancing would be with 3 years left on their current mortgage. So, what are Jane and John looking at for cost? There are two methods that are used to calculate the penalty:

POSTED RATE METHOD (used by major banks and some credit unions)
With this method, the Bank of Canada 5 year posted rate is used to calculate the penalty for Jane and John. Under this method, let’s assume that they were given a 2% discount at their bank thus giving us these numbers:

Bank of Canada Posted Rate for 5-year term: 5.14%
Bank Discount given: 2% (estimated amount given*)
Contract Rate: 3.14%

Exiting at the 2-year mark leaves 3 years left. For a 3-year term, the lenders posted rate. 3 year posted rate=3.44% less your discount of 2% gives you 1.44% From there, the interest rate differential is calculated.

Contract Rate: 3.14%
LESS 3-year term rate MINUS discount given: 1.45%
IRD Difference = 1.7%
MULTIPLE that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.1%

For the Smith’s $300,000 mortgage, that gives them a penalty of $15,300. YIKES!

Now, Jane and John were smart though and used their Dominion Lending Centres broker to get their mortgage. Because of this, a different method is used.

PUBLISHED RATE METHOD (used by broker lenders and most credit unions)

This method uses the lender published rates, which are generally much more in tune with what you will see on lender websites (and are generally much more reasonable). Here is the breakdown using this method:

Rate when you initially signed: 3.24%
Published Rate: 3.54%
Time left on contract: 3 years

To calculate the IRD on the remaining term left in the mortgage, the broker would do as follows:

Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
=0.30% IRD
MULTIPLE that by 3 years (term remaining)
0.90% of your mortgage balance

That would mean that the Smith’s would have a penalty of $2,700 on their $300,000 mortgage

A much more favourable and workable outcome! Keep in mind that with the above example is one that works only if the borrower has:
· Good credit
· Documented income
· Normal residential type property
· Fixed rate mortgage

For Variable rates mortgages, generally the penalty will be 3 months interest (no IRD applies).

If you find yourself in one of the scenarios that we listed at the start of this blog, or if you just need to get out of your mortgage early, be smart like Jane and John—review your options with a DLC Broker! In the example above, it saved them $12,600 to work with a broker! It really does pay to have a Mortgage Broker working for you.

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

IT’S ALL ABOUT THE PROPERTY

With all of the rule changes imposed by the federal and provincial governments around mortgage financing and real estate it may be more difficult to access financing. But don’t take it personally – sometimes it’s not you it’s the property.
When lenders underwrite your application for approval they look at you as a borrower but they also evaluate the property.

Here are some things to consider before you purchase.
The type of property — house, condo, duplex, heritage, etc.
1. Especially for condo properties the lender (and insurer if required) will look at the age of the building, the history of maintenance or lack there of and the location for marketability. Some lenders will limit their exposure with a maximum number of units in a building or avoid lending on buildings after a certain age for the property.
2. Properties with more than 4 units in them such as a 5-plex will be considered commercial real estate and the lender will evaluate on that basis.
3. Heritage homes (registered or designated) require a more detailed review and special consideration for financing.
4. Leasehold and co-op properties also have specific requirements for the maximum loan to value so more down payment may be required. More documentation will be required and interest rates will vary.

The location of the property— lenders always consider their risk in each market.
1. If the location limits the potential resale value for the building in the event of default by the borrower they may not lend on that property. Some lenders will reduce the loan amount for a building located out of major market areas or add a premium to the interest rate.
2. For properties with water access only or with no access to municipal utilities (water, heat, light and sewer) more details are required to assess the lender risk. Insurance coverage, water testing, seasonal access and condition of the property will be strong considerations.

The use for the property— personal or investment, recreational, previous activities.
1. If the owner occupied house has a suite then rental income may be considered.
2. If the house is purchased for investment then rental income is considered and the interest rate for rental rather than owner occupied is assigned. In these cases the rental income can increase the resale value of the property. However, the appraisal of the property will be reviewed to ensure the condition of the property and if any renovations were completed to add value.
3. There are lending options for a previous grow-op that come with higher interest rates and costs
4. In the case of a condo the property may have a commercial component in the building (shops below) or allowable space in the unit for business (live/work designation). In these cases some lenders may not have an appetite for financing. In some cases the lender may allow with approval by the insurer (CMHC, etc).
5. Purchasing a second home for recreational use will require a review if it is seasonal or year-round access.
6. If the property requires renovations the extent and cost to value of the property will be considered.

It is very important before you start looking at any property to talk with a Dominion Lending Centres mortgage broker. This allows you to discuss the specific requirements for any variation in the type of property you may want to purchase and allow ample time for a full financing review before subject removal on a purchase.

For example:
If you shift from a standard condo to a lease-hold property your down payment amount will likely change.
If you want to move to a small rural town or to a small island you may have to pay a higher rate or have less options and more documentation required on the property.
If you buy a home in one province but may be transferred to another province, some lenders such as credit unions are provincially based so you can’t port the mortgage.
If the condo you wish to buy has no deprecation report, a low contingency fund or big special levies pending, these will all be a red flag for the lender and should be a strong consideration for you as a buyer. A more thorough review will be required.

Always consult an experienced independent mortgage broker as your trusted advisor for all of your financing needs. You will appreciate the difference in the level of expertise to help you make an informed decision.

PAULINE TONKIN

Dominion Lending Centres – Accredited Mortgage Professional
Pauline is part of DLC Innovative Mortgage Solutions based in Coquitlam, BC.

REVERSE MORTGAGE – SOME COMMON MISCONCEPTIONS

The words reverse mortgage carry some negative connotation. What does it really mean? What makes reverse mortgage different than a regular or demand mortgage in Canada? There are no payments required if 1 applicant lives in the home. Payments can be made if they wish, they are truly optional.

No medical required and limited income and credit requirements.
Clients can receive up to 55% of the value of their home in tax free cash, depending primarily on their age, property type as well as location.

COMMON MISCONCEPTIONS & OBJECTIONS:

I heard they were restrictive and bad for seniors.

Much of the negative press around reverse mortgages originated out of the U.S. The rates, fees, and restrictions are quite different from what is offered in Canada. The reverse mortgage providers in Canada follow the same chartered bank rules as other major lenders.

The bank will own my house.

This is only a mortgage; the title and deed remain in the client’s name. The owner will not be asked to move, sell, or make payments for as long as at least 1 applicant lives in the property.

I’ll lose all my equity.

The maximum the lender can finance is 55% of the value of the home. The average advance is more like 35% of the value, leaving ample equity to fall back on. If the real estate market increases at an average of about 2% to 2.5% per year over time, clients will find their home value increasing just as much over time as the balance owed.

The costs are too high.

The closing costs are the same as a regular mortgage, approximately $1,800, includes the appraisal and lawyer fee.

A line of credit is better and cheaper.

A line of credit is a great solution for someone with good credit, cash flow and most importantly someone with a regular income.

I paid off my mortgage, I don’t want more debt.

Leveraging money from your home is not debt. It’s the equity accrued over the duration of ownership. Only the interest is debt.

Why are the rates higher than a regular mortgage?

Other lenders can lend out money at lower costs. This is because they have other services to sell the client to help recoup their cost. The regular mortgages also require a regular repayment frequency; thus, the lender is constantly receiving funds back to re-lend.

I heard they have high penalties and you can’t get out very easily.

This is well suited for seniors looking to keep the reverse mortgage in place for 3 or more years. There might be other solutions for a timeline that is shorter. Penalties are always waived upon death of the last homeowner. Penalties are reduced by 50% if selling and moving into a care facility.

I don’t need money very much so it’s not worth it.

The newest program offered is called Income Advantage. It allows clients to access money on their own timeline, when they need it or a pre-determined auto-advance. Borrower only pays on the amount advanced. The minimum advance required is $25,000.

If you’d like to talk to see if a reverse mortgage is a good fit for you, please don’t hesitate to reach out to a Dominion Lending Centres mortgage professional.

MICHAEL HALLETT

Dominion Lending Centres – Accredited Mortgage Professional
Michael is part of DLC Producers West Financial based in Coquitlam, BC

7 QUESTIONS TO HELP YOU DECIDE IF YOU SHOULD PURSUE A HELOC, REFINANCE OR SECOND MORTGAGE

HELOC, Refinance or Second/Third Mortgages? Which one should you choose to go with? If you have decided to tap into the equity in your home, the three can seem to be interchangeable at times and for many consumers can be a difficult decision on which one to select. We have laid out seven questions to guide you through the decision, for your unique situation. We’ve also broken this down into three categories, Equity, Payment and Availability.

PAYMENT

1. HOW WILL I RECEIVE THE MONEY?
• HELOC: Home Equity Line of Credit-withdraw as needed
• Refinance: Lump Sum
• Private Second/Third Mortgages: Lump Sum

2. WHAT IS THE INTEREST RATE?
• HELOC: Prime Rate + premium 0.5%-1.5%
• Refinance: Best fixed or variable rate (dependent on what you and your broker decide)
• Private Second/Third Mortgages: 6.95%-19.95% typically with lender/broker fees

HOW IS THE INTEREST CALCULATED?
• HELOC: interest accrues on what you withdraw from your home’s equity.
• Refinance: interest accrues on the full loan amount that was taken out.
• Private Second/Third Mortgages: interest accrues on the full loan amount that was taken out.

3. WHAT IS MY PAYMENT?
• HELOC: You pay back the interest only, however, most banks will have a minimum rule so even if your HELOC value is $0 you will still have to pay a nominal fee each month.
• Refinance: You will pay the interest, plus the principle principal loan amount.
• Private Second/Third Mortgages: You can pay interest only payment or pay the interest plus the principle principal loan amount.

EQUITY

4. HOW MUCH EQUITY DO I NEED TO HAVE IN MY HOME IN ORDER TO ACCESS IT?
• HELOC: 20% minimum
• Refinance: 20% minimum
• Private Second/Third Mortgages: 5-10% minimum

5. HOW MUCH EQUITY CAN ACCESS?
• HELOC: You can access up to 80%
• Refinance: 80% of your home’s equity is accessible
o HELOC portion can be up to 65% of your home’s equity
o Mortgage portion must be 15% – as per Bank of Canada guidelines
• Private Second/Third Mortgages: 1st mortgage + 2nd/3rd mortgages up to 95% of home value

AVAILABILITY

6. ARE THERE FEES ASSOCIATED WITH IT?
• HELOC: No fees associated with it
o At times
 Appraisal fees
 Legal fees
• Refinance: Prepayment penalty of Interest Rate Differential or 3 months interest* depends on your current mortgage terms.
o At times
 Appraisal fees
 Legal fees
• Second/Third Mortgage: There are several fees associated with a second mortgage including:
• Appraisal fees
• Legal fees
• Lenders fees
• Broker Fees

***One final note on refinancing: With the new stress-testing you will have to qualify at a higher rate and you will also have to consider that lenders can no longer insure the product… meaning there are many different rates with different lenders.

Once you answer each of these questions and review your options, you can decide which one is best suited for your needs. You can also always call a Dominion Lending Centres Mortgage Broker and discuss it. DLC brokers are well versed in each of these options and can direct you towards the best option for your situation. We’ve seen a variety of situations with our clients and have helped each of them reach their goals.

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.