22 Oct

CMHC Changes to Assist Self-Employed Borrowers

General

Posted by: Trent Glover

 

Some good news for self employed!

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

Kristin Woolard

18 Oct

Bank or Mortgage Broker?

General

Posted by: Trent Glover

Great explanation here on the difference between using a bank or a broker!

 

 

 

 

 

Mortgages are like vehicles. A bank is similar to the brand, Ford or Toyota for example. How long you have a mortgage before it’s time to renew is like the model, a Fusion or Camry. The rate is similar to the car’s paint color, and the mortgage benefits such as prepayment privileges and portability are like the car’s benefits; 4-wheel drive, hatchback, four doors instead of two, etc.

A bank is like a sales person at a Ford or Toyota dealership. He or she is an expert, they know everything about every car on their lot; engine size, warranty, all available colours, and their fuel ratings. He or she can match any car to your needs and lifestyle, as long as it’s sold at their lot.

But what if they don’t have the most fuel efficient car? What if you don’t like the design or you need four doors and a trunk and all they have is two doors and a hatchback? Are you still going to buy from that dealership just because you went there first? No, you’re going down the street to check out the Chevrolet, maybe even BMW, Mazda, or the new Chrysler dealership. That sales person doesn’t want you to go buy from another lot down the street, but you are buying to satisfy your needs, not the dealership’s needs of selling their own cars.

Now imagine a dealership that sold every single make and model of vehicle. Imagine you could choose one of their sales people, and have them work only for you. They know just as much or even more about every make and model, they do all the research for you and tell you what you need to look for, they ask you the important questions; they have your best interest. That is a mortgage broker, your own personal expert.

Now, you may not need a personal expert to buy a car. But what about mortgages? Is a 0.10% lower interest rate a lot? Or will a 20% prepayment privilege instead of 10% be more advantageous? Can you switch lenders and move your mortgage? $15,000 or $5,000 penalty? How is it calculated? Fixed or variable? Is a collateral charge good or bad? 2-year term or 5-year? Big bank or monoline lender? How about credit unions? The list goes on.

So, a bank or mortgage broker? Put it this way; would you buy from the first dealership you visit or hire an expert? If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

Ryan Oake

17 Oct

Legalized Marijuana and the Canadian Housing Market

General

Posted by: Trent Glover

17 Oct 2018

Some relevant info here, check it out!

Legalized Marijuana and the Canadian Housing Market

October 17th will be an important day in Canada’s social history. It’s the day when we are going to have legalized marijuana across the country. We will be the second major country in the world to do this. How does this affect mortgage brokers like myself? When someone comes to me to obtain financing for a home purchase and the sellers have disclosed that they smoked pot in the house or grew a few plants , how will this affect their home purchase?

A few years ago, someone disclosed that their home had been a grow-op six years previously and their home insurance company cancelled their policy citing safety issues. I could see this happening with both lenders and mortgage default insurers like CMHC, Genworth and Canada Guaranty. A recent article by a member of the Canadian Real Estate Association suggested that both lenders and insurers might ask for a complete home inspection. It was suggested that sellers who have grown a few plants might want to get a head of a problem and have an inspection before they list the property. If there are any issues of mold or electrical systems that are not up to code, they can remedy this and have a quick sale.

I contacted both CMHC and Genworth Canada to find out if any policy changes are in the works. CMHC told me that there’s nothing planned beyond what is already on the books. If there’s been a grow operation it needs to be inspected and remediation done before they will insure. Genworth says that nothing has been announced as of yet. Any changes will result in an official announcement to all brokers.
Mortgage brokers may want to call their realtor referral partners and discuss this with them to see if local real estate authorities have any changes planned. If nothing else it will be good to touch base with your realtors to find out how the market is in your area.

If you are thinking about smoking pot in your home or want to grow a few plants , contact your local Dominion Lending Centres mortgage professional first to find out if this could affect your house value or sale in the future.

David Cooke

David Cooke

Dominion Lending Centres – Accredited Mortgage Professional

1 Oct

Breaking Up Is Hard to Do!

General

Posted by: Trent Glover

So the reality of the world is that a large number of marriages end up in divorce.  This is a hard enough time in anyone’s life so the lenders and the mortgage insurers have come up with a product that can help.  It is the ability to refinance your matrimonial home up to 95% of its value to payout your ex their portion of the equity and perhaps even some of the debts you incurred together.  This is a specialty product and there are certain things you must do.  Let’s take a look shall we??

Step 1.  You must complete a legal separation agreement through a lawyer.  Even if it is the most amicable split in the history of mankind, this has to be done.  The reason for this is you want your rights protected fully.  If you are the one staying in the house, you want to make sure that your ex has legally and irrevocably given up their rights to the home.  If you are the one leaving, you want to make sure that your name is removed from the title so there is no question of you have any further obligation where it is concerned.   There will be a cost associated with the legal separation agreement. How much?  I would not dare to say but I would budget a bare minimum of $2500.  It is also important to keep in mind that legal matters often take more time than anticipated so don’t imagine you will be able to get this completed in a hurry.  Make sure that you address any debts taken on during the marriage.  These can be paid out from the proceeds of the new mortgage but only if they are listed.

 

Step 2.  Order an appraisal.  This has 2 reasons.  The first is that you and your ex will be able to determine the true value of the home through an impartial third party.  The second is that most lenders require it in this situation.

Step 3. Write up an offer to purchase.  This one always catches people off guard.  Why should you have to write up an offer to purchase on a property you already own?  The answer is just this.  The lenders require it.  This legally binding document shows the agreed upon price and the final closing date to which both parties have agreed. This can be completed through your lawyer, with the help of a willing Real estate professional or on your own with a form available online.

Step 4.  Get a mortgage.  You have likely been in contact with your mortgage professional before now but if not, then now is the time.  You are going to have to provide:

  • Separation Agreement
  • Appraisal
  • Offer to Purchase
  • Letter of employment and Paystub
  • Last 2 years Notice of Assessments or T4’s
  • Any other required documentation

It is very important to note that you will incur new mortgage insurance premiums if you go right to 95% of the home’s value even if you had already done so on the same property.  This is a brand new application with you as the sole borrower so a full new premium applies.   This is how it could look:

 

 

Home Value              $300,000

5% Equity                    $15,000

New Mortgage for   $285,000

Insurance Premium $8977.50

Total Loan            $293,977.50

 

So that my mortgage minions is a product which can help you through a very challenging time.  As always we are more than happy to answer any of your questions.  Until next time!

2 Sep

Did your bank give you a rate hold or an actual pre-approval?

General

Posted by: Trent Glover

Securing a rate hold is like having   insurance on your mortgage rate – you no longer have to worry about mortgage   rates increasing while you find your new home over the next 90-120 days. And   if rates drop within that same period, so too will your pre-approved rate.

For instance, if you obtain a 3.75%   rate hold and then global risks subside and the economy strongly recovers   over the next three to four months, that 3.75% could easily jump to 4.50% or   higher. In this case, your rate hold for 3.75% would have saved you   three-quarters of a percentage point, which would translate to a savings of a   significant amount of money over the term of your mortgage.

But a rate hold means nothing if you   don’t meet the lender’s qualifications. By working with me to obtain a pre-approval   and a rate hold, you can be confident you have access to mortgage financing   and you will know how much you can spend before you head out shopping for a   property.

It’s important to note, however, that   there is a significant difference between being pre-

  

approved and pre-qualified.   In order to obtain a pre-approval, the lender fully underwrites the deal,   whereas with a pre-qualification only the most basic details are considered.   Remember that many   banks will only issue a pre-qualification.

There are several reasons why you may   want to secure a rate hold, including when you:

  •   Are thinking of buying a home in the   next four months
  •   Are considering locking in your   variable rate to a five-year fixed if rates rise, but your lender won’t hold   a good rate for you
  •   Are casually thinking of refinancing   but prefer to wait for fixed rates to rise so that your interest rate   differential (IRD) penalty falls
  •   You want to hold a rate on a   different term than you were pre-approved for by a different lender

As always, if you have any questions   about rate holds, pre-approvals or your mortgage in general, I’m here to   help!

 

31 Aug

Transitioning from Renter to Homeowner

General

Posted by: Trent Glover

 

 

 

 

Transitioning from Renter to Homeowner

 

 

 

 

 

Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. That’s why it’s essential to surround yourself with a team of experts – including both a mortgage and real estate professional – to walk you through the steps to home ownership, answer all of your questions and concerns, help you decide what kind of home you can afford and get you pre-approved for a mortgage.

 

 

 

With interest rates still hovering around “emergency” levels – low rates never before seen by your parents and even your grandparents – now is an ideal time for first-time homebuyers to embark upon homeownership.

 

 

 

 

 

Down payment

 

The main reason many renters feel they can’t afford to purchase a home has to do with saving for a down payment. But there are many solutions available today that can help first-time buyers with their down payments.

 

 

 

Many lenders will allow for a gifted or borrowed down payment. And of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment.

 

 

 

Better yet, there are programs available from some financial institutions where they will offer a “free down payment” or a “flex down”. Of course, you will end up paying about 1% more in your interest rate, but the program will help you get in the homeownership door and start accumulating equity earlier. You must, however, stay with the original lender for the full initial five-year term or else you’ll have to pay the down payment back.

 

 

 

Last year, a $5,000 increase was made to the RRSP Home Buyers’ Plan, meaning first-time homebuyers can now withdraw up to $25,000 from their RRSPs for a down payment – tax- and interest-free.

 

 

 

And if you’re part of a couple making a home purchase together, you can each withdraw up to $25,000 from your RRSPs.

 

 

 

 

 

Educating and coaching

 

There’s an endless amount of information available to prospective homeowners – through the Internet, friends, family members and anyone willing to voice their opinion on a given subject. What you really need, therefore, is education and coaching as opposed to being bombarded with more information.

 

 

 

Speaking to a mortgage professional in order to obtain a pre-approval prior to setting out home shopping can help set your mind at ease, because many first-time buyers are overwhelmed by the financing and buying processes, and often don’t know what it truly costs to purchase a home. Real examples can go a long way in showing you what it costs to buy a home in your area versus what you’re currently paying in rent. For instance, if a renter is currently paying $800 per month, with that same payment (including taxes) they could afford to buy a $120,000 home. And assuming real estate values increase 2% per year over the next five years, the new homeowner would have accumulated $27,000 in equity in their home. If they continue renting, however, this $27,000 has generated equity in someone else’s home.

 

31 Aug

Transitioning from Renter to Homeowner

General

Posted by: Trent Glover

 

 

 

 

Transitioning from Renter to Homeowner

 

 

 

 

 

Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. That’s why it’s essential to surround yourself with a team of experts – including both a mortgage and real estate professional – to walk you through the steps to home ownership, answer all of your questions and concerns, help you decide what kind of home you can afford and get you pre-approved for a mortgage.

 

 

 

With interest rates still hovering around “emergency” levels – low rates never before seen by your parents and even your grandparents – now is an ideal time for first-time homebuyers to embark upon homeownership.

 

 

 

 

 

Down payment

 

The main reason many renters feel they can’t afford to purchase a home has to do with saving for a down payment. But there are many solutions available today that can help first-time buyers with their down payments.

 

 

 

Many lenders will allow for a gifted or borrowed down payment. And of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment.

 

 

 

Better yet, there are programs available from some financial institutions where they will offer a “free down payment” or a “flex down”. Of course, you will end up paying about 1% more in your interest rate, but the program will help you get in the homeownership door and start accumulating equity earlier. You must, however, stay with the original lender for the full initial five-year term or else you’ll have to pay the down payment back.

 

 

 

Last year, a $5,000 increase was made to the RRSP Home Buyers’ Plan, meaning first-time homebuyers can now withdraw up to $25,000 from their RRSPs for a down payment – tax- and interest-free.

 

 

 

And if you’re part of a couple making a home purchase together, you can each withdraw up to $25,000 from your RRSPs.

 

 

 

 

 

Educating and coaching

 

There’s an endless amount of information available to prospective homeowners – through the Internet, friends, family members and anyone willing to voice their opinion on a given subject. What you really need, therefore, is education and coaching as opposed to being bombarded with more information.

 

 

 

Speaking to a mortgage professional in order to obtain a pre-approval prior to setting out home shopping can help set your mind at ease, because many first-time buyers are overwhelmed by the financing and buying processes, and often don’t know what it truly costs to purchase a home. Real examples can go a long way in showing you what it costs to buy a home in your area versus what you’re currently paying in rent. For instance, if a renter is currently paying $800 per month, with that same payment (including taxes) they could afford to buy a $120,000 home. And assuming real estate values increase 2% per year over the next five years, the new homeowner would have accumulated $27,000 in equity in their home. If they continue renting, however, this $27,000 has generated equity in someone else’s home.

 

7 Dec

It can pay to break your mortgage!

General

Posted by: Trent Glover

With mortgage rates still hovering near historic lows, chances are you’ve considered breaking your current mortgage and renewing now before rates rise any further.

Perhaps you want to free up cash for such things as renovations, travel or putting towards your children’s education? Or maybe you want to pay down debt or pay your mortgage off faster?

If you’ve thought about breaking your mortgage and taking advantage of these historically low rates, feel free to give me a call to discuss your options.

In some cases, the penalty can be quite substantial if you aren’t very far into your mortgage term, but we can determine if breaking your mortgage now will benefit you long term.

People often assume the penalty for breaking a mortgage amounts to three months’ interest payments so, when they crunch the numbers, it doesn’t seem so bad. In most cases, however, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

 

The IRD is the difference between the interest rate on your mortgage contract and today’s rate, which is the rate at which the lender can relend the money. And with rates so low these days, the IRD tends to be greater than three months’ interest. Because this is a way for banks to recuperate any losses, for some people, breaking and renegotiating at a lower rate without careful planning can mean they come out no further ahead.

Keep in mind, however, that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, the size of your down payment and whether you opted for a “cash back” mortgage can influence penalties.

While breaking a mortgage and paying penalties based on the IRD can result in a break-even proposition in the short term, if you look at the big picture, you’ll see that the true savings are long term – as we know that rates will be higher in the years to come. Your current goal is to secure a long-term rate commitment before it is too late, and here lies the significant future savings.

As always, if you have questions about breaking your mortgage to secure a lower rate, or general mortgage questions, I’m here to help!