Month: November 2015
Want a few do-it-yourself home projects that you can accomplish that add value to your home? Check out this list of 10 affordable home improvement projects from Cupolasnmore.com.
That Oh So Important Financing Condition
There you are, sitting down with your realtor and preparing an offer to purchase for that amazing home that you just looked at this afternoon. You get to the point in the conversation with your realtor about the need for a financing condition and you’re trying to remember what you talked about with your Mortgage Broker earlier in the week….were you approved? Pre-approved? Pre-qualified?
So here’s the thing, when it comes to placing an offer on a new property, the financing condition should always be there. The only reason for leaving the financing condition out of an offer is because you know that you could dip into your savings account right now and buy the house with cash if you had too.
If you cannot purchase the house with cash, then you really should have that pesky finance condition in the offer and here is why…
We know already that you’ve met with your Mortgage Broker, they have everything on file and they have told you that you’re pre-approved. It is important to understand that the pre-approval they issued is based on the information they have collected about you. However, they have no information about the house that you’re eventually going to purchase.
When your future lender reviews an application in full, there are two sides to your application. There’s you and then there’s the house. It’s important to note that the lender is investing in the whole package and at this point, no one knew what house you were going to buy. Your Mortgage Broker isn’t likely to receive any information on the specific property until you have an accepted offer. It is at that point when they will update your application and send in all of the details for a formal approval.
So you’re now wondering why all of this matters considering that during your pre-approval meeting your Mortgage Broker told you that you’re the perfect clients (great income, great credit, great down payment and just all around great people).
But what about the property? The lenders (and CMHC if you have less than 20% down) want to know that the same is true about the house you’re buying. Here are just a few questions that they are asking themselves about the house:
- Is it being purchased for fair market value?
- Is it located in a marketable neighborhood?
- Are there any major or obvious defects that could affect its value
- Is the house a previous grow op?
If something negative about the house comes back as part of the review, it could mean that the lender (or CMHC) could decline to finance the property. The financing condition gives you a way out of the agreement should something happen at this point. If you don’t have a financing condition, you could end up being legally tied to purchasing the home, with or without financing lined up. Definitely not a position you want to be in, so take the time to protect yourself by ensuring your offer to purchase includes a financing condition – and speak with us at Dominion Lending Centres.
Can’t qualify for a bank mortgage? How do private mortgages work?
There is almost ALWAYS a mortgage solution. New to Canada? Self Employed? Maybe a few credit glitches in your past? You just need to ask the right mortgage consultant. Not everyone can qualify for bank mortgages today. It doesn’t make you a bad person, it makes you a business savvy person getting the best mortgage for your situation! With the mortgage rules constantly changing, private or alternative mortgages are becoming the only way some people can refinance or buy.
Did you know that according to a Globe and Mail report “self-employed now represent about 15.6 per cent of all working Canadians”?
There is a misconception that alternative or private mortgages are only for bad people. Some folks call it “subprime”. Don’t let the word “subprime” scare you as our lending practices here in Canada are very strict and all federally regulated.
What is Private Mortgage Financing and who uses it?
Private mortgage financing can be an excellent alternative for those that are either:
1. Self-Employed and declare little or no income
2. Micro-condos that are less than 600sqft (banks generally won’t finance these)
3. Foreign investors
4. Non-residents of Canada
5. Credit Challenged
6. Owe CRA back taxes
7. Property Taxes that are in arrears
8. People going through a foreclosure
9. Construction financing and commercial loans
10. Equity takeouts for starting a business
11. Short term financing that has is open and no penalties
12. Don’t want to refinance their 1st bank mortgage as the penalties are to high.
13. Requiring funds up to $20 million dollars
Banks and many mortgage brokers don’t specialize in private financing. It’s vital to ensure these types of mortgage files are submitted and packaged differently than a traditional bank type mortgage (Also known as A financing).
If it’s submitted without care and due diligence, you may pay a higher rate and HEFTY fees!
When you are applying for a traditional mortgage (meaning you are a typical T4 employed client, good credit and saved down payment) the CLIENT is qualified based on the PERSON first, then the property.
When you apply for private financing, the PROPERTY is qualified for the mortgage first and then a few details about the client.
The property and location, location, location is what the lender is lending on. A property in a marketable area such as Vancouver Westside, North Vancouver and West Vancouver are PRIME marketable properties that private lenders like. The risk is lower, so they can offer better rates. Certainly properties anywhere in Canada are all options for private financing, even in small communities as well. Mortgages are also available for remediated, non-remediated and legal grow op properties as well.
What about the Rates?
Valuable and marketable properties can get financing with 15-20% down, but you can expect to pay 2-3% higher rates than if you have 25% down, as there is more risk taken by the lender. The rates for a 1st mortgage today (2015) are as low as 5.75% for a strong mortgage file to 10% for a less desirable property. 2nd mortgages can range 12-15%. The bonus of course, it is you can opt to pay “interest only” and it can be fully open so you don’t have to pay the penalty to break the mortgage.
I hear there are fees?
There are almost always fees for private mortgages. This is how the broker is paid for working on your deal. A traditional bank mortgage doesn’t have fees as the bank pays the broker. Fees depend on your broker. I have seen as low as $500 to as high as 5% of the amount you’re borrowing; the average is 1% (for example: $400k mortgage would have a $4,000 fee), so good to ask this upfront and ask a few brokers that SPECIALIZE in private financing.
Having an EXIT strategy
If you get short term (1-2 year) private financing, as your mortgage broker, I want to ensure we have an “exit strategy” plan in place it have to moved to a traditional low rate mortgage soon. This is especially true if the reason for the private financing is credit, income or back taxes. We will work together to ensure this plan happens and is followed through.
What might this look like?
You want to purchase a $500,000 home in Vancouver
You’re paying fees to CHMC or another insurer with less than 20% down, so let’s look at fees in this hypothetical scenario:
With a traditional mortgage:
Purchase: $500,000 home
Down payment: 15% down – $75,000
CMHC fee: $7650.00 (built into the mortgage)
Payments per month: $1979.30 based on 2.69%, 5 year fixed, 25 year amortization
and LOTS of personal and property documents required! Here you would need excellent credit, proof of income, good job, saved down payment and weeks to close the deal.
20% down or $100,000 down
$5,000 CMHC fee
Payments: $1852.81 per month.
Alternative mortgage, the simpler approach:
Purchase: $500,000 home
Down payment: 15% down – $75,000
Lender/broker fee: $8653.00 with 2% fee
Payments per month: $2271.51 per month, 6.5%, interest only, 25 year amortization.
20% down – $8,000 fee
Payments: $2679.30 per month, Interest Only payments.
Next to no personal documents required to qualify
These are just estimates and ideas, but you get the idea. You’re paying a fee…one way or another.
This is just a sample…and certainly not a black-and-white scenario. Traditional mortgages qualify on strict matrix type qualifying rules, where private mortgages allow us to “think outside the box” to get your mortgage approved at the best rate for the property you are buying or refinancing. It is KEY to work with a mortgage expert that specializes in private financing and has connections and a good relationship to lenders.
There are many private lenders and their rates, fees and what they will fund vary. Contact us a Dominion Lending Centres so we can help you problem solve and find a reasonable solution that your bank can’t offer you. It’s quick and not as costly as it may seem, if it meets your immediate needs.
October 21, just two days after the sweeping change brought in by the Federal Election, the Bank of Canada had their scheduled meeting and, as expected, once again determined to leave interest rates unchanged in an announcement that included language suggesting rates are going to remain stable through 2016 and into 2017. No kneejerk reactions for the level heads that dictate a large part of monetary policy. Good to see.
So what does the other news of the week mean for us and our mortgage?
The election results and subsequent media coverage have been more a story of Justin Trudeau the man, than the story of the sweeping win for the Liberal party. No doubt many home owners went to bed Monday Oct 19th wondering if, on collective spending promises exceeding ten billion dollars, they would be waking up to increased interest rates the very next day. Clearly, not so far.
One man, or even one political party, cannot claim complete responsibility for the steadily lower interest rates we have enjoyed over the past decade, which for most households has meant dollars in their pockets. Nor can one man or one political party be thought to have an immediate or even short-term impact on the economy such that interest rates rise by any significant amount in the immediate future.
Adjusting interest rates, along with the economy of Canada, is a bit more complicated process. It is contingent on many things which are well beyond the control of any one man, even one as calm, cool, and collected as Mr. Trudeau appears to be.
Maternity & Paternity Leave & Your Mortgage
Often the impending arrival of a new addition gives one pause to re-evaluate their current environment. We often decide that bigger cars and bigger living quarters are in order and ideally try to take care of these things prior to the big day, or very soon thereafter.
There are a few key points around mortgages and new additions.
- The monthly payment on a leased or financed car can have a limiting effect on mortgage qualifications. Housing first, vehicles second.
- Being on maternity or paternity leave while shopping for a home is not a showstopper. The key is a job letter that clearly defines a return to work date, i.e., you have a full-time income position to return to.
- Being on maternity or paternity leave, or even having a new car payment in your life will not affect your ability to renew your mortgage with your current lender, although it can make moving to a new lender more difficult.
Before adding a car payment, or before listing you current residence for sale, give us a call.
As always, I’m here to help!