MORTGAGE FACTS TO KNOW BEFORE YOU BUY THIS SPRING

Mortgage Tips Barb Horvat 29 May

Buying a home can be a really exciting time, so the last thing we want is for you to be hit by any surprises. Let’s take a look at five things to keep in mind before you write an offer.

  1. Get your mortgage in place before you write an offer. Meeting or speaking to an actual person who will take your application and pull your credit is the best strategy. You will get a firm amount of how much of a mortgage you may qualify for. This is also a great time to make some decisions like if you want a fixed rate or variable rate, if you want a monthly or biweekly payment. You are far removed from stress of meeting any condition of financing dates at this time so you have the luxury of time to ask your questions.
  2.  Be ready to provide the necessary paperwork. If I was lending someone $300,000 I would want to know that they could pay me back and so would you I’m sure. You are going to be required to provide a lot of paperwork. Getting a complete list ahead of time and starting to gather it really makes it less stressful for you once the offer is accepted.
  3.  There are extra costs. It is not just a matter of having the down payment. You will also have to pay for legal fees, title insurance, property tax adjustment if necessary, mortgage default premiums and on and on. That is why you have to have at least five per cent down and an additional 1.5 per cent of the purchase price in your account to cover these costs. The banks also really like to see that you have a fallback position of extra cash in case you get sick or downsized.
  4.  You can get extra funds for improvements to the new home added to your mortgage. Most lenders allow up to $40,000 for upgrades. These have to be things such as flooring, windows, exterior, kitchen, bathroom or any other manner of upgrade which will stay with the property. The funds are held at the lawyer’s office until an appraiser verifies the work is complete so you will have to be able to cover any costs in the short term.
  5.  Here is how the process goes.

• You get the mortgage pre-approval
• Find a home and place an offer with a condition of financing date and likely a home inspection one as well
• The application is sent off for approval based on both you and the property and you provide all the necessary paperwork
• The bank says they are 100% happy with you and you say you are 100% happy with the offer of financing and you remove the financing condition. Do not make any changes to your financial picture after you remove the condition. It can be cancelled if you leave your job, take on more debt or rack up the credit cards.
• You meet with the lawyer to provide the balance of the down payment, cover the other costs
• Day of possession you are given the keys once it is confirmed that the funds have transferred to the seller
• Congrats! You own an home

This has been a crash course in buying a home, but there are so many resources online or available to you for free over the phone that it shouldn’t be too awful. Happy house hunting and we look forward to helping you at Dominion Lending Centres!

PAM PIKKERT

Dominion Lending Centres – Accredited Mortgage Professional
Pam is part of DLC Regional Mortgage Group based in Red Deer, AB.

SELF EMPLOYED? 8 TIPS TO HELP YOU QUALIFY FOR A MORTGAGE

General Barb Horvat 28 May

Since 2012, it’s become the wild west of mortgage options out there for those folks who are living the Canadian dream of being Self Employed (also known as BFS, Business for Self). 

In 2012, the Office of the Superintendent of Financial Institutions introduced Guideline B-20, which required federally regulated banks to tighten the rules for approving mortgages. Without boring you with what that mortgage jargon translates to you, the bottom line means you “generally” have to qualify now from your Line 150 of your tax return. That’s NET income, not GROSS income.

Don’t freak out yet! There is good new below…

As BFS folks, one of the perks of being self-employed is we don’t pay as much in taxes as we have business write offs we can use to lower our GROSS income. We are now being penalized with many lenders with higher rates and fees with these new rules.

I wish there was a simple book with straight up rules for the BFS mortgages, but there really isn’t.
Why?
• It depends on your credit
• It depends on where your income is coming from and how long. Is it commissioned, contract, invoiced, under the table or under your mattress?
• It depends on your down payment.
• It depends on so many factors…hence you really need a mortgage consultant who really understands BFS mortgage programs.
There are a few programs you may fit under: Stated Income, BFS Conventional, or Alternative or Private lender. All of them are slightly different, but you will fit somewhere with someone.

Not to pick favourites, but here are a few lenders and their programs (through your Dominion Lending Centres mortgage professional):
B2B Bank has a fantastic BFS Expanded Program (actually nine in total) that allows 12 months of bank statements showing income vs those Notice of Assessments. They also don’t charge any mortgage premiums or fees!
Street Capital has an insured Stated Income to 90% (i.e. 10% down payment) program. You have to be two years in business filed, 5% of your down payment has to come from your own savings, and no “commissioned sales” folks here.

Common Questions I get:

Q: I was working with a company as a computer systems analyst for the past three years. Now I am self employed as a computer systems analyst. Can I still qualify for a mortgage with less than two years as filed self employed?
A: Yes, as long as you are in the same job role, you should have no issues.

Q: I heard you need 20% down to qualify for Self Employed Mortgage.
A: There are a few lenders that allow for 10% down now.

Q: I am a waitress and make most of my money in tips. How can I use this to qualify for a mortgage.
A: If you’re not declaring your tips on your taxes, then some lenders will look at 6 months deposits into your account.

Q: Can I refinance to pay off my Canada Revenue debt I owe:
A: Yes, very common practice.

Kiki’s Korner of Self Employed mortgage tips:
1. Keep your business money deposited in one account. Separate your expenses and your income accounts.
2. Leases or Loans on vehicles for business should come out of your BUSINESS account.
3. If your company is paying you a “stipend” or “allowance” for you vehicle, make sure it’s taxable income. You will need two years to use this as income.
4. Make sure your invoices match your deposits.
5. When depositing “other monies” i.e.: tips, tag it on your deposit slip so it shows up online with your deposit.
6. Keep important documents such as articles of incorporation, GST/HST registration or business licence in one folder with all your tax returns. Keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction. Be organized.
7. If you’re not filing business financials, file T2’s if you are incorporated. Filing business financials may be more expensive, but worth it for mortgage qualifying with more lenders.
8. If you pay yourself dividend income, you will need two years of this form of income.

If you’re in business for yourself, congratulations! Keep up the good work. There are many moving parts to planning and qualifying for a self-employed mortgage, so if you’re just starting to look at the idea of a mortgage – plan NOW!

I too am self-employed and work with many professionals such as lawyers, doctors, pharmacists, management consultants and self-employed folks such as truck drivers and waitresses. You’re all important and have different incomes we can use to make your dream come true.

KIKI BERG

Dominion Lending Centres – Accredited Mortgage Professional
Kiki is part of DLC Hilltop Financial based in Langley, BC.

HOW MORTGAGE RATES WORK

General Barb Horvat 27 May

Ever wonder how your mortgage rate is determined? What factors make it jump from percentage to percentage? We are getting down to the nitty gritty today and giving you the facts on what impacts mortgage rates.

What affects a Mortgage Rate?

There are 10 factors that affect a mortgage rate:

1. Location
Depending on which province your home is located in, this will have an overall effect on your mortgage rate. Generally speaking, provinces with more competitive markets will have lower rates.

2. Rate Hold
A rate hold is a guarantee on a rate for 90-120 days. If your closing dates do not fall within this timeframe, then your hold will be re-assessed. If your rate hold is re-assessed and the lender’s rates at that time of re-assessment are higher than your initial rate, then your rates will go up accordingly. We always follow up with all of our clients on a regular basis to avoid this situation whenever possible!

3. Refinancing
Movement on your mortgage of any form can affect your rate typically when you are working with your existing lender. New buyers will have lower rates than refinances, but refinances will have lower rates than mortgage transfers. Mortgage Brokers can access multiple lenders to find the most suitable product for their client’s unique needs.

4. Home Type
Lender’s assess the risk associated with your home type. Some properties are viewed as higher risk than others. If the subject property is considered higher risk, the lender may require higher rates.

5. Income Property/ Vacation Home
As previously mentioned, lenders assess the risk on your property. If you are buying an income property or a vacation home than the lender can assess at a higher risk and a higher rate may apply. This is one of the major benefits to having a mortgage broker on your team! They have access to a variety of lenders that can offer you a rate lower than others as they can compare a large variety.

6. Credit Score
We have talked a lot about credit on our blog, and there is a reason for that. Your credit score is a large determining factor for your rate. Lenders want to see that you have a history of managing your credit well and that you will be able to pay back the lender overtime. For more information on fixing your credit, check out our free e-book, Credit Medic.

7. Insured or uninsured
With the changes that the federal government made back in October 2016 this has had a significant impact on mortgage rates if your mortgage is insured or not. Read our Change of Space guide to find out the full impact of these changes.

8. Fixed/Variable Rate
The type of rate you are wanting to get will also affect your rate. Fixed rates are based on the bond market and variable rates are based on the Bank of Canada (economy).

9. Loan to Value (LVT)
The higher the Loan to Value the higher the risk. You can have someone who has a $1 million mortgage but has $2 million in equity in that property and they would be viewed as a lower risk than someone who has a $200,000 mortgage and their property is only worth $220,000. To boot with the federal changes, the person with the higher risk mortgage (insured) is likely to get a more competitive interest rate than the client with $2 million in equity.

10. Income level
The final part in this rather large equation is your income level. Although this does not necessarily impact the rate itself, it does impact your purchasing power and the amount you are able to put down on a home. Essentially indirectly impacting the rate.

Each of these factors plays a factor in the rate you will be able to get through a lender. The easiest way to get the lowest rate is to work with a dedicated mortgage professional. They will put together a fail-proof plan to get you the sharpest rate. They also have access to a variety of lenders which saves you the time and trouble of shopping for your mortgage on your own. As a final point, mortgage brokers can also assess your unique situation and find the right mortgage for you. Their goal is to see you successfully find and afford the home of your dreams and set you up for future success.

GEOFF LEE

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

BANK OF CANADA MAINTAINS CURRENT POLICY STANCE

Latest News Barb Horvat 26 May

The Bank of Canada has once again held the overnight rate steady at 0.50 per cent pointing to continued low inflation and subdued wage growth, which the Bank judges to be consistent with continuing excess capacity in the economy.

In a very terse press release, the Bank suggests that the U.S. and global economies will gradually strengthen. Weakness in the U.S. economy in the first quarter is seen to be due to temporary factors with a rebound likely in the second quarter.

The Bank’s assessment of the Canadian economy is cautious. Despite what is likely to be 3.8 per cent growth in the first quarter, the Bank only commented that growth was “very strong” in the first quarter and “will be followed by some moderation in the second quarter.” There was no hint of coming interest rate hikes or other forward-looking guidance.

Governor Poloz and his colleagues did assess recent economic indicators to be encouraging, including business investment, which has lagged this cycle. The economic expansion has been driven by consumer spending and the housing sector, “which is becoming more broadly based across regions.” The Bank expects housing to slow in response to measures taken by the provincial and federal governments. Ontario imposed a foreign buyers’ tax in late April and new listings in the Greater Toronto Area surged more than 30 per cent in April. Anecdotal evidence suggests that home sales have slowed thus far in May.

Similar to the response to the foreign buyer tax imposed in August in Vancouver, home price inflation in the GTA is likely to slow in coming months. But the data for Vancouver suggest that the housing market has bottomed, with home price inflation likely to remain at roughly 11 per cent year-over-year.

The Bank stated that “macroprudential and other policy measures have contributed to more sustainable debt profiles,” even though household debt-to-income levels have hit a record high (see chart).

Exports remain “subdued”, owing to competitive challenges. Uncertainties, of course, persist–particularly on the trade side as NAFTA will be renegotiated in fewer than 90 days. Export duties have already been imposed on softwood lumber and President Trump’s rhetoric remains hostile, although the newly appointed U.S. Trade Representative, Robert Lighthizer, appears to be more conciliatory.

The Federal Reserve is widely expected to hike overnight interest rates again later this summer, keeping the Canadian dollar under downward pressure.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.