20 Mar

STUCK IN A HIGH RATE 10 YEAR FIXED MORTGAGE?

General

Posted by: Angela Vidakovic

STUCK IN A HIGH RATE 10 YEAR FIXED MORTGAGE?

Stuck In a High Rate 10 Year Fixed Mortgage?With low rate offerings over the past several years and a struggling economy, some homeowners chose to lock into a longer term mortgage even if the interest rate was a bit higher. If you are one of those people who feel stuck in a high rate 10 year fixed mortgage you may be wondering if you have options. The answer is YES.

Let’s consider the case of Dan and Anita who own a home and refinanced their mortgage 8 years ago into a 10 year term. They wanted to consolidate their high interest credit cards and their mortgage into one lower monthly payment and be secure with that monthly payment for as long as possible.

The news was painting a picture of doom and they wanted to take advantage of the “record low” rate of 5.25% for 10 years. Over the past few years they have watched the shorter term rates for 5 year term mortgages continue to drop to under 3% and they feel they may have made a poor decision. But since they feel they are stuck in a high rate 10 year fixed mortgage with the potential of a high penalty to get out of the mortgage they have chosen to stick it out. The monthly payments are $1,644 which they can afford but the potential of payments at under 3% for the remaining 5 years would be $1,304 (based on the remaining amortization) which is hard to pass on.

A friend told them to talk to her mortgage broker to see what real options they had. After talking to the broker they learned the penalty for terminating a 10 year mortgage after 5 years is only 3 months interest or $1,200 in their case (and legal fee of about $600). Dan and Anita were stunned they had missed this in the fine print of their mortgage agreement. And to top if off this policy is determined by law and not by the lender. This was great news for the happy couple. The broker also ran numbers to show them how they could further take advantage of the lower interest rate and increase their monthly payments to pay off their mortgage faster.

By increasing the payment by 20% – which was still lower than what they were paying before and paying bi-weekly instead of monthly, they lowered their interest costs by $20,000 over the next 5 years and reduced their amortization from 25 years to 12 years!

The morale of this story is, if you are stuck in a high rate 10 year fixed mortgage and you are close to the 5 year mark, you should talk with your Dominion Lending Centres mortgage broker (I and see what options you have to save yourself some money on your mortgage. What would you do with a savings of over $20,000?

13 Mar

HOW TO GET A MORTGAGE WHILE BEING SELF EMPLOYED IN CANADA

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Posted by: Angela Vidakovic

There are great advantages to having business for self. There are many extremely successful business owners that live great lifestyles but don’t have to pay for medical, all because they have great tax write-offs that bring their income down to a low tax bracket. The other side of this is that these great benefits actually make these same business owners work hard to qualify for a mortgage, all because their income is significantly reduced on paper. These business owners know that there is advanced planning involved in being able to qualify for conventional financing.

According to Statistics Canada, in 2015 there were about 2.7 million people self-employed in Canada which is about 14% of the total population of the country. These statistics reflect people that are continuing on in maintaining a significant lifestyle financed by self-employment and being able to be counted as such. In other words, being self-employed is a viable way of making income. It just doesn’t fit very well in the conventional lending “box”.

In order to fit in the conventional lending “box”, there is a measure that lenders require that each mortgagee(s) (the person(s) applying for the mortgage) must meet. Some of the documents that self-employed have to provide for the lender are two most recent years of tax returns that don’t always accurately reflect the actual take-home that a self-employed person has. Tax deductions related to business often reflect meals to rental space to credit card interest, etc. The result is that the income the self-employed business owner shows on their tax return is a significantly lower figure than what they actually take home. However, the “box” requires that tax returns show the required income to justify the mortgage.

So, how does one show enough income when they are self-employed? The following points are suggestions on strategies on how to plan ahead and be prepared when you, as someone who is self-employed, are ready to move forward in arranging a mortgage for property purchase.

The easiest way to plan is to write off fewer expenses in the two years leading up to the property purchase. Yes, this means you will pay more personal taxes. However, your income will be higher which will easily qualify you for the mortgage amount that you are looking for.
Set your finances up through a certified accountant. Many lenders want to see self-employed income submitted through a professional rather than doing it yourself. The truth is that the time that you spend doing your own taxes will not be as efficient both financially and time wise as a professional. A certified accountant knows what to look for and has enough experience to understand the tax implications. Make sure you discuss with them what your goals are so that they can set up your taxes appropriately.
Choose your timing carefully. If you are leaving on an extended holiday or sabbatical within the two years previous to purchasing, your two-year average income is not going to be great. Take all the time off that you want AFTER your purchase. Plan your timeline with INCOME in mind.
Ask your Mortgage Broker about STATED INCOME. There are options with some lenders to State your income. This is based on you being in the same profession for at least two years previous to being self-employed. The lender looks at the industry and researches the mean income of someone in that same profession within a reasonable amount of time. STATED INCOME is a complicated approach to showing income. However, your Dominion Lending Centres Mortgage Professional will know what questions to ask and how to negotiate this kind of proof of income. Documents such as bank statements, showing consistent deposits, will be requested by the lender.
BANKRUPTCY. Although some business people see bankruptcy as a viable option to get out of a bad deal and regroup, lenders generally do not like bankruptcy. Having said that, some lenders will overlook this if there has been consistent and excellent credit since the time of bankruptcy and you have been fully discharged from the bankruptcy for a specific time period. Make sure you keep ALL Bankruptcy papers easily available along with your discharge papers.
Be prepared for higher interest rates. Lenders offer discounted rates to those that fit in the “box”. Those that are not conventional are seen as a risk and, therefore, are applied to a higher interest rate. There also could be lender fees attached to the mortgage.
Offer a larger down payment. Lenders are somewhat handcuffed to the insurer when there is less than 20% down payment on a property purchase. But if you offer more than 20% down payment, depending on the lender, their flexibility increases and it is up to the lender or even the branch if they want to take you on as a client.
As a last resort, you can do private financing. Even though it is an expensive option, it could result in the mortgage you are looking for. Rates are higher and there will be lender/brokerage fees. However, you could be in a private mortgage for 12 months or even less, whereby giving yourself time to improve your credit (if need be) or topping off a two year self-employed period to set yourself up to show STATED INCOME to the lender. The whole point of private financing is to use it as a short term solution for a long term plan.
Being self-employed does not mean that you have to show enough income on your T1 General in order to qualify for a mortgage. There are many factors involved in showing income when you are self-employed. And every lender has different guidelines as to how they view self-employment. If you are self-employed, plan accordingly and make sure you are well set up to show that the lender that you are a desirable candidate for a mortgage.

10 Mar

A CONVERSATION ABOUT MORTGAGE PRE-APPROVALS

General

Posted by: Angela Vidakovic

A Conversation About Mortgage Pre-approvals
Thinking of buying a property, but don’t know where to start? Well… that’s where a mortgage pre-approval comes in. Start here. Just like you wouldn’t go into a restaurant without having enough money to buy your meal, so you shouldn’t start shopping for a home without an understanding of how much you can afford. So let’s have a conversation about a mortgage pre-approvals so you can get this house hunting party started.

Although a pre-approval is the best way to get started, we have to be honest about what a pre-approval is and what it’s not.

NOT MAGIC. NOT BINDING.

Let’s start at the beginning and dissect the word pre-approval. Pre means before, in advance of, or prior to, and in this case means before the approval. A pre-approval is not an approval, let me say that again (in italics) for emphasis, a pre-approval is not the same as an approval. It’s not a guarantee of financing. it’s not magic, and unfortunately it’s not binding. There are a number of factors that come into play after the pre-approval is in place that can derail your dreams of homeownership.

as a mortgage approval requires a property to be scrutinized, and a pre-approval doesn’t look at any property, it can’t be guaranteed.
as your employment status can change after a pre-approval, all employment documents have to be verified as part of the approval process.
a secondary credit report can be pulled by the lender or insurer after the pre-approval is in place, if there are discrepancies, they could decide not to proceed with financing
mortgage rules can change and sometimes come into effect with no grandfathering.
SO WHAT GOOD IS A PRE-APPROVAL THEN…

A pre-approval is simply a formalized gathering of your ducks, and putting them in a row. It won’t guarantee you will get the mortgage, but it will certainly uncover any major obstacles that might be in your way. Consider a pre-approval a pre-screening, where we take a look at your employment, credit history, and your downpayment, and figure out the maximum mortgage amount you can qualify for. We will also have a look at all the mortgage options available to you on the market, so you can decide in advance what product meets your financing needs.

Obstacles, like what? Well, the truth is, you only know what you know, said in another way, you don’t know what you don’t know. Did you know that they figure about 10-20% of credit reports have some kind of error on them. By taking a look at your credit report as part of the pre-approval process (instead of when you have already found the house of your dreams), you have time to fix any errors before hand. This might not sound like that big of a deal, but it could be the difference between getting financing or not.

A pre-approval usually comes with a rate-hold, this is a good thing. Rates are like gas prices, they fluctuate and go up and down from time to time. As part of taking a preliminary look at your mortgage application, lenders will typically offer a rate hold for 90-120 days on a specific mortgage term. This means that if you find a property to buy in the allotted time, even if rates have gone up in the mean time, you will get the rate that was guaranteed. What happens if rates go down, well… you get the lower rate. It’s a win win.

IT’S A PROCESS

Buying a home is a process, a process that has a lot of steps that come into play. A pre-approval is one of the first steps you take. A pre-approval allows you to collect all your documentation ahead of time, handle any obstacles that may come up, have a look at your mortgage options, secure a rate hold, and will give you piece of mind as to the next steps in the process. Regardless if this is your first time buying a place or your twentieth, a pre-approval is the best place to start. Even if it doesn’t guarantee you will get the mortgage in the end.

So if you are thinking about buying a home, let’s get started, as we would love to help you secure a pre-approval. And if for some reason you are faced with some obstacles, we will help you get on track. Contact a Dominion Lending Centres mortgage professional today!

9 Mar

FINANCING SOLUTION – HOME EQUITY LINE OF CREDIT

General

Posted by: Angela Vidakovic

Financing Solution – Home Equity Line Of Credit
The Home Equity Line of Credit (HELOC) lets you split up your mortgage debt and borrow against your equity at low rates.

The unique feature of this mortgage product is that you can slice the pie (the mortgage balance) into various segments. All of it is registered against the subject property title as just one charge. This gives you the ability to diversify your risk in the marketplace.

If you had a $480,000 outstanding mortgage against a property (with 20% equity or a value of $600,000) you could divide it up into different segments. For example, you might place $200,000 in a variable-rate mortgage, $200,000 as fixed term and $80,000 line of credit.

Spreading the risk across different markets helps you plan for the future, as there are different governing bodies controlling different aspects of the marketplace.

Variable-rate mortgages and lines of credit (LOCs) are based on the prime lending rate and controlled by the Bank of Canada. Fixed rates are based on bond yields and dictated by the lenders themselves. Most other lenders follow the trends of the major chartered banks in Canada.

There are two types of line of credit in Canada: secured (registered against real estate) and unsecured (guaranteed by one’s promise to repay). I can only assist with secured LOCs. The secured LOC means less risk for the lender as it is based on the market value of the home to a maximum of 80% loan-to-value. Therefor the rate is lower and the borrowing ceiling is higher. On secured LOCs the rate is Prime (2.70%) +0.50% which is 3.20%. This means that if you had a primary residence with a market value of $500,000 free and clear of any other type of mortgage then you could secure a $400,000 HELOC against it at 3.20%.

Unsecured LOC rates vary depending on lender, but a safe starting range is 5-7%. And on unsecured LOCs, lenders tend to forward much less than secured LOCs; they range from $5,000-$40,000.

Here is an example of a client I recently assisted. We were able to obtain a HELOC mortgage product from a Canadian charter bank.

Current residence (located in the Greater Vancouver area) appraised at $1.15MM.
Current mortgage balance, $445,000.
Maximum loan limit, $920,000 (80% of market value: 1,150,000 x 80%).
They opted to secure the current outstanding balance of $445,000 into a variable-rate mortgage at Prime-0.45% or 2.25%.
The additional equity of $475,000 was set up for access across 3 different LOCs; one at $159,000 and two at $158,000.
These clients now have access to $475,000 for any future needs: renos, emergency, investment opportunities, post-secondary education for their children.
But while a HELOC allows for product diversification and long-term planning, it is not for everyone. It can be a bad idea if it’s just used as access to easy cash. One needs to possess high self-discipline, as the funds are extremely accessible. Using the home as a piggybank can backfire disastrously.

A HELOC is also not available to all homeowners. There must be enough equity in the home before a lender will consider it.

8 Mar

FINANCING SOLUTIONS – BRIDGE LOAN

General

Posted by: Angela Vidakovic

Financing Solutions – Bridge Loan The fast pace of buying and selling real estate is daunting. Throw in trying to manage closing dates, possession dates and access to the proceeds for the purchase and you have a recipe for disaster.

I recently received an email from a potential client asking these very questions:

“I was wondering how the process usually goes, for looking at a new place. We had planned to use our equity in this home as the down payment for a new place. But if we can’t unlock that equity until the closing date, what usually happens in the interim? Do we have to find a place to rent?…a month or longer? When we bought this place, it was our first home purchase, so moving to a new one is new to us. I don’t understand how we are supposed to start looking for a place after subject removal (which is 30 days after tomorrow), when we can’t access the equity to make a down payment.”

This scenario happens much more often than one thinks. In order for sellers to access their equity to become buyers they are required to utilize a bridge loan to transition into their “next” home. The bridge loan allows you to purchase a new property before the sale completes on the existing or current residence.

Most lenders have a 45 – 60-day window to exercise this option, with a range of daily rates and admin fees. The four vital components to a mortgage application are income, credit worthiness, the subject property and down payment.

The first three have been approved; now how does one unlock the down payment? Easy. The borrower is required to supply the fully executed purchase and sale contract, subject removal addendum and the current mortgage statement for the existing property. This provides confirmation that you have sold the property on X date as well it confirming the sale price less the possible real estate commission fees and closing costs. Once the current mortgage amount is subtracted the net proceeds are yielded, leaving you your down payment amount.

As mentioned above, there are fees to access bridge financing, as well as a daily interest rate. If the purchase of the next property completes the same day as the sale, then it is handled at the lawyer’s office internally and the funds are transferred accordingly.

The equity is yours to access right now. The lenders verify your equity with the conditions provided.

Here is an example of the timeline and fees of how the bridge loan scenario can be utilized:

Existing home sold, completing December 14, 2016 $600,000

Current outstanding balance $400,000

Equity remaining $200,000

New home purchase, completing November 30, 2016

The lender has approved the down-payment amount. Because the proceeds are still secured against the existing home we had to provide confirmation that the funds were available. We determined there was $200,000 by way of sales contract, subject removal addendum and the current mortgage statement.

The second layer to the bridge loan is the cost of borrowing the $200,000. Bear in mind the funds are still tied up in the existing property. The cost to borrow the $200,000 temporarily is Prime + 2% (daily rate) plus an administration fee of $250.

$200,000 x 4.70% / 365 (days) = $25.76 per day to borrow $200,000

There is a 14-day completion difference. The total cost to utilize a bridge loan is $360.64 (in interest) + $250 (admin fee) = $610.64.

All-in-all this is a very inexpensive and easy way to access the equity you have built up in your current home. Remember, lenders are in business of making money…this is simply a cost of doing business.

Be sure to surround yourself with industry professionals (like the mortgage brokers at Dominion Lending Centres) to make sure nothing is overlooked or miscalculated.

6 Mar

Top 10 Secrets That Banks Don’t Want You To Know

General

Posted by: Angela Vidakovic

1.It’s not all about the interest rate. Most individuals go into the process looking for a good rate and they get tunnel vision as a result. The banks prey on this and they set people up with restrictive mortgages as a result. Those who work with a mortgage broker understand that having options is more important than the interest rate you receive. Rate is important, but sometimes it is better to take a slightly higher rate if it means getting a better mortgage.

2.New customers have it made with banks. With the way the system works, they know that it becomes a huge hassle to leave one bank for another. They know that once they have you hooked, you are likely to stay with them out of convenience (although many people threaten to leave, it really doesn’t mean much because they know most people won’t leave). For this reason, banks are fond of offering great incentives to new buyers, while neglecting their old, trusty customers.

3.Though banks don’t necessarily want you to know this, when you work with a mortgage broker in Canada, you’ll be instructed not to sign the renewal form that’s sent out by the banks. Since most people just blindly sign this, the bank does not offer its best available rate through that form. Instead, a better option is to contact a broker and let them re-negotiate for you upon renewal. Quite often, switching banks on renewal will result in a better rate and better product.

4.Though banks speak a lot of loyalty, they are not nearly as kind to their customers as a mortgage broker is. They will speak a good game, but the moment you cease the be profitable, the banker will drop you like a hot potato.

5.Since banks are money making machines, they are naturally very greedy. They have no emotional attachment to the customer, this means that they expect you to be good customers and loyal to them, but they have no desire to show that same loyalty back to you.

6.Just because you have a large mortgage and a couple of chequing accounts with a bank doesn’t mean they will show you any extra loyalty. While many people think that getting a $300,000 mortgage through a bank will earn some loyalty from that bank, they quickly come to realize that it is just a transaction. Mortgage brokers in Canada are very appreciative, they treat every client with the same respect because they are all important to them.

7.The bank and banker that you use is not your friend. They have a job that is different from that of a mortgage broker. They are in business to make the BANK money, so you will play by the same rules as the average Joe, no matter how long you’ve been with a bank. Mortgage brokers on the other hand are in business for themselves and are looking to establish long-term relationships with you to help build a solid clientele that will provide them with many referrals.

8.Variable rates make money for the bank — there is just no other way to put it. People naturally get scared when they hear that rates are going up and pull the trigger to “lock in” the current rate before they do. If you were working with a mortgage broker, you’d get the advice you need before going into that variable rate mortgage. Your broker should be able to help you figure out whether you are right for a variable rate at all. Nobody can tell you (bank or broker) whether interest rates are going up or not, so it’s not smart to lock in the already high rates right now because you think they are going to go up.

9.Though banks and loans might look the same on the surface, they aren’t. While the process is pretty much the same with all banks, trust companies and lenders. You apply, they give the money to your lawyer on closing. The issue is that some banks offer better rates upfront and then slip clauses into their loan contracts that are not favourable to the client in the long term. Therefore, it’s important to consider all factors, in addition to price.

10.Don’t be fooled into thinking that a bank’s mobile rep is a mortgage broker. Though he might seem like a broker, he is still just working for one single bank. This means that you won’t get the choices that you’d get from a broker that represents many banks.
A mortgage brokerage in Canada is different from that in the U.S. or anywhere else in the world. Our products are unique, and there are hundreds of products available in the market. Therefore, it is always best to work with an independent mortgage broker or agent that will provide you with the necessary advice you need to get the best overall deal out there.

2 Mar

PREPARE, PREPARE, PREPARE

General

Posted by: Angela Vidakovic

Prepare, Prepare, PrepareEvery year since October 2008 it’s become more and more difficult to obtain a mortgage. The government claims to be casting a safety net over the Canadian housing industry via stiffer mortgage regulations. What do you need to know to help prepare yourself for a home purchase, refinance, debt consolidation, or even a simple renewal? Well the biggest item I cover on a daily basis is preparation.

It can take a client weeks or months to find the confidence to connect with a Mortgage Professional once they feel confident that they ready to obtain that next mortgage. Any Mortgage Professional worth their salt will be able to guide their clientele to prepare them properly for the mortgage.

Typically most people think they need to prepare themselves most for their first purchase, however preparing for each mortgage these days is more critical today than ever before. When Canadians finally make that call, they want a step by step process to solve their solutions in an easy manner, but are seldom prepared to proceed.

During my regular daily routine, I follow up with my clients with gentle reminders to send me the requested documentation list. Having done this for ten years, the process is quite similar for almost each individual even though the main list of documentation remains the same.

We all want to take short cuts to get to the finished product, but in the end, the banks and lenders have become governed so much so that the short cuts are almost non-existent therefore, preparing the proper document package is essential to an essential mortgage. As Arnold Schwarzenegger said recently in an interview I watched on Facebook, we need to stop taking and thinking about short cuts. There aren’t any to success.

What I’m getting at here is that when your Dominion Lending Centres Mortgage Professional provides you with a mortgage document checklist, please don’t take it for granted, please follow each and every step carefully.

In general, the most common documents required are dependent on what you do for work. So if you are an employee, then the most recent paystub, and an updated employment letter along with the most recent two years of T-Slips (whether they are T4’s from employer’s, T5’s and pension slips), T1 Generals -the entire document (the documents your accountant prepares to submit to Canada Revenue Agency), Notice of Assessments (the form you receive back from CRA after your file is completed). Then there will be the verification of down payment via 90 days of bank statements, any mortgage statements, property tax assessments and the list can go one. The most common mistake is providing a mix and match of the above documents to try and piece together your income story. Depending on how your income is structured, we may be able to provide you with a near pre-qualification but lenders are being more adamant of having the documentation upfront, so that they are using their time, along with the mortgage insurer’s time. As a rule of thumb, the cleaner the file, the easier it is to underwrite and make a proper decision.

Common mistakes include, missing pages from tax documents, poorly written, unsigned, undated, missing info on employment letters (handwritten ones draw huge red flags), cut off pages from documents, out dated items(paystubs and employment letters over 30-60 days is pretty much null and void these days).

You may not know how to prepare yourself, but that’s also what we are for. We are essentially mortgage guidance counsellors to help prepare you for mortgage success, but if we are trying to obtain a mortgage via shortcuts, you’ll be upset with how the process goes.

We all used to have more leeway with mortgage documentation, but it’s clear the government is having banks and lenders scrutinize every mortgage more carefully now than ever before. And the banks and lenders have to oblige as they will be audited, if they don’t pass audits, then they lose out. And if they lose out, we lose competition. Yes this is the new normal, yes it’s tiring, no we don’t like it either, but it’s our new reality. And realistically, is gathering a few extra documents really that bad? Mortgages are not a given right and earned more so than ever before in our recent history.

Our job is to help you prepare for the mortgage, sometimes it will take one meeting, sometimes it’ll take weeks or months, even years depending on your own personal financial situation. But we can provide the recipe to help you prepare, but it’s up to you to do the cooking.

1 Mar

WHAT HAPPENS WHEN A HOME SALE FALLS THROUGH?

General

Posted by: Angela Vidakovic

What Happens When a Home Sale Falls Through?Every homebuyer eagerly anticipates closing day. With the home purchase process completed, ownership of the property transfers from the seller to the buyer – you!

Closing date is negotiated as a condition of sale. You’ll typically have several weeks between the date that your agreement to purchase (sales contract) is signed and your closing date.

During that time, you and your real estate team will work to ensure that all the conditions of the sale are met so you can take possession on the agreed-upon date.

But what happens if a home sale falls through and you are unable to close?

Reasons why a home sale could fall through

It’s worth noting that the vast majority of purchase agreements close as expected. But the most common reasons why a sale may fall through are the following:

The homebuyer fails to qualify for a mortgage.
The homebuyer makes an offer to purchase a home based on the condition that they can sell their existing property first – and fails to do so.
The homebuyer’s lender appraises the property at a value significantly lower than the agreed-upon purchase price. If the buyer can’t make up the shortfall from savings or the seller won’t lower the price, the buyer can no longer afford the property.
There are title insurance or home inspection surprises. If a title report shows claims against the property or if a home inspection reveals serious flaws, it will jeopardize the sale.
The homebuyer gets cold feet, changing his or her mind for any reason.
TIP: The best way to reduce the odds of failing to close on a home you want is to get mortgage pre-approval from the mortgage professionals at Dominion Lending Centres before you start house hunting.

Avoid making an offer on a potential money pit by scheduling a pre-sale inspection.

Your home sale falls through. Now what?

If you ever experience a sobering “it’s just not gonna happen” moment, contact your REALTOR® immediately.

If appropriate, they will send the seller’s agent a mutual release form, which releases both parties from the purchase agreement. As the buyer, you will endeavor to get your sales deposit back, and the seller is free to sell the home to someone else.

Problems arise if the seller refuses to sign the mutual release form.

Who gets the deposit?

If the seller refuses to sign the mutual release form, your deposit, which is held in a trust account, remains in trust until it is released by court order.

A disgruntled seller may decide to sue for damages that result from the failed purchase agreement. For example, they may end up selling the property to another buyer for less, resulting in a financial loss.

Or let’s say they purchased a home conditional on the sale of their existing home, and because you backed out, they either fail to close on that home or they must take out bridge financing to save the sale. They’ll probably want compensation for the extra costs and hassle.

While failure to close is an uncommon occurrence, it causes headaches for both buyers and sellers. Try avoiding it by getting mortgage pre-approval before you start house hunting, and by booking a pre-sale home inspection.

Most important, hire a real estate team. These experts can use their experience and professionalism to guide you through your sale, managing any bumps along the way.