5 Feb

WHICH LENDER IS RIGHT FOR YOU?

General

Posted by: Angela Vidakovic

The following is a summary of the choices available for clients when looking at the four different types of lending groups. Which one is best will all depend on who you are as a borrower, what your current situation is now, and what your situation will look like in the future.

Big Banks

Currently, mortgage brokers have access to TD Canada Trust and Scotiabank. These are especially appealing to first-time home buyers as it offers a sense of comfort knowing your mortgage is being dealt with a nationally recognized financial institution. TD offers very fast review of documents with the ability for collateral charges, multiple branch locations, and competitive privileges such as pre-payment abilities. Scotiabank is also an advantageous option for home owners as they have one of the most comprehensive and easy-to-use home equity lines of credit, referred to as their Scotia-Step. Being able to access a home equity line of credit (HELOC) and roll it into your mortgage offers simplicity and efficient methods of borrowing for home owners. The draw back with both banks is that they are in fact chartered banks. When a client decides to use them for fixed rate mortgages, specifically the 5-year terms, they can potentially be on the hook for penalties north of $10,000 due to breaking their mortgage early. Career changes, moving from different neighborhoods or cities, upgrading or downgrading home sizes, marital issues, these are all reason why someone may need to break their mortgage early and being in a long term fixed rate mortgage with a chartered bank can be unpleasant.

Credit Unions

One of the biggest benefits of Credit Unions, such as Westminster Savings, or Coast Capital to name a few, is they are not federally regulated, they are provincially regulated. They are not required to adopt federal mortgage rule changes unless they want to. This can be an extreme benefit to those considering rental properties, those with unique income/employment situations, or complex transactions that chartered banks do not or cannot work with. Some of the negative attributes are, however, a reputation for slow review times of documents and mortgage applications, as well as portability. If you work for a company or in an industry that is known for relocation and re-assignment across provinces, you will pay a penalty to a Credit Union every time. This is something that is likely not to happen when working with Charted Banks or Monoline Lenders as they will have more flexibility in allowing you to port your mortgage to a new property in other provinces.

Monoline Lenders

Monoline Lenders are supported by mortgage brokers, and in turn, mortgage brokers are supported by Monoline Lenders. You cannot access mortgage products that a Monoline Lender offers without using a broker as they typically do not have physical branches or locations. They are funded by private investors dealing only in mortgage transactions, allowing their products to be more customized based on the investors’ risk tolerance. Extremely low interest rates, very competitive privileges with pre-payment and portability, fast turnaround-times, and the best part, significantly lower penalties for breaking a mortgage. With a big bank, a $10,000 penalty for breaking mortgage early, may only cost you $3,000 with a Monoline Lender. This is highly advantageous to someone who wants the security of a long term fixed rate but isn’t 100% certain they will be carrying out their mortgage at that property for the full five years. The disadvantage is the almost blind trust a client must have. These Monoline Lenders do not have much brand recognition with the public, they have limited direct access, and usually do not have any physical locations to visit. This makes it hard for some people to feel comfortable using them as their mortgage provider.

Private Lenders

The benefit of a Private Lender is that anyone who has inconsistent income, unique properties, poor credit history or any type of severe risk in their application, can get an approval. When a Chartered Bank says no, a Credit Union says no, and a Monoline Lender says no, a Private Lender can say yes. The disadvantage- your interest rate is going to be significantly higher and the privileges such as prepayment and portability are going to be significantly less. As well, with most lenders, they will pay the mortgage brokers commission themselves. In this case, you the borrower will be paying a fee to the broker.

This information is extremely powerful to you as a home buyer and even as a current home owner. As always, please contact a Dominion Lending Centres Mortgage Professional if you wish to discuss any of these options further or how they may be of benefit to you!

18 Jan

9 REASONS WHY PEOPLE BREAK THEIR MORTGAGES

General

Posted by: Angela Vidakovic

Did you know that 60 per cent of people break their mortgage before their mortgage term matures?

Most homeowners are blissfully unaware that when you break your mortgage with your lender, you will incur penalties and those penalties can be painfully expensive.

Many homeowners are so focused on the rate that they are ignorant about the terms of their mortgage.

Is it sensible to save $15/month on a lower interest rate only to find out that, two years down the road you need to break your mortgage and that “safe” 5-year fixed rate could cost you over $20,000 in penalties?

There are a variety of different mortgage choices available. Knowing my 9 reasons for a possible break in your mortgage might help you avoid them (and those troublesome penalties)!

9 reasons why people break their mortgages:

1. Sale and purchase of a home
• If you are considering moving within the next 5 years you need to consider a portable mortgage.
• Not all of mortgages are portable. Some lenders avoid portable mortgages by giving a slightly lower interest rate.
• Please note: when you port a mortgage, you will need to requalify to ensure you can afford the “ported” mortgage based on your current income and any the current mortgage rules.

2. To take equity out
• In the last 3 years many home owners (especially in Vancouver & Toronto) have seen a huge increase in their home values. Some home owners will want to take out the available equity from their homes for investment purposes, such as buying a rental property.

3. To pay off debt
• Life happens, and you may have accumulated some debt. By rolling your debts into your mortgage, you can pay off the debts over a long period of time at a much lower interest rate than credit cards. Now that you are no longer paying the high interest rates on credit cards, it gives you the opportunity to get your finances in order.

4. Cohabitation & marriage & children
• You and your partner decide it’s time to live together… you both have a home and can’t afford to keep both homes, or you both have a no rental clause. The reality is that you have one home too many and may need to sell one of the homes.
• You’re bursting at the seams in your 1-bedroom condo with baby #2 on the way.

5. Relationship/marriage break up
• 43% of Canadian marriages are now expected to end in divorce. When a couple separates, typically the equity in the home will be split between both parties.
• If one partner wants to buy out the other partner, they will need to refinance the home

6. Health challenges & life circumstances
• Major life events such as illness, unemployment, death of a partner (or someone on title), etc. may require the home to be refinanced or even sold.

7. Remove a person from Title
• 20% of parents help their children purchase a home. Once the kids are financially secure and can qualify on their own, many parents want to be removed from Title.
o Some lenders allow parents to be removed from Title with an administration fee & legal fees.
o Other lenders say that changing the people on Title equates to breaking your mortgage – yup… there will be penalties.

8. To save money, with a lower interest rate
• Mortgage interest rates may be lower now than when you originally got your mortgage.
• Work with your mortgage broker to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate.

9. Pay the mortgage off before the maturity date
• YIPEE – you’ve won the lottery, got an inheritance, scored the world’s best job or some other windfall of cash!! Some people will have the funds to pay off their mortgage early.
• With a good mortgage, you should be able to pay off your mortgage in 5 years, there by avoiding penalties.

Some of these 9 reasons are avoidable, others are not…

Mortgages are complicated… Therefore, you need a mortgage expert!

Give a Dominion Lending Centres mortgage specialist a call and let’s discuss the best mortgage for you, not your bank!

21 Nov

TOP 5 COSTLY FINANCIAL MISTAKES HOMEOWNERS MAKE WITH THEIR MORTGAGE

General

Posted by: Angela Vidakovic

1. Not consolidating high interest debt into low interest mortgage.
2. Paying “fees” to get the lower rate
3. Not looking at their long term forecast
4. Taking a 5 year rate when 3-4 years can be cheaper
5. Having their mortgage with a lender that has high penalties and restrictive clauses.

Not consolidating high interest credit or vehicle loans in their mortgage. I hear this often “I don’t want to use the equity in my home” or “I can pay it off”. Many times when people end up with debts is due to inefficient budgeting and understanding what your income is and your debt payments are. There are many folks where monthly payment is the driving factor in their monthly budget. Making minimum payments can take you YEARS to pay off. Soon after people get mortgages, they are buying that new car at 0% interest and $600 month payments, then the roof or hot water tank goes and they put another $15,000 on credit, then someone gets laid off and boom…can’t make all the payments on all those debts that it took a 2 income family to make. It’s a true reality. Let’s look at an example:

Paying Fees to get the lower rate.
Dear rate chasers…they catch up with you somewhere. Nothing comes for free. Let’s face it, you go to the bank and their goal is to make money! A lender that offers you a 4.49% with a $2500 vs a 4.64% with no fee and you think “yes, score what a great rate!” Hold your coins… as you could be walking away poorer as the banker didn’t run the bottom line numbers for you. Chasing rates can cost you more money in the long run.

Your $500,000 mortgage was offered with two rates for the business for self guy who needed a mortgage where they didn’t look at the income so much: 4.49% and $2500 fee and $4.64% no fee. Lets see what it really looks like for a 2 year mortgage.

$502,500 (built in th $2500 feel) 4.49% – payments $2778 per month – $479563 owing in 2 years
Total payments: $66672
$500,000 (no fee) 4.64% – payments $2806 per month – $477634 owing in 2 years
Total payments: $67344.

Wait? So by taking the lower rate with the fee means I owe $1929 MORE in 2 years and only saved $672 in overall payments?

The long term financial planning side.
I counsel many of my clients to take 2-3 year year terms for a variety of reasons. Better rates, lower payments, capitalizing on the equity in your home to pay off a car loan or upcoming wedding. Did you know the average homeowner refinances every 3 years of a 5 year term and pays a penalty?

Taking a 5 year when 3 and 4 year rates might be a better option. Many times the 2-4 year rates can be significantly lower than the 5 year rates. Remember, the bank wants money and the longer you take the term, the more they make. True, many folks prefer or fit the 5 year terms, but many don’t. Worrying about where rates will be in 3-5 years from now should be a question, but not always the guiding factor in you “today” budget.
Here is an example of a $450,000 mortgage and what the difference in what you will owe on a 3 year term.

2.34% – payments are $990 every two weeks = $402,578 owing in 3 years
2.59% – payments are $1018 ever two weeks = $403,604 owing in 3 years.
Your paying $28 MORE every two weeks ($2184 total) and owe $1026 MORE in 3 years. Total LOSS $3210! Planning is key. Stop giving away your hard earned money!

Mortgage monster is in the penalties you pay when you fail to plan.
Since many families today are getting in with 5-10% as their downpayment.
If you got your mortgage with many of the traditional banks you know and your current mortgage is $403,750 and you need to break your mortgage (ie refinance to pay off debts) 3 years into the contract you potential penalty could be $12,672! Ouch. vs going with a mortgage broker who can put you with a lender that has similar rate you penalty would be significantly different – almost $10,000 dollars different!

Get a plan today! If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

20 Nov

MORTGAGE PAYMENT OPTIONS… WHICH IS THE BEST OPTION FOR YOUR SITUATION?

General

Posted by: Angela Vidakovic

Once your mortgage has been funded by your lender, you need to decide on how frequently you want to make your mortgage payments.

Most people want to pay off their mortgage as quick as possible to save paying interest.

We’ll discuss various mortgage payment options and then do the math by crunching mortgage numbers, keeping in mind: the longer it takes to pay off your mortgage, the more interest you pay.

Monthly: Most people’s typical payment option. Monthly payments will have the lowest payments therefore your mortgage will be paid off the slowest. For many people this is the most comfortable option, since it’s only one payment a month to plan for.
Bi-Weekly: Take your monthly mortgage payment multiply by 12 for a year, then divide by 26.
• You will make a mortgage payment every 2 weeks for a total of 26 payments per year.
• This will not help to pay your mortgage off any sooner than regular monthly payments.
Semi-Monthly: You make payments twice a month for a total of 24 payments a year.
• This will not help to pay your mortgage off any sooner than regular monthly payments.
Weekly: Take your monthly payments, multiply by 12 for a year, then divide by 52 weeks.
• This will not pay down your mortgage any sooner than regular monthly payments.
Accelerated Bi-weekly: Your monthly payment divided by 2.
• This option creates 2 extra bi-weekly payments a year, meaning you would be making 13 monthly payments a year (instead of 12). The two extra payments go directly to paying down the principal on your mortgage.
Accelerated Weekly: Your monthly payment divided by 4.
• This option creates 4 extra weekly payments a year, meaning you would be making 13 monthly payments over a year (instead of 12). The 4 extra payments go directly to paying down the principal on your mortgage.

I’ve crunched mortgage numbers by putting together a table using:
• $250,000 mortgage
• Mortgage rate 2.99%
• 5-year term
• Compounded semi-annually
• 25-year amortization
You can see how choosing the accelerated option pays your balance down a lot faster than regular payments.

Mortgages are complicated… Don’t try to sort all this out on your own. Call a Dominion Lending Centres mortgage specialist and let’s figure out what your best mortgage option will be!

15 Nov

UNDERSTANDING HOW BRIDGE FINANCING WORKS

General

Posted by: Angela Vidakovic

Sometimes in life, things don’t always go as planned. This could not be truer than in the world of Real Estate. For instance, let’s say that you have just sold your home and purchased a new home. The thought was to use the proceeds of the sale of your house as the down payment for the new purchase. However, your new purchase closes on June 30th and the sale of your existing house doesn’t close until July 15th—Uh-Oh! This is where Bridge Financing can be used to ‘bridge the gap’.

Bridge Financing is a short-term financing on the down payment that assists purchases to ‘bridge’ the gap between an old mortgage and a new mortgage. It helps to get you out of a sticky situation like the one above and has a few minimal fees associated with it.

The cost of a Bridge Loan is comprised of two parts. The first is the interest rate that you will be charged on the amount of funds that you are borrowing. This will be based on the Prime Rate and will vary from lender to lender. As a rule, you can expect to pay Prime plus 2.5%. The second cost to consider is an administration fee. Again, this will vary depending on the lender and can range from $200-$695.

The amount that you are able to borrow is easily calculated. The calculation looks like this:

Sale price
(less) estimated closing costs of 7%
(less) new mortgage of the purchase property

=Bridge Financing.

*Note: the closing costs included the expense of realtor commissions, property transfer tax, title insurance, legal fees and appraisal costs if applicable*

So that’s the cost side of things, now the next question is: how long? The length of time that you can have Bridge Financing is going to vary again from lender to lender as well as with what province you are in. For most, it is in the range of 30-90 days but there are some lenders that will go up to 120 days in certain cases.

Before applying for Bridge Financing, you must also have certain documents at the ready to present. These documents include the following:

1. A firm contract of purchase and sale with a copy of the signed and dated subject removal on the property that you are selling and the property that you are purchasing.
2. An MLS listing of the property being sold and purchased.
3. A copy of your current mortgage statement.
4. All other lender requested docs to satisfy the new mortgage of the upcoming purchase.

Once you have those documents, you can work with a qualified mortgage broker to apply for bridge financing. It is an important tool to understand and a great one to have in your back pocket for when life throws you one of those ‘curve balls’. You can have peace of mind knowing that if/when that situation arises, you are not without a strong option that can provide you with interim financing for minimal cost.

As always, if you have any questions about Bridge Financing, or any questions about your mortgage (be it new or old) contact a Dominion Lending Centres mortgage broker. We are well-versed in all things mortgage related and can help come up with creative, cost effective solutions for you.

written by: Geoff Lee

23 Oct

NEW MORTGAGE CHANGES DECODED

General

Posted by: Angela Vidakovic

This week, OSFI (Office of the Superintendent of Financial Institutions) announced that effective January 1, 2018 the new Residential Mortgage Underwriting Practices and Procedures (Guidelines B-20) will be applied to all Federally Regulated Lenders. Note that this currently does not apply to Provincially Regulated Lenders (Credit Unions) but it is possible they will abide by and follow these guidelines when they are placed in to effect on January 1, 2018.

The changes to the guidelines are focused on
• the minimum qualifying rate for uninsured mortgages
• expectations around loan-to-value (LTV) frameworks and limits
• restrictions to transactions designed to work around those LTV limits.

What the above means in layman’s terms is the following:

OSFI STRESS TESTING WILL APPLY TO ALL CONVENTIONAL MORTGAGES

The new guidelines will require that all conventional mortgages (those with a down payment higher than 20%) will have to undergo stress testing. Stress testing means that the borrower would have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada (currently at 4.89%) or the contractual mortgage rate +2% (5 year fixed at 3.19% +2%=5.19% qualifying rate).

These changes effectively mean that an uninsured mortgage is now qualified with stricter guidelines than an insured mortgage with less than 20% down payment. The implications of this can be felt by both those purchasing a home and by those who are refinancing their mortgage. Let’s look at what the effect will be for both scenarios:

PURCHASING A NEW HOME
When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:

Current Lending Guidelines

Qualifying at a rate of 3.34% with a 25-year amortization and the combined income of $85,000 annually, the couple would be able to purchase a home at $560,000

New lending Guidelines

Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization and the combined annual income of $85,000 you would be able to purchase a home of $455,000.

OUTCOME: This gives a reduced borrowing amount of $105,000…Again a much lower amount and lessens the borrowing power significantly.

REFINANCING A MORTGAGE

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV.
The maximum amount available is: $560,000 minus the existing mortgage gives you $145, 0000 available in the equity of the home, provided you qualify to borrow it.

Current Lending Requirements
Qualifying at a rate of 3.34 with a 25-year amortization, and a combined annual income of $85,000 you are able to borrow $560,000. If you reduce your existing mortgage of $415,000 this means you could qualify to access the full $145,000 available in the equity of your home.

New Lending Requirements
Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization, combined with the annual income of $85,000 and you would be able to borrow $455,000. If you reduce your existing mortgage of $415,000 this means that of the $145,000 available in the equity of your home you would only qualify to access $40,000 of it.

OUTCOME: That gives us a reduced borrowing power of $105,000. A significant decrease and one that greatly effects the refinancing of a mortgage.

CHANGES AND RESTRICTIONS TO LOAN TO VALUE FRAMEWORKS (NO MORTGAGE BUNDLING)

Mortgage Bundling is when primary mortgage providers team up with an alternative lender to provide a second loan. Doing this allowed for borrowers to circumvent LTV (loan to value) limits.
Under the new guidelines bundled mortgages will no longer be allowed with federally regulated financial institutions. Bundled mortgages will still be an option, but they will be restricted to brokers finding private lenders to bundle behind the first mortgage with the alternate lender. With the broker now finding the private lender will come increased rates and lender fees.
As an example, we will compare the following:
A dual income family that makes a combined annual income of $85,000 wants to purchase a new home for $560,000. The lender is requiring a LTV of 80% (20% down payment of $112,000.00). The borrowers (our dual income family) only have 10% down payment of $56,000.. This means they will require alternate lending of 10% ($56,000) to meet the LTV of 20%.

Current Lending Guidelines
The alternate lender provides a second mortgage of $56,000 at approximately 4-6% and a lender fee of up to 1.25%.

New Lending Guidelines
A private lender must be used for the second mortgage of $56,000. This lender is going to charge fees up to 12% plus a lenders fee of up to 6%

OUTCOME: The interest rates and lender fees are significantly higher under the new guidelines, making it more expensive for this dual income family.

These changes are significant and they will have different implications for different people. Whether you are refinancing, purchasing or currently have a bundled mortgage, these changes could potentially impact you. We advise that if you do have any questions, concerns or want to know more that you contact a Dominion Lending Centres mortgage specialist. They can advise on the best course of action for your unique situation and can help guide you through this next round of mortgage changes.

14 Sep

SAVING FOR A DOWN PAYMENT

General

Posted by: Angela Vidakovic

What prevents many potential homeowners from buying a home is the lack of a down payment.
Many first-time home buyers are receiving down payment gifts from family.

Unfortunately, many are not in this position and need to plan to save their own down payment.
When you can visualize the benefits of owning your own home and it becomes your number one desire, most of us can save that down payment.
Every time you feel like spending money that is not a need and takes away from you down payment, consider what you could be giving up, your home.

I recently did a mortgage for a couple buying their first home. During the process, they told me that 25 years ago they moved into a brand new rental home and they just finished paying off the landlords mortgage. The house had gone up about $800,000 in value over the 25 years. If the couple would have had their down payment and bought the home they would have a home worth over $1,000,000 paid for.

Here are some tips 
Avoid borrowing money for a depreciating asset like a car or furniture. Did you know that most people who buy furniture interest free for a year do not pay it off and end up paying about 29% interest on that loan?

Open a Tax Free Savings Account (TFSA) and start contributing monthly. Try and maximize what you can put in the TFSA. Turn it into a game and see how fast you can make it grow. Remember the end game is your own home.
The Business Insider reports that 62% of your expenditure is spent on three areas: Housing, transportation and food. Focus on cutting down expenses in these areas and put the extra money in your TFSA. It may be tight living in a smaller place for a few years or even staying at home for a few years to save up that down payment, but if you could look down the road 25 years and have a choice of buying your first home or owning a million-dollar home with no mortgage, what would you choose? You need to keep that vision of owning you own home if front of you to make the sacrifices worth it. The longer you rent the more you are paying off someone else’s home.

I read a stat that 43% of the annual food cost are eating out. Then there are prepared meals that involve no cooking that when included add up to 60% of your food budget. I recently had a friend that stopped eating out and is now putting about an extra $350 a month in his investment account.
Create a budget, control your spending, and buy groceries on sale. Use the Flipp app and find the lowest price on main items and price match. You can save $100’s of dollars doing this.
All these savings can go into your TFSA. Ask friend for their money saving ideas. Stay focused and before you know it you will have your down payment.

15 Aug

SECRETS FOR BUILDING YOUR CREDIT

General

Posted by: Angela Vidakovic

Over the years, I have come across all sorts of people who have had no idea what their credit score is. Some of them have declared to me that they have great credit only to find that they had poor credit scores or a number of late payments. I have also had people tell me that they had lousy credit only to find that they had a very respectable credit score. People do not know anything about credit and need an expert to help them to build their credit.
When you ask the two major credit reporting agencies, Equifax and Trans Union how they score credit, they give you a vague idea but no idea on how to quickly up your score.

Perhaps you have seen this pie chart that shows how they score different activities I have found out recently that people have higher scores that they had previously and this is due to more emphasis on what you owe now as opposed to your payment history.
Here are some things I have observed over my 12 years of being a mortgage broker.

1- Credit card balance. If you have a credit limit of $1,500 and your balance is at $1,450 you are losing 25-30 points. Having a balance of $0 or using less than 50% of the limit adds points. If you pay the minimum balance you may go over your limit. If you are over your credit limit by $1 you will lose 35 points !
How do you quickly get your score up in this situation? Call your credit card company and tell them that you have a large purchase coming up. Ask them to increase your limit to $2,500. They won’t give you a decision over the phone but often within a week you will receive notification that your balance has been increased. You now have an extra 25 points with one phone call. You can also ask them to lower your interest rate so that you can pay your balance down quicker. Most people don’t realize that credit card companies will do this. You can also move your credit card balance over from a high interest department store card at 26% to a lower interest bank card at 9.95%.

2- Types of credit used – credit agencies want to see proper usage of revolving credit ( i.e.: credit cards) and installment credit (i.e. car loans) . They also want to see that you have over $2,500 in available credit. You probably have a credit card but you may not have an installment loan showing on your credit report. You don’t have to buy a car to get this showing on your report. Consider getting a $1,000 RRSP loan from your bank. Why? Well, $1,000 is a substantial loan. Your bank or credit union will be more willing to lend you money for an RRSP that you may buy from them than they would lending you the money for a gambling junket to Vegas.
The RRSP loan is a win/win for you. Besides increasing your credit score and thickening your credit file you will get a tax refund at the end of the year which can be used towards your down payment. 90 days after you open your RRSP you can use the money towards your down payment under the Home Buyers Program up to a maximum of $25,000.

Credit history – don’t close the old credit card you got in university just because you aren’t using it.
Chances are that this card is still reporting month after month that you have credit with them and that the balance for that month is $0. Finally this brings me to my best tip for building credit.

Payment History – Recently I had a young client who wanted to renew his mortgage. When I obtained his credit report I was surprised to see that he had a 900 credit score. This is the highest score possible and usually it is reserved for older people with 20+ years of credit history. When I asked him how he managed this he told me that the only thing he does differently is that he checks his credit card balance every week and pays it off to $0. I knew that people who paid bi-weekly often had higher scores from having more payments showing in their history but this was the first time I had ever heard of someone paying weekly. I am not certain if it’s the number of payments, the fact that the balance is $0 so many more times or a combination of the two factors.
Recently, using these techniques I was able to raise a client’s credit score by 60 points in one month.

If you want to buy a home and you suspect your credit is weak, your first call should be to a Dominion Lending Centres mortgage broker. They can check and make suggestions to get your credit score up and to get you into a home a lot sooner than you could do this on your own.

31 Jul

FIVE POINTS TO CONSIDER BEFORE YOU LIST YOUR HOME

General

Posted by: Angela Vidakovic

There are several things to consider before you take the plunge and put your home up for sale. This might sound obvious, but the first step is to call your mortgage broker, not your lender directly or your realtor.
You don’t have to look long for an unfortunate story of someone who didn’t understand their portability, penalty or transfer costs. Here’s how you avoid this scenario.

1. The anniversary date of your mortgage will depend on your penalty. If you are in a variable rate there usually (unless you took some kind of no frills product with an additional penalty for the appearance of a lower rate) will pay 3 months interest (so a monthly payment and a half) in a fixed rate it can be up to 1-4.5% of the outstanding mortgage balance. Remember we can estimate things, the only guarantee you will have of your penalty is when the lawyer requests the payout statement.

2. Just because a mortgage says its portable doesn’t mean you don’t have to completely re-qualify. Changing properties means complete requalification of everything; credit, income and property. Less than one per cent of mortgages actually get ported due to the changes in the market, or your circumstances.

3. If you have accumulated outside debt, you may not even qualify to purchase for more due to recent rule changes. You’ll need clarity on what the approximate net will be after anything that is required to be paid out to improve qualification.

4. If you list your property and want to buy first or need money for a deposit, you may need to change your mortgage first which you won’t qualify for if your property is already listed. This happens frequently when downsizers are selling.

5. Making a purchase requires a deposit that later forms part of the down payment, so understanding this before you go out shopping helps you plan for it

A little preparation helps the process go more smoothly, and Dominion Lending Centres mortgage specialists are here to help.

26 Jul

5 REASONS THE BANK MAY TURN YOU DOWN FOR A MORTGAGE

General

Posted by: Angela Vidakovic

Mortgage rules have become stricter over the past few years. Assuming you have a down payment, good credit and a good job, what could prevent you from obtaining financing for a home purchase?
Below are five less obvious reasons a bank may turn you down:

It’s not you, it’s the building
Hate to be the bearer of bad news, but even if you’re the perfect candidate for a loan, you can still be rejected by a lender if the building you’re considering flunks a bank’s requirements. There are myriad reasons a building can be rejected, but one possible reason could be the building construction or condition.
In downtown Calgary we have some condos that were built in the 1970’s using a technique called Post Tension. It has been discovered that the steel rods in the walls can corrode over time and the buildings could collapse. Some lenders are okay with an engineer’s report but others won’t consider lending in this type of building. A few years ago a condo was found to have water seeping down between the inner and outer walls from the roof. This resulted in a $70,000 special assessment for each condo owner. Before the problem and the cost were assessed most lenders refused to lend on this property.
If a condominium building does not have a large enough a reserve fund for repairs a lender may want to avoid lending in that building as well.

Your credit doesn’t make the cut
If you have a credit score of 680+ this probably won’t be a problem for you but for first time home buyers with limited credit this can be a major stumbling block to home ownership. Check your credit score before you start your home search.
Not having enough credit can also be a problem. If you have a Visa card with a $300 limit, that won’t cut it. A minimum of 2 credit lines with limits of $2,000 is needed; one revolving credit line such as a credit card and an installment loan such as a car loan or a furniture store loan.
A long forgotten student loan or utility bill from your university days can also cause problems if its showing as a collection.
You’re lacking a paper trail
You have to be able to show where your money comes from. A cash gift of the down payment for your new property without a paper trail isn’t going to fly with the bank. If it is a gift, we need to see the account that the money came from, a gift letter from a family member, and the account the money was deposited into.

Your job
Being self-employed or a consultant comes with its own set of obstacles. But the solution here, too, is about documentation. And be prepared to offer up more documentation than someone with a more permanent income stream. Two years of Notices of Assessment from the CRA will show your average income over a two-year period. This could be a problem if your business had a slow start and then really picked up in year two. The two-year average would be a lot lower than your present income.
Another stumbling block may be how you are paid. Many people in the trucking industry get paid by the mile or the load. Once again a two year NOA average should help.
In Alberta, many people are paid northern allowances, overtime and a series of pay incentives not seen in other industries. This can be a problem if you do not have a two-year history.
When you apply for a mortgage you need to stay at your position at least until after your home purchase is complete. Making a job change with a 90 day probation means you will need to be past your probation before the mortgage closes. If you make a career change , you may need to be in your new industry for a least a year before a lender will consider giving you a loan.
The property’s appraisal value is too low
This often happens in a fast moving market. The appraisers base their value on previously sold homes on the market in the last 90 days. If prices have gone up quickly your home value may not be in line with the appraisers value. If the home you want to purchase is going for $500,000 and the appraised value is $480,000, you have to come up with $20,000 PLUS the 5% down payment in order to make the deal work.
Finally, with all the potential problems that can arise, it’s best to contact a Dominion Lending Centres mortgage broker before you start the home search to make sure that you have your ducks in a row.