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Bridge Loans

Bridge financingIf you have ever sold your home in order to help with the purchase of your next home, chances are you have heard of bridge financing. Bridge financing is an option available to homeowners if they find themselves in a little bit of a pinch when it comes to two different completion dates.

A situation where a bridge loan or where bridge financing can be useful, is when you put an offer on a home you plan on buying with a completion date for the first of the month. However, in order to purchase this new home you need the money you’ll receive from the sale of your current home. What do you do if it closes at the end of the month, 30 days after you are supposed to pay someone for their home with these proceeds?

A lender can offer you bridge financing, where they will advance you your down payment as a separate loan for up to 30 days, some 90 days or more on exception. This allows you to close on the new property, pay the seller, and keep the contract to sell your place 30 days later where the proceeds from your sale will pay out the bridge loan instead of being used to pay the seller directly.

You will need to have accepted offers on both the property you plan on buying as well as the one you are selling with financing conditions removed as well as enough funds to cover the deposit. In some circumstances, you may be able to borrow the deposit from another source if that was also supposed to come from the proceeds of the sale of your current home. If you have any questions, contact Ryan Majeau today.

*Contributed by Ryan of Dominion Lending Centres

What happens when your credit card account is closed

Credit Card

I have been working in the mortgage industry since 2015. I have had all sorts of clients over the years. Every once in a while I get someone who has a car loan , a couple of credit cards but there’s a collection from a credit card, a dentist or some other creditor. When I ask why this has not been paid, I am told that they had a dispute with this firm and they are not going to be pushed around. The client doesn’t care if the account is sent to collection, they won’t pay it just on principle.

While I admire people who stick to their guns, they are on a slippery slope and things will not work out well for them. Sometimes they think that because the account is closed they don’t have to pay anymore. This is totally wrong.

 

 

CREDIT SCORES WILL DROP

The creditor will report your late or missing payment.  That will drop your score down with the credit reporting agencies every month until you get to 120 days late or the creditor closes the account. However, they may send your account to a collection agency who will add their fees to the account and threaten or harass you. While you may not owe the money to your original creditor, they have sold the debt to someone else. You still owe your original amount and probably more with interest accruing every month.

Something that most people do not realize is that this refusal to pay an account means that you won’t get a mortgage or any new credit lines until the problem is resolved. The longer you hold out, the more likely that you will need to use a B lender for your next mortgage and car loan. I have seen car loans with 18% interest and mortgage with 12% interest over the years.
My advice is don’t ignore the problem. Get it resolved as soon as possible. I know that you want to stick to your guns but it’s going to end up costing you a lot of money.

If you have any questions, contact Ryan Majeau today!

*Contributed by David of Dominion Lending Centre

5 GREAT Reasons To Provide a 20% Down Payment when Buying a Home

Mortgage Down Payment

There are many challenges that come into play when you’re in the market to buy a home.
Buyers say the number one obstacle to home ownership is saving enough for a down payment, the amount that the buyer provides toward the purchase of their home.
Exactly how much do you need to put down? Assuming you can finance the debt with your current income you can get a mortgage for as little as 5% down PLUS pay for Mortgage Default insurance if you put less than 20% down.
A smart rule of thumb is always try to put a least 20% down. Although that may be a challenge in Greater Vancouver where the current Vancouver MLS stats indicate an average house price of $1,227,420

 

1. Easier to service your debt.

Putting 20% down reduces the size of your monthly mortgage payment, making you more likely to qualify for and afford, your mortgage. Lenders want to make sure you can service your debt with your current income using 2 rules:

o Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 35-39% of your gross monthly income. Housing costs include – your monthly mortgage payment, property taxes and can include heating. If you are buying a condo/townhouse with strata property then the GDS will also include ½ of your strata fees.
Principle + Interest + Taxes (+ 50-100% Strata Fees if applicable) Gross Income

Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 40-44% of your gross monthly income. This includes your housing costs PLUS all other monthly payments (first mortgage, property taxes, maintenance fees, additional financing, car payments, charge accounts, etc.).
(Principle + Interest + Taxes) + Other Payments Gross Income

2. A Smaller Monthly Mortgage Payment

You pay LESS!! I’m all about making smaller mortgage payments and having money for the fun stuff in life. More money down means, you borrow less money, which means you will have a smaller mortgage, which means you have smaller, more affordable mortgage payments.

3. No private mortgage default insurance.

Putting 20% down allows you to avoid paying for mortgage default insurance.
o In Canada, mortgage insurance is required federally on high-ratio mortgages (a down payment of less than 20%). This insurance, which protects the bank/lender in case the borrower defaults, gives lenders the flexibility to offer home buyers with low down payments the same low interest rates they would offer to home buyers with more equity.
o Mortgage insurance premiums are based on the amount of the mortgage. The higher the loan-to-value ratio, the higher the premium cost. In other words, the lower your down payment, the more expensive the insurance. This premium may be paid in cash in a lump sum upon closing, it is usually added to the mortgage amount and paid over the length of the mortgage.
o Canadian Mortgage & Housing Corp. (CMHC) and Genworth Canada provide mortgage default insurance. Click on CMHC or Genworth for the sliding scale, the bigger your down payment the less insurance you pay. Once you hit a 20% down payment, mortgage default insurance is no longer mandatory.

4. Pay Less Interest over the Life of the Loan.

You pay less interest with 20% down payment, since you’re putting more money on the house compared to if you put 5% or 10% down.

5. Instant Equity Building.

A significant down payment builds instant equity in your home. A 20% down payment immediately puts equity into a home when you purchase it. That down payment gives you some cushion, in case the market takes a downward turn.

If you have any questions contact Ryan Majeau today!

*Contributed by Kelly of Dominion Lending Centres

Reverse Mortgage – Need to Know

HomeEquity Bank is the only bank in Canada that currently offers the CHIP Reverse Mortgage as well as a secondary product, Income Advantage. These two products are options for homeowners unlike anything else out there. Instead of borrowing money to purchase a house, they will lend you money if you already have purchased one (as long as you qualify).

Recently I finished a seminar where I was educated on the different HomeEquity Bank offers through the CHIP Reverse mortgage and their Income Advantage products. Below I would like to share with you some of the key benefits and summarize the different ways you can potentially use these products.

Continue reading “Reverse Mortgage – Need to Know”

Four-Month Home Sales Gain Despite Weak B.C. Markets

Canada Home SalesThe Canadian housing market showed continued signs of stabilizing last month with sales edging upward and prices easing a bit. National home sales increased 0.9% in August, the fourth consecutive monthly gain. Sales in Toronto advanced 2.2% while they rose 2.9% in Vancouver. Nevertheless, the pace of sales activity remains below levels in most other months going back to 2014 (see chart below). As well, recent monthly sales increases are diminishing, which could mean that the recent rebound, particularly in Ontario, could be running out of runway.

The housing market has been recovering from steep sales declines early this year after federal regulators imposed stricter mortgage lending rules and the central bank raised borrowing costs. Home sellers also seem to be lowering prices for homes, fueling demand.

Roughly half of all local markets posted an increase in sales from July to August, led again by the Greater Toronto Area (GTA), along with gains in Montreal and Edmonton. Sales in the major urban areas of B.C. declined by 3.8% year-over-year (y/y) in August. The housing market in B.C. has slowed considerably since the February provincial budget hiked the foreign purchase tax and suggested a speculation tax could be introduced in the fall.

Continue reading “Four-Month Home Sales Gain Despite Weak B.C. Markets”

Toys and buying a home

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In 2015, I was asked to do a pre-approval by a couple hoping to buy a home. I went through the application with them and pre-approved them for $320,000. They were astounded, they told me that their bank told them that they were qualified to a maximum of $260,000. The clients wanted to know how I could get them more money. I looked at their credit reports and quickly found the answer.

I pointed out to them that they both had $10,000 unsecured lines of credit. They said that the bank had offered this to them several years ago but they had not used them. The zero balances confirmed their story. What they didn’t know was according to the bank’s rules, they had to consider these lines of credit as being fully utilized. The bank considered them as each carrying $300 in monthly payments that did not exist. My lenders took a zero balance as being a zero balance and I was able to get them more money and more house.

Last year I had a young man who wanted to buy a new home. He was very surprised when I told him he couldn’t afford it according to the new stress test rules. The reason being, he had a $950 a month truck payment. The only solutions available were to sell the truck. Or try and negotiate a new payment plan by stretching out the payments for another year.

The moral of the story is that it’s important to know that other debts outside of the mortgage can affect how much house you can qualify for, and that buying a vehicle or new toys like a trailer or boat before going to see yourlocal mortgage broker, can be a costly mistake.  Ryan Majeau can help you through the whole home buying process but you need to have him involved early in the process. My job is to make people’s dreams come true and I do it a lot better than the banks.

If you want an unbiased, industry trained professional , helping you ensure you get the best mortgage – give Ryan Majeau a call today!

*Contributed by David of Dominion Lending Centres

Top 5 Things To Consider When Building Your New Home

Construction Mortgage

Building a new home – It’s something that many couples dream of. It can be an exciting, stressful, joyful, crazy time period that many walk away from saying “never again” or “bring on the next one!” We scoured the internet and sorted through our own experiences to bring you the Top 5 things to consider when you are building a new home.

Continue reading “Top 5 Things To Consider When Building Your New Home”

What is the difference between a Mortgage Broker and a Mortgage Specialist

Broker vs Specialist

With the importance of real estate in Canada, it is vital to understand how the various professionals in the sector operate when buying a home.  So what is the difference between a Mortgage Specialist and a Mortgage Broker? At the surface they sound the same
• They both arrange mortgages
• They both can offer advice and help you select a mortgage, right?

WRONG!!! There are many differences… Let’s check some of them out!

• A Mortgage Broker works for you! Their role is to act as a link between you and the lenders so that you do not have to spend your valuable time learning about mortgages and shopping around for the perfect mortgage. Mortgage brokers do the legwork and negotiate on your behalf for lenders. They are your point of contact for everything related to your financing your home.
o Bank specialists are employed and paid by the bank and work on the bank’s behalf.

• A Mortgage Broker can work with many different lenders across Canada, rather than working for one financial institution. Therefore, Mortgage Brokers can offer you more choices with competitive rates and terms including: Big banks, Credit Unions, Trust Companies, Monoline Lenders (broker only banks) and private lenders.
o Usually Mortgage Specialists only have access to their lender’s products. In a typical situation, homeowners could end up with a higher interest rate than other institutions. This occurs because the homeowner must negotiate for themselves and Mortgage Specialists are usually paid according to the rate they sell you.

• A Broker must successfully complete a Provincially regulated Mortgage Broker course and exam. (In BC, Mortgage Brokers must be licensed by FICOM) They continue to maintain their good status to keep that license by taking professional development education courses.
o Bank specialists are not licensed and require no formal training. There are no standards for educational requirements (although most Lenders do provide some in-house training).

• Because Mortgage Brokers don’t work for a specific lender, you get impartial advice about a variety of lenders
o A bank specialist can only offer their own institutions products, good or bad.
o Specialists don’t have access to other lenders, so they won’t recommend another lender’s product offerings.

• Mortgage Brokers use their knowledge and experience to negotiate the best possible terms and rates for you from a variety of lenders, based on the best fit for your situation.
o When you see a bank specialist, the mortgage negotiating is typically left up to you.
o Will the bank specialist negotiate on your behalf or the banks?

• For conventional financing, the services of a mortgage broker are generally FREE to you. If there is a cost, you will be advised of those costs up front. Brokers get a finder’s fee from the lender once they place your mortgage. Therefore, brokers are motivated to get the best terms and rates for their clients.
o Bank specialists are paid by the bank
o Some banks offer bonuses if specialist gets their client to pay higher interest rates or sign up for other bank services.

• Mortgage Brokers work on a referral basis and are self employed. Most of their business is done through word of mouth referrals, therefore a Dominion Lending Centres Mortgage Broker is motivated to ensure their clients are extremely happy and satisfied to keep their business growing.
o A bank specialist is generally an employee of the bank, generating business through the bank’s existing customers.

• Most Mortgage Brokers are available for appointments outside banking hours (nights, weekends) at their client’s convenience.
o Bank specialists are generally only available during regular banking hours.

• Mortgage Brokers are focused on your mortgage
o Specialists are trained and rewarded on cross selling. Some will push you to consolidate all your banking services with them when getting a mortgage (credit cards, insurance, RRSP, lines of credit, etc.)

Would you ask Tim Hortons who makes the best coffee and expect them to say Starbucks? Not likely…  So why would you ask a Mortgage Specialist who works for a bank, to tell you which Lender has the best mortgage product for your situation.

If you want an industry trained, truly UNBIASED professional working for YOU, contact Ryan Majeau today!

*Contributed by Kelly of Dominion Lending Centres

Top 5 Things Millennials Should Know When Buying Real Estate

Top 5 Things Millennials Should Know When Buying Real Estate

There are 9 million Millennials in Canada, representing more than 25 percent of the population. Born between 1980 and 1999, the eldest are in the early stages of their careers, forming households and buying their first homes. Buying a home is a daunting process for anyone, but especially so for the first-time home buyer. This is the largest and most important financial decision you will ever make and it should be done with the appropriate investment in time and energy. Making the effort to be financially literate will save you thousands of dollars and assure you make the right decisions for your longer-term financial security.

 

  1. Don’t rush into the housing market–do your homework: learn the basics of savings, credit and budgeting.

Lifelong savings is a crucial ingredient to financial prosperity. You must spend less than you earn, ideally saving at least 10 percent of your gross income. Put your savings on automatic pilot, having at least 10 percent of every paycheck automatically deducted. Money you don’t see you won’t spend. Contributing to an RRSP, at least enough to gain any matching funds your employer will provide, is essential. The Tax Free Savings Account (TFSA) is ideal for saving for a down payment.

You also need to establish a good credit record. Lenders want to see a record of your ability to pay your bills. As early as possible, get a credit card and put your name on cable, phone or other utility bills. Pay your bills and your rent in full and on time. Do not run up credit card lines of credit. The interest rates are exorbitant and the only one who benefits is your bank. Keep your credit card balances well below their credit limit.

Do a free credit check with Equifax every six months to learn your credit score and to see if there are any problems. Equifax tracks all of your credit history, which includes school loans, car loans, credit cards and computer loans.  Equifax grades you based on your responsible usage and payments.

Budgeting is also essential and it is easier than ever with online apps. You need to know how you spend your money to discover where there is waste and opportunity for savings. The CMHC Household Budget Calculator helps you take a realistic look at your current monthly expenses.

  1. Make a realistic projection of your future household income and lifestyle and understand its implications for choosing the right property for you.

Top 5 Things Millennials Should Know When Buying Real Estate Millennials are likely relatively new to the working world. Lenders want to see stability in employment and you generally need to show at least two years of steady income before you can be considered for a mortgage.  This also applies if you have been working for a few years in one career and then decide to change careers to something completely different. Lenders want to see continuous employment in the same field. If you are self-employed, it is more challenging, and you need professional advice on taking the proper steps to qualify for a mortgage.

Assess the stability of your job and the likely trajectory of your income. Millennials will not follow in the footsteps of their parents, working for one employer for forty years. In today’s world, no one has guaranteed job security. Take a realistic view of your future. Will your household income be rising? Will there be one income or two? Are there children in your future? Will you remain in the same city? The answers to these questions help to determine how much space you need, the appropriate type of residence, its location and the best mortgage for you.

Financial planning is key and it is dependent on your goals and expectations.

  1. This is not a Do-It-Yourself project: build a team of trusted professionals to guide you along.

You need expert advice. The first person you should talk to is an accredited mortgage professional aka Ryan Majeau. There is no out-of-pocket cost for his services. Indeed, he will save you money.

Ryan is a trained financial planner and understands the ever-changing mortgage market. Take some time with him to understand the process before you jump in and find your head spinning with all the decisions you will ultimately have to make. He will give you a realistic idea of your borrowing potential. Before you fall in love with a house or condo, make sure you understand where you stand on the mortgage front. Mortgages are complex and one size does not fit all. You need an expert who will shop for the right mortgage for you. There are more than 200 mortgage lenders in Canada and they will compete for your business.

It is a very good idea to get a pre-approved mortgage amount before you start shopping. This is a more detailed process than just a rate hold (where a particular mortgage rate is guaranteed for a specified period of time). For a pre-approval, the lender will review all of your documentation except for the actual property.

There is far more to the correct mortgage decision than the interest rate you will pay. While getting the lowest rate is usually the first thing on every buyer’s mind, it shouldn’t be the most important. Six out of ten buyers break a five-year term mortgage by the third year, paying enormous penalties. These penalties vary between lenders. The fine print of your mortgage is key and that’s where an expert can save you money. How the penalty for breaking a mortgage is calculated is key and many monoline lenders have significantly more consumer-friendly calculations than the major banks.[2] A mortgage broker will help you find a mortgage with good prepayment privileges.

The next step is to engage a real estate agent. The seller pays the fee and a qualified realtor with good references will understand the housing market in your location. Make sure the property has lasting value. Once you find the right home, you will need a lawyer, home inspector, insurance agent and possibly an appraiser. Make any offer contingent on a home inspection and remediation of significant deficiencies.

  1. Down payments, closing costs, moving expenses and basic upgrades need to be understood to avoid nasty surprises.

Top 5 Things Millennials Should Know When Buying Real Estate The size of your down payment is key and, obviously, the bigger the better. You need a minimum of 5 percent of the purchase price and anything less than 20 percent will require you to pay a hefty CMHC mortgage loan insurance premium, which is frequently added to the mortgage principal and amortized over the life of the mortgage as part of the regular monthly payment.

Your lender will want to know the source of your down payment. Many Millennials will depend on the financial assistance of their parents to top up their down payment.

The down payment, however, is only part of the upfront cost. You can expect to pay from 1.5-to-4 percent of the purchase price of your home in closing costs. These costs include legal fees, appraisals, property transfer tax, HST (where applicable) on new properties, home and title insurance, mortgage life insurance and prepaid property tax and utility adjustments. These amount to thousands of dollars.

Don’t forget moving costs and essential upgrades to the property such as draperies or blinds in the bedroom.

  1. Test drive your monthly housing payments to learn how much you can truly afford.

Affordability is not about how much credit you can qualify for, but how much you can reasonably tolerate given your current and future income, stability, lifestyle and budget. Most Millennials underestimate what it costs to run a home, be it a condo or single-family residence.

The formal qualification guidelines used by lenders are two-fold: 1) your housing costs must be no more than 32 percent of your gross (pre-tax) household income; and, 2) your housing costs plus all other debt servicing must be no more than 40 percent of your gross income, (there are exceptions and other calculations to your debt ratios).

Lenders define housing costs as mortgage payments, property taxes, condo fees (if any) and heating costs. But homes cost more than that. In your planning, you should also other utilities (such as cable, water and air conditioning), ongoing maintenance, home insurance and unexpected repairs. Taking all of these costs into consideration, the 32 percent and 40 percent guidelines might well put an unacceptable crimp in your lifestyle, keeping in mind that future children also add meaningfully to household expenses and two incomes can unexpectedly turn into one.

The best way to know what you can afford is to try it out. Say, for example, you qualify for a mortgage payment of $1400 a month and adding property taxes and condo fees might take your monthly housing expense to $1650.  A far cry from the $500 you pay now to split a place with 3 roommates. Start making the full payment before you buy to your savings account and see how it feels. Do you have enough money left over to maintain a tolerable lifestyle without going further into debt?

Keep in mind that this is not a normal interest rate environment. Don’t over-extend because there is a good chance interest rates will be higher when your term is up. Do the math (or better yet have your broker do it for you) on what a doubling of interest rates five years from now would do to your monthly payment.  A doubling of rates may be unlikely, but it makes sense to know the implication.

Do Your Calculations Look Discouraging?

If so, here are some things you can do to improve your situation:

  • Pay off some loans before you buy real estate.Top 5 Things Millennials Should Know When Buying Real Estate
  • Save for a larger down payment.
  • Take another look at your current household budget to see where you can spend less. The money you save can go towards a larger down payment.
  • Lower your home price — remember that your first home is not necessarily your dream home.

Millennial or not, if you need help in planning your home purchase, contact Ryan Majeau today for industry trained, professional advice, for FREE!

*Contributed by Dr. Sherry Cooper of Dominion Lending Centres