18 Jun

DEBT SERVICE ABILITY. A RENEWED LENDER FOCUS

Mortgage Tips

Posted by: Darick Battaglia

Debt Service Ability. A renewed lender focus it seems. As interest rates firm, valuations are impacted, and cap rates begin to firm. What about Debt Service Ability? It is becoming more apparent that property income, and more specifically net operating income available to service debt, has a significant and growing influence on the amount of debt available to a commercial property owner. This is increasingly evident with lender attitudes as well. Cash is King to your commercial lender, notwithstanding the relative amount of leverage on your asset.

What’s the Norm?
Loan amounts equivalent to 75% of property value or purchase price, while perhaps never the “norm” were certainly prevalent, and not at all unusual. It would appear that institutional lenders are signifying their reluctance to “reach” for loans. They are now more frequently capping their maximum exposure to 65% to 70% of property value or purchase price. The ability of the property to comfortably service the debt is of paramount importance.

Why the shifting focus?
Are there other factors at play here? Yes, Canadian lenders regulated by the Office of the Superintendent of Financial Institutions are mandated to stress test their loans to individuals for personal mortgages. While not directly impacting commercial mortgage underwriting, institutional lenders, particularly those regulated federally, are working within a regime of increased oversight. There is a focus on both the quantum of, and absolute rates associated with consumer debt. It is perhaps no surprise that commercial lending is undergoing more focused attention as well.

Commercial lenders are also employing stress testing as an underwriting “best practice”. This stress testing can take many forms, ranging from determining the “break even” interest rate at time of loan approval (the increased rate levels which will still yield positive debt service coverage), to forecasting debt service coverage at loan maturity, at a rate higher than the contractual interest rate.

More generally, we have been operating in an extended period of low rates. Low single digit 5 year commercial mortgage rates have been with us for such a lengthy period now, that LTV considerations were often not of a significant concern from a loan underwriting perspective. This is now changing, with a renewed focus on the sufficiency of property cash flow.

What are the implications?
Mortgage lenders will be increasingly focused on debt service coverage in their underwriting processes. Borrowers should be aware that increased equity, or secondary debt may be required to secure real estate assets. The focus for income property owners has to be on maximizing Net Operating Income.

Understanding your property’s income generating capabilities, and maximizing every opportunity to grow and stabilize cash flow, will be your key to financing success in today’s increased interest rate environment.

Courtesy of Allen Jensen, AMP – DLC The Mortgage Source

14 Jun

DON’T FORGET THE CLOSING COSTS WHEN YOU PURCHASE A HOME

Mortgage Tips

Posted by: Darick Battaglia

The purchase price you negotiate when buying or selling a home is just one part of the total cost for buying a home. In addition to the purchase price there are several other fees – known as closing costs – all of which you need to factor in to your purchase price.

Closing costs tend to be hidden costs when buying a home. It’s not a set number, but a compilation of various administrative, legal fees and other one-time expenses associated with the purchase of a home that are due on the completion date.

These costs can add up, so you’ll need to factor these costs into your cash-on-hand budget.

Many first-time home buyers under estimate the amount of cash they will need for closing costs. Typically, you’ll want to budget between 1.5% and 4% of the purchase price of a resale home to cover closing costs.

Of course, these are estimates — the actual amount you will need could be higher or lower, depending on factors like where you live, the type of home you’re buying, or if it’s a new construction (+5% GST).

To help you plan the purchase of your property, here’s a snapshot of the extra fees you can expect to pay once you’ve settled on the price of your home.
o Legal Fees
o Title Insurance
o Fire Insurance
o Adjustments
o Property Transfer Tax (PTT)
o GST
o and more…

Here’s an overview of what you can expect.

Legal Fees: Legal/Notarial Fees and Disbursements. The lawyer/notary is the person who goes through all the paperwork and makes sure that everything is legitimate and binding. They confirm that all the items that were agreed to by the buyer, seller/builder, and lender are written and worded correctly. Your legal representative should also be able to walk you through each document that you sign so that you understand what you’re agreeing to. Legal fees range from $500 to $2,500. You will also need to reimburse them for their out-of-pocket costs that they incurred while handling the various searches and registrations, including title insurance (see below), property and execution searches, and the registration of the mortgage and deed. These disbursements are repaid to the lawyer on the closing date, as well as incidentals such as couriers, certified cheques, and photocopying, the land transfer tax, the down payment, and any interest adjustments.

Title Insurance: Title refers to the legal ownership of the property. The deed is the physical legal document that transfers the title from one person(s) to another. Both the title and deed of the home must be registered with a land registrar.

Most lenders require title insurance as a condition of granting you a mortgage. Your lawyer or notary helps you purchase this.

Title insurance protects you from title fraud, identity theft and forgery, municipal work orders, zoning violations and other property defects. It can also protect you against fees and costs that were not caught in the searches your lawyer conducted prior to the sale (Yes this can happen!).

Title insurance premiums range from $150-$500 depending on the value of the property.

Fire/Home Insurance: Mortgage lenders require that you have fire/home insurance in place by the time you complete the purchase of your home.

Property insurance protects you in case of fire, windstorms or other disasters. It covers your home’s replacement value. The amount required is at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. Home insurance can vary anywhere from $400 per year for condos to $2,000 for large homes.

Adjustments: An adjustment is a cost to you to pay the seller for the seller prepaying for something related to the house including property taxes, condo fees, heat etc. on your behalf.

Simply put, if you take possession in the middle of a month, the seller has already paid for the whole month and you must pay the seller back for what they’re not using. These adjustments are prorated based on the date you complete your purchase of the home. The most common adjustments are for property taxes, utility bills and condo fees that have been prepaid.

Property transfer tax (PTT) in British Columbia, is a tax charged to you by the province. First-time home buyers are exempt from this fee if they are purchasing a property under $500,000. All home buyers are exempt if they are purchasing a new property under $750,000.
• In British Columbia, the PTT is 1% on the first $200,000 of purchase, 2% over $200,000 & 3% on any value over $2,000,000.

GST is a federal value added tax 5% on the purchase price of a new home. If someone has lived in the home, the home isn’t subject to GST.
• There is a partial GST rebate on new properties under $450,000.

Interest Adjustment Costs: Most lenders expect the first mortgage payment one month after completing the purchase of a home. If you close mid-month, please note some lenders expect the first payment, or at least the interest accrued during that time, on the 1st day of the next month. When arranging your mortgage, ask how interest is collected to the interest adjustment date.

Other closing costs: Will your new home need furniture? Carpets? Lighting? Window coverings? Appliances? Do you have the equipment you need to maintain the lawn and gardens? Are you hiring movers or renting a truck? Will you need boxes, bubble wrap and tape for the move?

While these and other out-of-pocket costs aren’t part of the real estate transaction, you still need to budget for them. Plan your expenses as much as possible. If necessary, decide what you can put off buying until later, after you move in and get settled.

Courtesy of Kelly Hudson, AMP – DLC Canadian Mortgage Experts

12 Jun

THE 5 MORTGAGE ELEMENTS- DECISIONS YOU NEED TO MAKE BEFORE YOU SIGN!

Mortgage Tips

Posted by: Darick Battaglia

Before you buy a home there are a couple things you need to figure out first. One of the very first decisions you need to make is whether you want to work with a mortgage broker who is independent from the bank, or if you prefer, work with a financial representative from a specific bank. Next, you want to find a realtor that best understands your needs and wants.

From there, you and your realtor go through the laundry list of pros and cons as they relate to; type of neighborhood, type of building whether detached or attached, one, two, or three bedrooms, strata operated, resale potential, upgrades needed, local amenities, previous owners, the list goes on. Once you get an idea of the homes that tick the most boxes possible, writing an offer to purchase comes quick.

But what about your mortgage?

Unlike the list of requirements when it comes to someone’s potential home, a lot of people are only concerned about what the interest rate is when looking at their potential mortgage. If your price range was $500,000 for a 2 bedroom and you found one for $480,000, would you write an offer to buy without looking at those other requirements such as neighborhood, resale potential, upgrades needed, inspections, and previous owners?

There is a lot more that goes into a mortgage and understanding what differentiate one mortgage from another is very important for future borrowers to understand. The following are the 5 key elements borrowers need to be aware of before they sign and commit themselves to a lender and their mortgage product:

Privileges
Virtually every mortgage with every lender has some sort of privilege attached to it. A lot of the time it relates to pre-payment privileges. This can be extremely important because it allows you to increase your monthly payments, make lump sum payments, and change the frequency of your payments- all helping to pay down the principle portion of your mortgage and shave years off of unwanted interest. Why this is important to look at is because some lenders may only offer 10% pre-payment capabilities, while other’s 15%, and some 20%. With a $1,800 monthly payment that’s the difference between $180 against principle or $360. With an outstanding balance of $300,000 that’s the difference between a $30,000 lump sum payment against your principle or $60,000- a massive chunk that will take years and thousands of dollars more off your mortgage. Some lenders even offer the ability to skip a payment and double up on a payment.

Penalties
Nobody wants to pay a penalty for breaking their mortgage early (something 2/3 of people do in a 5-year fixed after the 2 year mark). That is why it is crucial for you to understand what your penalty will be IF you had to pay one. Some lenders use an IRD (Interest Rate Differential) penalty that takes into consideration term, outstanding balance, current rates, previous rates, and blends it all together into a formula. Other’s use three month’s interest and as you can probably guess, the IRD penalty is the more expensive one 99% of the time. IRD is usually applied to fixed term mortgages, variable rates more with three-month’s interest penalty. Big banks will almost always have a higher IRD penalty than monoline lenders because their formula accounts for posted rates, something usually much lower and offsetting with a monoline. A $12,000 IRD penalty with a big bank can be only $4,000 with a monoline for the same sized mortgage.

Interest Rate
The lower the rate, the lower than payment (assuming same amortization). What it really comes down to is picking the right term and choosing between fixed or variable, something a mortgage broker can be very helpful in explaining as it relates to your specific situation.

Portable Mortgage
This relates to a borrower’s ability to move their mortgage from one property, to another, even across provincial boarders. Some lenders like those big banks across Canada allow for this while it is harder when it comes to credit unions. If your job requires relocating and constant moving or travelling, this can be a very important factor.

Assumable Mortgage
Similar to portability, an assumable mortgage allows the person buying your home to take it over. This can result in avoiding pre-payment penalties or avoiding increased costs if downsizing. Not a feature commonly used but extremely beneficial when it is available, and you need it.

Connect with me today to see which of these 5 topics most affects you and what lender offers the best solutions!

Courtesy of Ryan Oake, AMP – DLC Producers West Financial

8 Jun

GRIDIRON STAR TACKLES THE RENOVATION WORLD

General

Posted by: Darick Battaglia

The following is an excerpt from the July issue of Our House Magazine.

Chatting with Sebastian Clovis about home renovations, it’s impossible to miss his enthusiasm. He’s splitting a downtown Toronto single-family home into a duplex. It may not sound like the most stimulating project, but for Clovis this is his element. He quickly rattles off all the neat parts of the project, from separating the HVAC system to soundproofing a building that’s now in two.

“It’s a really exciting project,” he told Our House Magazine in a recent interview.

It’s probably a good thing Clovis is passionate about his work, because his time in front of the camera as an HGTV star has made him a target of fans who want his advice, whether it’s at the gym or the grocery store.

“I’m known for getting into conversations that are way too long,” he said. “I would say I’m one of the contractors who’s given out the most amount of renovation advice in the steam room in the gym.”

With all jokes aside, Clovis maintains he’s blessed for the opportunities he had since he made a turn to do television. And he has no problems dispensing valuable advice on the subject of renovations.

Patience is everything in a home

It’s easy to spot the imperfections as soon as you move into a new place. While Clovis points out people have a natural inclination to change and customize their home as soon as they move in, he sees it differently. He recommends people start by tackling the items suggested in a home inspection, like the roof, windows, and siding.

“Do the things that are going to protect your home in the long-term first,” he said.

Clovis believes those improvements will give you the opportunity to spend a little time in the home. That’s time to see how the flow works with your family, how the sunlight comes through the windows and to figure out how to make efficient changes.

He said a lot of people want an ultra-modern kitchen after watching TV shows and seeing them in magazines, but they may not be a fit for the character of your home.

“You don’t want to spend $60,000 on a kitchen and two years later you’re frustrated with yourself because you put the wrong kitchen in there,” he said.

While people always like to get their hands a little dirty around the home, when asked whether people should DIY, Clovis is cautious in his response. The man who hosted his own DIY show said he’s all for people building benches, chairs, and tables, but bigger projects that touch on the envelope of the building should be left to the pros.

“If you’re not a professional builder, you don’t have too much business messing with the structure of the home,” Clovis said.

While some projects may look easy on TV, the handyman believes even laying flooring should be left to professionals. If anything, it might save money in the long run. He noted with the ever increasing costs of materials, wasting material on a failed installation attempt will burn through a budget. If you’re going to splurge on beautiful floors or tiles, spend the money to get them installed properly, he said.

And if you’re thinking about a budget, Clovis said he follows the golden rule of a 20 per cent contingency above and beyond the quote. That contingency is critical because you don’t know what’s going to happen once the walls are opened up.

He also suggested a contingency is important to accommodate for evolving design plans, adding often by the time a project is half way through, people start thinking about changes. And when it comes to his clients, he sets up a payment schedule with benchmarks in place to make sure payment is made when a certain amount of work is complete.

“It’s great to know when payments are going to be due and what they’ll be,” he said. “It makes everyone more comfortable when you have that in place.”

Courtesy of Jeremy Deutsch, Lead Writer, Dominion Lending Centres

7 Jun

GRIDIRON STAR TACKLES THE RENOVATION WORLD

General

Posted by: Darick Battaglia

The following is an excerpt from the July issue of Our House Magazine.

Chatting with Sebastian Clovis about home renovations, it’s impossible to miss his enthusiasm. He’s splitting a downtown Toronto single-family home into a duplex. It may not sound like the most stimulating project, but for Clovis this is his element. He quickly rattles off all the neat parts of the project, from separating the HVAC system to soundproofing a building that’s now in two.

“It’s a really exciting project,” he told Our House Magazine in a recent interview.

It’s probably a good thing Clovis is passionate about his work, because his time in front of the camera as an HGTV star has made him a target of fans who want his advice, whether it’s at the gym or the grocery store.

“I’m known for getting into conversations that are way too long,” he said. “I would say I’m one of the contractors who’s given out the most amount of renovation advice in the steam room in the gym.”

With all jokes aside, Clovis maintains he’s blessed for the opportunities he had since he made a turn to do television. And he has no problems dispensing valuable advice on the subject of renovations.

Patience is everything in a home

It’s easy to spot the imperfections as soon as you move into a new place. While Clovis points out people have a natural inclination to change and customize their home as soon as they move in, he sees it differently. He recommends people start by tackling the items suggested in a home inspection, like the roof, windows, and siding.

“Do the things that are going to protect your home in the long-term first,” he said.

Clovis believes those improvements will give you the opportunity to spend a little time in the home. That’s time to see how the flow works with your family, how the sunlight comes through the windows and to figure out how to make efficient changes.

He said a lot of people want an ultra-modern kitchen after watching TV shows and seeing them in magazines, but they may not be a fit for the character of your home.

“You don’t want to spend $60,000 on a kitchen and two years later you’re frustrated with yourself because you put the wrong kitchen in there,” he said.

While people always like to get their hands a little dirty around the home, when asked whether people should DIY, Clovis is cautious in his response. The man who hosted his own DIY show said he’s all for people building benches, chairs, and tables, but bigger projects that touch on the envelope of the building should be left to the pros.

“If you’re not a professional builder, you don’t have too much business messing with the structure of the home,” Clovis said.

While some projects may look easy on TV, the handyman believes even laying flooring should be left to professionals. If anything, it might save money in the long run. He noted with the ever increasing costs of materials, wasting material on a failed installation attempt will burn through a budget. If you’re going to splurge on beautiful floors or tiles, spend the money to get them installed properly, he said.

And if you’re thinking about a budget, Clovis said he follows the golden rule of a 20 per cent contingency above and beyond the quote. That contingency is critical because you don’t know what’s going to happen once the walls are opened up.

He also suggested a contingency is important to accommodate for evolving design plans, adding often by the time a project is half way through, people start thinking about changes. And when it comes to his clients, he sets up a payment schedule with benchmarks in place to make sure payment is made when a certain amount of work is complete.

“It’s great to know when payments are going to be due and what they’ll be,” he said. “It makes everyone more comfortable when you have that in place.”

Courtesy of Jeremy Deutsch, Lead Writer – Dominion Lending Centres

6 Jun

LAST MINUTE CREDIT CHECK

Mortgage Tips

Posted by: Darick Battaglia

As I’ve said many times, one of the single greatest determining factors in whether you can become qualified for a mortgage and the interest rate at which you do, is your credit history. Many people unfortunately don’t know this, and can be completely blind-sided when it comes time to qualifying.

However, the truly unsettling idea about credit scores and their relation to home financing is the fact that most people do not even know they are extremely important even after you have been approved…

Once your offer on a home is accepted and you remove financing conditions, it is your obligation to secure the money needed to close the sale. There are usually a list of conditions one must meet and satisfy in order to obtain the financing they need from a lender. Once that is done, the mortgage will be sent to a real estate lawyer where they will be instructed to finalize everything. This is where all closing costs will be paid and all corresponding money will be sent to the proper parties involved.

However, before any of this is done, one more thing must happen…

Your credit report can be reviewed once again in order to verify your credit history is the same as it was when you were first qualified for a mortgage, sometimes months earlier.

So what happens if you made an offer on a home, got approved for financing, lifted all conditions, and because you also met all the lenders conditions, went out and bought new furniture for your home on a credit card? Well, you may not be able to receive your loan anymore…

If you increase the amount of money you are borrowing through any credit card or bank, miss payments on existing debt, or for any reason alter your credit history from the day you are approved until the final closing day at the lawyer’s office, you run the risk of not being able to complete your purchase.

If you plan on spending any money that isn’t cash and isn’t in a separate account needed for your down payment or closing costs, you need to talk to your broker because it could end horribly for all parties involved and potentially result in legal disputes.

This is the most important purchase and decision you may ever make, why things like this have never been explained in schooling or anything like that is beyond me.

Courtesy of Ryan Oake, AMP – DLC Producers West Financial

4 Jun

WHY WE CHOSE A MORTGAGE BROKER

Mortgage Tips

Posted by: Darick Battaglia

The Dolejsi family needed more than just the purchase price of their new home. Their DLC broker made it easier for them to ask the “dumb questions.”

Lindsay Dolejsi and her family are finally getting settled into their forever home. The three-bedroom, 2,000 square foot townhouse in south Surrey, B.C., is the perfect place for the family of three, her husband Ryan and their daughter Violet.

“It’s just amazing,” Lindsay tells Our House magazine. There’s plenty of space outdoors for Violet to play and be a kid before she grows up. (Their daughter had spent the previous five years in an apartment, Lindsay notes.) But getting to this stage wasn’t easy.

After their bid on the home was accepted in March, the place needed a total renovation. Several months and thousands of dollars later, the work is complete. And the couple is quick to credit their Dominion Lending Centres mortgage professional for helping them through the process.

Our House: Why did you choose a mortgage broker?
Lindsay Dolejsi: I was a service adviser at the time for BMW. My broker was my customer and he sold me on [using] a mortgage broker. When we had bought a pre-sale they kind of set it up for you and so he said he could do better than that. So he did! He came in with better numbers. My mother-in-law at the time was trying to get a mortgage on the pre-sale plus her house, so he happened to come up with two mortgages [including] hers. Basically I met someone who was a mortgage broker and that’s how I learned about having a mortgage broker.

OH: How was your experience working with a mortgage broker?
LD: He helped us out to figure out how we were going to get there and what that looked like. He’s helped us ever since we got the mortgage to now. It’s awesome. They do everything for you. I can ask lots of dumb questions and they just fill in the blanks.

OH: What advice would you give to someone in your situation?
LD: I think there’s a lot of people who don’t think they would qualify or don’t know what it takes. I have a couple of friends who are late in the game, but I know they have a good amount down and they’re scared. Just talk to somebody. Find someone you connect with, mortgage-wise, and it flows from there. Don’t be afraid to just ask questions and see. It’s better than asking a bank. A lot of people think you have to go through a bank and it’s not as personal.

Courtesy of Jeremy Deutsch, Lead Writer – Dominion Lending Centres