With 80% loan-to-value being the maximum you are now able to refinance your property, property for values increasing at a slower rate, and 25 years being the maximum amortization on high ratio deals, it’s not as easy as it once was to simply refinance and pull some money out of a home when it’s time for some upgrades.

In addition to the above, it seems that many of the new homes being developed lack a decent sized yard for the average family to live in and enjoy. Many of my clients are facing the dilemma of buying a new home with all the bells and whistles, but a lackluster yard or, purchase an older home with a yard that their kids and pets can enjoy, but face the reality of having to upgrade or renovate the home they purchase.

The Purchase Plus Improvements mortgage is a great option for many people in this situation. They get credit for the increased home value right off the bat, they get their money at a great interest rate, and they get to complete the upgrades right away and live in the home they really want!

Here’s how the program works:

* The amount allowed for improvements is typically 10% -20% of the purchase price, or up to $40,000 maximum. The money is to be used for “improvements” or “upgrades”, not necessary repairs like leaks or structure issues. It also must be for something that adds value to the home, not a chattel like appliances.

* You need to get quotes for the cost of the improvements that you wish to complete. Add the amount of the quote(s) to the purchase price, and this becomes the “value” of the home that the lender considers. The down payment is now based on this new higher value as well.

* The mortgage is funded based on the contractual price, but the money to be used for improvements is held at the solicitor’s office until the work is complete.

* The work can be done by yourself or a company/contractor, but sweat labor is not something that can be reimbursed for. If you do the work yourself, only the cost of the materials is released. If a contractor or company does the work, simply provide the invoice and they will be reimbursed directly for the full amount.

* An inspection report from an appraiser is required when all is done so the lender can confirm that the said work was completed and is of good quality.

* If the final costs end up being less than expected, the left over money is applied back against the mortgage.

This program is available at the best rates, both fixed and variable, and may help to make it easier for you to decide which home is best for your family.

Think this program might work for you or someone you know? Call your Dominion Lending Centres Mortgage Broker for further details!

Courtesy of Jeff Ingram, AMP – DLC Canadian Mortgage Experts 

It may seem an odd question with a very obvious answer but you would be surprised how few people consider this question when approaching their bank for mortgage advice. When you deal with a bank employee or a mobile mortgage representative (also a bank employee), you need to know that their primary responsibility is to look out for the bank’s best interest. Banks are morally and legally obligated to provide the best return for their shareholders. This can present an issue, especially if you are seeking “unbiased” mortgage advice. As one of our clients recently found out, dealing with a bank isn’t all that it is cracked up to be.

In 2009, when the clients approached their bank’s “Mortgage Specialist” to explore their refinancing option, the Specialist had them approved for what they considered to be a good rate with good terms. The clients happily signed their mortgage documents and went on their way happy with their new terms. If that was the end of the story I wouldn’t be writing this blog, however, that was not the case.

This year the clients decided to sell their home and move up to a larger house that could accommodate their growing family. After consulting a realtor, they phoned their bank to find out what options were available to them. The rate and terms offered by the bank were not competitive with current market offerings so the clients asked what the cost to buy out their mortgage would be. After using the bank’s online calculator, they figured their prepayment penalty would be in the $5300 range. Needless to say, the clients were completely floored when the bank representative told them their penalty would be in the neighbourhood of $22,000.

After several moments of shock, the clients asked the representative how this could be. The answer they received was that their “Specialist” had provided them with a “Discounted” rate on their last refinance and because of that they were penalized an additional 1.85% in their penalty calculation which accounted for the additional $16,000+. In the end, the additional penalty did not leave the client with enough equity in their home to sell and purchase a new property.

So that “great rate” that the clients received from their “Specialist” resulted in a considerable amount of hardship down the road. So the next time you go to your bank for mortgage advice, it would be prudent to consider who your banker works for…and then come to Dominion Lending Centres!

Courtesy of Jason Humeniuk, AMP – DLC Hillside Financial 

The Canadian Mortgage and Housing Corporation (CMHC) recently announced that in order to facilitate affordable housing choices for Canadians, it would be making some policy revisions on how they consider income derived from secondary suites. Considering the last 4 years have been nothing but tightening of rules, making it harder for Canadians to secure mortgage financing, this news is certainly welcome.

INSTEAD OF USING JUST 50% OF THE INCOME DERIVED FROM A SECONDARY SUITE, CMHC WILL NOW FACTOR IN 100% OF RENTS PAID, WITH SOME CONDITIONS OF COURSE!

As of September 28th 2015:

• CMHC will consider up to 100% of gross rental income from a 2-unit owner-occupied property that is the subject of a loan application submitted for insurance. The annual principal, interest, municipal tax and heat (P.I.T.H) for the property, including the secondary suite, must be used when calculating the debt service ratios.
• For 3 – 4 unit owner-occupied and 1 – 4 unit non-owner occupied properties, the net rental income (gross rents less operating expenses) can form part of the borrowers’ gross annual income.

Additional conditions when 100% of gross rental income is used include:

• The income must have been sustained over at least two years.
• The income amount must not exceed the average of the past two years, to address income fluctuations, smooth out cyclical trends and unexpected events such as vacancies.
• Up to 100% of gross rental income may be used only where prospective borrowers can demonstrate a strong history of managing credit, generally considered to be a minimum credit score of 680.

SO WHAT DOES THIS MEAN FOR YOU?

If you have been on the fence about getting into the housing market, this recent announcement highlights an option you may have not already considered. What about buying a property with a legal secondary suite to use the income to help pay your mortgage? CMHC has just made it a little more affordable to qualify for buying properties like this – certainly worth a look!

If you would like to discuss how much mortgage you qualify for and look at different scenarios of qualifying with a secondary suite rental income, we here at Dominion Lending Centres would love to have an in depth look at your finances and provide you with mortgage options! Let’s talk!

Courtesy of Michael Hallett, AMP – DLC Producers West Financial 

Last time, we discussed mortgage fraud using “straw buyer” schemes and the red flags that come up when they happen. This time we are taking a look at an even more insidious type of fraud, where the red flags are hard or even impossible to spot until it’s too late.

Title Fraud

When you purchase a home, you purchase the title to the property. Your solicitor registers you as the owner of the property in the provincial land title office.

Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.

This occurs when your personal information is collected and used by someone identifying themselves as you. There are several ways criminals can steal your identity without your knowledge, which includes:

• dumpster diving;
• mail box theft;
• phishing; and
• computer hacking.

Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is often the case with mortgage fraud.

Here’s what happens with title fraud. A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.

The following are ways you can protect yourself from identity theft:

• Ensure you keep personal information confidential when on the internet or phone until you know who are dealing with, how it will be used and if it will be shared with anyone.
• Only carry minimal information and identification in your wallet, don’t have your social insurance card with you.
• Check your credit report regularly. You can get them free in the mail when you request copies from Equifax or Transunion. If you notice anything suspicious, contact the credit bureau right away.
• Check your financial, bank and credit card statements regularly for any inconsistencies and unknown charges.
• Consider obtaining a title insurance policy, as title insurance protects against many title risks associated with real estate transactions.
• Check your mailbox regularly, if not every day.
• Shred and destroy any financial and personal identification documents, as well as any unsolicited credit card applications rather than just simply throwing them away.
• If you don’t receive your bills or other mail, follow up with your creditors.
• If you receive credit cards that you didn’t apply for or if you did apply for them and didn’t receive them follow up with these card companies.
• Contact your mortgage lender first if you are having difficulty making your mortgage payments.

The following are ways to protect yourself from title fraud when purchasing or refinancing a home:

• Make sure you work with a licensed real estate agent who is familiar with the area you are interested in buying. Choose to work with someone that can provide trusted referrals and check on them.
• Check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable.
• Always view the property you are purchasing in person – don’t buy without seeing it first.
• Beware of a real estate agent or mortgage broker who has a financial interest in the transaction.
• Ask for a copy of the land title or go to a registry office and request a historical title search.
• In the offer to purchase, include the option to have the property inspected and appraised.
• When giving a deposit while purchasing a property, ensure the funds will be held “in trust” with a solicitor or a real estate agency and not directly with the seller.
• Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab.
• Ask to see receipts and permits for recent renovations.
• Consider the purchase of title insurance.
• Review and make sure you are comfortable with the terms and conditions of the mortgage commitment letter or approval.
• Review the “cost of borrowing disclosure statement” and be aware of any additional fees or charges. Ask questions if you are not sure.
• Know and understand what you are signing. If you have questions, ask. If you are not comfortable or something is not right, do not sign the documents.
• You might want to consider using your own solicitor for legal advice if you are asked to use the same lawyer as the seller.

  Courtesy of Alisa and Jorge Aragon, AMP – DLC Mountain View

Nowadays, with the amount of information that is shared on the internet and social media, identity theft and Ponzi schemes are happening regularly. Homeowners are taking the necessary steps to protect one of their largest investments, which is their home.

The last thing you want to worry about is yet another way to lose your hard-earned money. But as a homeowner, you need to be aware of crimes on the rise, known as mortgage fraud and real estate title fraud.

In this first part, we will look at mortgage fraud and “straw buyer” schemes. 

Mortgage Fraud

Some borrowers may think that providing false documents and making false statements is not a big deal. However, the Criminal Code clearly states that obtaining funds, including mortgages, by providing false information is a crime.

The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

Here are some red flags for mortgage fraud:

• Someone offers you money to use your name and credit information to obtain a mortgage.
• You are encouraged to include false information on a mortgage application.
• You are asked to leave signature lines or other important areas of your mortgage application blank.
• The seller or investment advisor discourages you from seeing or inspecting the investment property you are purchasing.
• The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution.

“Straw Buyer” Schemes

Another kind of mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so they cannot purchase a home. They, or an associate, approach someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for a home purchase.

Other types of criminal activity often dovetail with mortgage fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.

It’s important to remember that if something doesn’t seem right, it usually isn’t – always follow your instincts when it comes to red flags during the home buying and mortgage processes.

Courtesy of Alisa and Jorge Aragon, AMP – DLC Mountain View

There is a misconception out there that once you’re pre-approved, you’re good to go. A pre-approval simply means that based on your CURRENT income, expenses, down payment and credit you SHOULD be able to get fully approved once you find the right property (this is the first half of the equation). Many places won’t even pull a credit check (which is extremely important) and will just run a basic mortgage calculator and say “everything looks good” but that doesn’t mean anything. You leave thinking great, I’m pre-approved!

I always recommend that people put in a “subject to financing” clause with their realtor when they are putting in an offer to protect them each and every time. Here’s why:

You could be pre-approved but the lender still doesn’t know which property you’re purchasing (that’s the other half of the equation). Let’s say you find the house of your dreams (well within the maximum price that the mortgage broker went over with you) but we find out that the house was a former grow op. In this case, very few lenders will even look at this (even if it’s been fully remediated and there’s a stamp from the city saying it’s all good) and if they do, they’ll usually require a substantial down payment and further air quality testing that you must pay for as mould spores can grow behind walls and become airborne years later. Yes this is an extraordinary example but it can also happen where a bidding war has bid up the price and the best offer (yours) has been accepted. The lender sends in their appraiser to determine the value of the property and it may come in at a lower value than your accepted offer and so you’d have to come up with more money for a down payment (which you weren’t prepared for or don’t have).

If you have a “subject to financing” clause in your agreement, then you have a way out and can look for another property with no issue at all. If you don’t have a “subject to financing” clause at all and you’ve already given your deposit to the realtor (because you were under the impression that you were going to be approved), then you’re out of luck and will be stressed out and scrambling to find a lender that will help you out, even though you were technically “pre-approved”.

So in summary, always put in a “subject to financing clause” as that’s the only protection you have. This is much cheaper than forfeiting your deposit (and facing potential legal action from the seller) should you want to cancel your contract after the agreement has been made.

Better yet, contact your local Dominion Lending Centres Mortgage Professional and have them do a proper pre-approval and have you fully prepared for what most likely will be the largest purchase in your life!

Courtesy of Joe Cutura, AMP – DLC Origin 

Securing a rate hold is like having insurance on your mortgage rate – you no longer have to worry about mortgage rates increasing while you find your new home over the next 90-120 days. And if rates drop within that same period, so too will your preapproved rate.

For instance, if you obtain a 2.69% rate hold and there is a shift in the economy that forces the bond yields to rise, fixed rates could easily jump closer to 3.00%. In this case, your rate hold for 2.69% would have saved you more than a quarter of a percentage point, which would translate to a savings of a significant amount of money over the term of your mortgage.

Keep in mind, however, that a rate hold is only half the battle and means nothing if you don’t meet the lender’s qualifications when you have an accepted offer and your deal is now “live”. This is where an actual pre-approval comes in. Only a handful of lenders will actually look at the fine details of your employment and banking history without an accepted offer in place. Fact of the matter is, in the past only less than 15% of all pre-approvals actually turned into funded deals. Most lenders realized that they were wasting too much time and resources by pre-approving applicants that would never turn in to a customer.

Thankfully your Dominion Lending Centres Mortgage Professional will know which lenders still fully underwrite pre-approvals and which ones simply offer a rate hold. If you are able to obtain a preapproval AND a rate hold, you can be confident you have access to mortgage financing and you’ll know how much you can spend before you head out shopping for a property.

Courtesy of Jeff Ingram, AMP – DLC Canadian Mortgage Experts 

There seems to be a lot of confusion about what exactly a rent to own is, so let’s clarify!

A rent to own is where a landlord and a tenant agree that at a certain time the tenant will purchase the home from the landlord. So is it a good idea?

We have all heard of horrible tenants absolutely destroying a property. A rent to own agreement can help guarantee that the tenant is serious about taking care of the home. The landlord then doesn’t have to worry as much about their property and also can benefit financially. The landlord will never lose out on a rent to own agreement because their home will either be purchased for a fair price or the tenant will decide to not finalize the agreement, in which case the landlord will get to keep part of the entire deposit.

A tenant may consider a rent to own agreement if there is a life threatening issue, death, credit issue, or a failure to save a down payment in the family. In any case, it’s always important to read the fine print of a rent to own agreement to ensure the satisfaction of both parties.

The first step in a rent to own agreement is to consult a lawyer and financial professional. You need to get pre-qualified when considering a rent to own especially if you don’t have stable credit. These professionals will need to see two trade lines, such as a loan or credit card, with consistent payments for the past two years. You will also want to ensure that you are able to afford the property according to your affordability ratios.

A landlord also benefits from visiting a financial professional if you have written permission, as they will be able to tell you if the tenant is in an appropriate financial position. The key things a landlord should require are:

1. Deposit – In the agreement, a deposit date and amount should be specified. The landlord should also keep a record of the bank deposit on file.
2. Additional amount towards the down payment – The large monthly rent will remain, but anything additional can count towards the down payment. These details should also be outlined in the agreement.
3. Property Value – Property values are volatile and hard to predict. If you agree on a price of $300,000 and at the time of purchase the home is worth $250,000 you will be unable to obtain a mortgage for the original amount agreed on.   Even if both parties agree to the purchase price a lender will not allow it.  To protect both landlord and tenant, the agreement should include a statement that the property value will be determined when the purchase date arrives and how it will be appraised.

If you are considering a rent to own agreement, come chat with one of our professionals at Dominion Lending Centres. We can help you sort through the confusion, saving you time and money.

Courtesy of Alim Charania, AMP – DLC Regional Mortgage Group

Many people find themselves renting a home and helping others get ahead financially. When the question of “why rent” is posed, the most common answer is the issue of not having a down payment. What is interesting is that the person could afford the monthly payments but simply does not have the down payment. Home ownership in North America is less than 70%. The US Census Bureau reports that the US homeownership rate fell to 63.4% in the second quarter. This is the lowest level since 1967. In comparison, home sales are doing very well in the USA. Home construction companies are doing a booming business. Cabinet maker American Woodmark (AMWD) stock price started the year at about $29 and has hit a high of $67 a share. US private equity firm The Blackstone Group (BX) is now the single largest homeowner in America. They rent homes to those who cannot buy. Put yourself in the position to buy.

How does one go about obtaining the down payment? First let’s look at the options once you get that down payment. You could buy a condo or a townhome and have a reasonable payment. A home might seem to be out of your price range but if you purchase a $600,000 home with a rental suite with 5% down your mortgage payments would be about $2,700 a month. Take this amount then consider the $1,100 you get for renting your basement suite and your portion of the mortgage is $1,600 a month. This makes it much more affordable. Then there is also the option of renting out rooms and sharing living space for a season for additional income.

The biggest reason one does not have the down payment is lack of planning and perhaps the lack of hope for ownership of a home. Let’s take the case of a teenager. They have a vision of owning a home by the time they are 23 years old, after they have completed their degree. Let’s call them Homeowner. Another teenager has a vision of driving a nice car. We will call them Car-owner. Homeowner works hard while getting their education. There is not a lot of time between work and school. They stay at home rent free while going to school but have to pay for their schooling. They invest what is left and over the next six years watch their investments grow.

Car-owner buys a nice car; interest on the car loan is only 1.9% so almost free money. Car payments are $500 a month, insurance is $200 a month and car owner decides he wants to live independently as a renter as it is only $500 a month. While going to school Car-owner decides to get student loan so he does not have to work as much. Car-owner finds he is spending $2,000 a month on living expenses.

At age 23 they both are out of school. Homeowner looks at their savings and sees it has grown to $120,000. With this as a down payment, they can purchase a home and rent out a portion to begin their journey as a Homeowner.

Car owner gets a good job after graduating from university. Student debt is at $50,000 and the car is getting old so it is sold and upgraded to another car with another loan. Then there is the question, “How am I supposed to get a down payment?”

This is very possible and the reason why it is imperative to start taking financial small steps one day at a time. Compound savings and consistent budgeting will prove to be very fruitful in just a few short years. I have personally seen young people taking the steps to save and invest while going to university and compiling a portfolio of investments that would give them a substantial down payment. This does require sacrifice. It is a wise soul who weighs the cost in their youth and moves toward establishing a healthy financial future. I look forward to seeing more of these young people moving towards purchasing their homes and establishing themselves early in their careers.

Courtesy of Kevin Bay, AMP – DLC Producers West Financial 

Becoming a landlord can seem very appealing.  There is a large influx of people to BC, Alberta and Ontario and they all need a place to live.  But before you dive headfirst into this potentially lucrative pool, there are some things to consider. Aren’t there always?

Down Payment

You will need at least 20% of your own resources to put down.  That can be a lot of money.  On a $300,000 property you will need $60,000.  On top of this, you have the other costs to complete the purchase such as legal fees, title insurance and potential mortgage insurer fees.  Some lenders will still utilize the mortgage insurers to lessen their overall risk on a rental property and that cost is passed onto the purchaser.

Ongoing Costs

Being a Landlord is not a passive investment and like any fledgling business, it will have to be nurtured to pay out.  You haven’t just purchased a property; in reality you have purchased a business.

The first cost to consider is your time.  You will be the one responsible for the repairs and maintenance on the property.  These calls can and will come at the worst of times.  Make sure you and your family discuss this beforehand.  It’s all well and good to imagine a family dinner will be interrupted but now imagine that call coming in on Christmas day.  You will also spend time interviewing tenants, chasing rent, going to the bank and a myriad of other details.  A property management company can be a great way to mitigate this but this could eat into your cash flow up to 10%.

And then there is the cost in dollars. You will want to budget 2% of the purchase price per year for ongoing monetary expenses. On the same $300,000 purchase that’s $6000/year.  There will be ongoing costs such as your mortgage, property taxes and insurance but as we all know, owning a home is expensive.  There is always the risk that you will have a major expense such as the furnace or a new appliance.  And what if your tenant doesn’t pay or the property sits vacant?  Having a sufficient buffer protects you from paying these personally.

Budget

Sometimes people come in thinking that as long as the mortgage is covered, they will be fine to pay the taxes and other expenses out of their own pocket.  I would caution a big no!  Your rental is a business and no business can, nor should it, operate in the red.  Sit down and calculate exactly how much you will need to charge each month to be viable.  Will the rental market in your area support the rental amount you need to charge?  Have you allowed for all expenses and a buffer?

Banks have Excel spreadsheets they use and exact ratios worked out.  Ask your mortgage professional to help.  We are happy to!

Learn your Rights as a Landlord

The Residential Tenancy Act differs from province to province.  Know yours before you buy.  There will be things expected of you as a landlord that you may not be aware of but that you are now legally obligated to fulfill.  It’s equally important to know your rights.  Think worst case and plan accordingly.  How do you evict? What is the process for increasing the rent?  You need to know.

Know the Tax Implications    

Rental income is income like any other and will need to be reported to the CRA. Having a qualified tax professional on your side can help you avoid short and long term consequences.  For example, if you have a legal suite in your primary residence, you will want to be aware that there could be a capital gains tax implication when you sell.   Use your tax professional and let them know your plans with your rental property so that they are able to help you strategize.

Be Realistic

Not every tenant will be perfect.  We have all heard the stories.  Your investment may take up to 10 years to be financially viable and in the meantime your blood, sweat and tears are likely to be needed.  Are you ready??

Courtesy of Pam Pikkert, CMP – DLC Regional Group