There you are, sitting down with your realtor and preparing an offer to purchase for that amazing home that you just looked at this afternoon. You get to the point in the conversation with your realtor about the need for a financing condition and you’re trying to remember what you talked about with your Mortgage Broker earlier in the week….were you approved? Pre-approved? Pre-qualified?

So here’s the thing, when it comes to placing an offer on a new property, the financing condition should always be there. The only reason for leaving the financing condition out of an offer is because you know that you could dip into your savings account right now and buy the house with cash if you had too.

If you cannot purchase the house with cash, then you really should have that pesky finance condition in the offer and here is why…

We know already that you’ve met with your Mortgage Broker, they have everything on file and they have told you that you’re pre-approved. It is important to understand that the pre-approval they issued is based on the information they have collected about you. However, they have no information about the house that you’re eventually going to purchase.

When your future lender reviews an application in full, there are two sides to your application. There’s you and then there’s the house. It’s important to note that the lender is investing in the whole package and at this point, no one knew what house you were going to buy. Your Mortgage Broker isn’t likely to receive any information on the specific property until you have an accepted offer. It is at that point when they will update your application and send in all of the details for a formal approval.

So you’re now wondering why all of this matters considering that during your pre-approval meeting your Mortgage Broker told you that you’re the perfect clients (great income, great credit, great down payment and just all around great people).

But what about the property? The lenders (and CMHC if you have less than 20% down) want to know that the same is true about the house you’re buying. Here are just a few questions that they are asking themselves about the house:

• Is it being purchased for fair market value?
• Is it located in a marketable neighborhood?
• Are there any major or obvious defects that could affect its value
• Is the house a previous grow op?

If something negative about the house comes back as part of the review, it could mean that the lender (or CMHC) could decline to finance the property. The financing condition gives you a way out of the agreement should something happen at this point. If you don’t have a financing condition, you could end up being legally tied to purchasing the home, with or without financing lined up. Definitely not a position you want to be in, so take the time to protect yourself by ensuring your offer to purchase includes a financing condition – and speak with us at Dominion Lending Centres.

Courtesy of Nathan Lawrence, AMP – DLC Lakehead Financial

It’s exciting! Brand new shiny homes, opulent new appliances and granite countertops followed by massive marketing with deep discounts, rebates, cashback, free tvs, offers to pay your strata and mortgage payments? Developers are throwing in these incentives to entice buyers and many are getting shocked with the ramifications when they close at the lawyers.

Nothing comes for free. Period. There is always a catch somewhere. From a mortgage perspective, I have had countless homebuyer mortgage files land on my desk because the bank wouldn’t or couldn’t approve your mortgage after you have already plunked down that 5-10% deposit. Which by the way is NON-REFUNDABLE in most cases!

Let me tell you a story about 28 year old Jim. He worked for a developer and was told it was a GREAT location to buy. He could move in and flip it in a few years with all the equity increase. He was excited! He strolled into the sales office and a BIG banker was there selling RATE. The banker asked a few questions, looked at his paystub and said your pre-approved! Jim put down a $25,000 deposit. The place would be ready to move in about 8 months. 6 months later, Jim goes to BIG BANK to get all his financing approved for his new shiny condo and “I am sorry, Jim…we can’t approve your mortgage”. Wait…WHAT?!

Jim was referred to me. I reviewed his income. His credit was great, he had his $25,000 down payment/deposit (5% down) in place…the problem was his INCOME. The banker person didn’t get enough information to ascertain that he really didn’t qualify right at the beginning. Why? While he was a T4, paycheque, tax paying employee, Jim worked for his family and lenders require that you have TWO years of working history when working for family. In addition, Jim ended up being off on medical for 4 months and his 2nd year of income was WAY lower than his first year – he didn’t qualify for his mortgage. He lost his $25,000 deposit.

There are MANY reasons why buying “brand new” requires a licensed mortgage broker to be watching your back. Right from the time you decide to put in the offer to the day you close at the lawyers.

Yes, many banks will OFFER to do a 1 year rate hold…but that is all it is…a rate hold. It DOES NOT mean you’re pre-approved or will get the approval come closing time. That’s NOT a risk you should take.

Here are the 4 COSTLY mortgage mistakes:

1. The value drops in your new place. If you are only putting 5-15% down payment, and your property closes in 6-12 months, you could be putting yourself at financial risk. Lenders lend money on the value of the property, not the purchase price. If you bought at $300k and the lender has it appraised before closing at a value of $280k…you only get the mortgage loan based on this VALUE amount. If you only have 5% down and no money to make up the cost…you will be up the creek (or borrowing from the bank of mom/dad or reducing your down payment). You’re on the hook for the difference! You promised to pay Mr Developer $300k to buy it, but the bank will only give you a maximum of 95% of the $280k value, not $300k purchase price. While in the Metro-urban cities this isn’t a concern today, certain areas in Alberta and rural areas this could be a factor.
2. Who is watching your credit score or your spending habits? It might be good today, but in 8 months you could decide to buy a new car (hey what’s $200 a month?). Well that $200 a month might be enough monthly debt to ensure you don’t qualify for a mortgage.
3. Who is making sure that if you change jobs, or go from full-time to part-time, that you still qualify? Part-time income is looked at ENTIRELY different than full-time. Maternity leave and disability…same story.
4. Those “perks” you are offered? They are called “Decorating Allowances” or “incentives”. They WILL be DEDUCTED from your purchase price/ value if it’s written INTO your contract of purchase and sale. This can be confusing and potentially have a financial impact if you have limited funds for down payment or are expecting a “cashback”.

What are they and when are they good? “Monetary cashbacks”, “cars”, “TVs, furniture, mortgage or strata payments for a year…will all be deducted from your purchase price. This is where the confusion lies and ends up costing you.

Say you put 5% down or $15,000 on your $300k home and that’s all you have. The Developer/Realtor offers a $15k incentive (such cash to go buy furniture) into the contract. The lender would remove the $15k from the purchase price meaning $300k p/price now = $285k with a max mortgage of $270,750. Remember, lenders LEND on VALUE! So you would need to come up with a down payment of $300k- $270,750 = $29,250. So you don’t actually GET the cash as it get cancelled out. The important clarification is, any builder incentive that becomes a “credit” at closing, will be deducted from the purchase price and could affect your down payment or expectation of a monetary rebate. If the LENDER is not aware of the “incentive” or credit and finds out after the fact when the lawyer sends in addendums to contract at closing, then this is where you could end up with an increase in down payment. This is where it is CRUCIAL for the mortgage to be submitted correctly and be in touch with the Developer/Realtor to prevent confusion or closing cost expectations. Many times this is more of a marketing ploy than any financial benefit to you.

So when are “incentives or decorating allowances” good? Exceptions to this would be stove, fridge, laundry or things that are necessary to LIVE in the property. They are not incentives.

These are just a FEW of the challenges. Please feel free to get that “rate hold” from the developer’s banker person…just ensure you have a licensed and experienced Dominion Lending Centres mortgage professional monitoring your file monthly until closing, so you DON’T LOSE YOUR DEPOSIT or end up at the lawyer’s office like a sitting duck, and no money to close your new dream home.

Happy home buying!

Courtesy of Kiki Berg, AMP – DLC Hilltop Financial 

When you write a contract to purchase a home, in the offer you’ll need to include a deposit amount, which you’ll agree to pay upon subject removal. This amount will then form part of the down payment upon closing.

This amount does NOT have to be a specific percentage of the purchase price – it can be as little as $500-$2,500 dollars. This deposit amount makes no difference in the legal obligation you’re bound to once the subjects are removed. As a result, the amount should not hold merit to whether your offer is more attractive. Please review this link from the Real Estate Council of BC http://www.recbc.ca/psm_section/acting-for-sellers/ and here is the info specific about deposits.

(i) Need for a Deposit
Contract law does not require that there be a deposit in order to create a binding Contract of Purchase and Sale. The requirement that a contract include some form of consideration is satisfied by the mutual exchange of promises by the seller and the buyer. However, it has long been recognized that including a deposit, often an amount between 5% and 10% of the offered price, represents an expression of the serious intention of the buyer.

The Council is aware that some buyers’ agents are drafting offers that do not provide for any deposit to be paid until after subject removal. One reason stated is a concern that the seller will not authorize the release of the deposit to the buyer if the buyer does not remove the subject clauses.

Some consumers, and perhaps even some licensees, are under the misconception that a Contract of Purchase and Sale is not binding on the parties until all subjects have been removed. The obligations under a contract are created once there has been an offer and acceptance (including counter-offers, if any). Some buyers believe that not including a deposit makes it easier for them to not proceed, if they choose, with their obligations under the agreement.

Buyers’ agents need to be cautious that buyers do not assume that, by not providing an initial deposit, they have somehow diminished their responsibility to make best efforts to satisfy the terms and conditions of the contract and to remove subject clauses.

It is the Council’s view that listing brokerages, in situations where buyers offer no deposit until removal of subject clauses, should advise sellers of the merits of a deposit being received from buyers. Increasing a deposit can be accomplished by way of a counter-offer from the seller.

As you can see, although it has become common for people to use 5-10% it is not required, and a seller can not just keep the deposit if something goes wrong.

This is especially helpful when the proceeds are coming from the sale of your property and you don’t want to pull money off of a credit card or line of credit – particularly in light of new mortgage changes that could give the lender the right to pull the approval if your balances owing on your credit report increase before closing.

There are some new developments if you purchase a brand new property that requires specific structures for the deposit, which can be staggered in stages and would require you to provide higher deposit amounts. Your realtor may, however, be able to negotiate different terms. This should be discussed upfront during the pre-approval process to ensure you protect yourself to the best of your ability by making a manageable deposit amount.

Sources for deposit/down payment and timeline considerations:

RRSP – You’ll need to bring a Home Buyers’ Plan (HBP) withdrawal form to the lender that holds the RRSP, and give them 7-10 days to release your funds. See the form here: http://www.cra-arc.gc.ca/E/pbg/tf/t1036/README.html

Investments – Best to allow 7-10 days as the required timeframe ranges depending on where investments are held. You must also ensure the market value is as expected upon cashing out your funds

Savings – Straightforward withdrawal

Gift – A gift letter will be required (most lenders have their own forms they want you to use) and then verification of the deposit into your account. Keep in mind that any deposit into your account above $2,500 is subject to further documentation. And if the gift is large, the lender has the right to seek further verification in accordance with the anti-money laundering act and OFSI guidelines (those who lend the gold make the golden rules!)

Upon subject removal, you’ll need to provide certified funds to your realtor, and forward a copy of the receipt to your Accredited Mortgage Professional (AMP) who is getting the mortgage approved for you.

Your Dominion Lending Centres mortgage professional is here to help guide you through the mortgage process, and give you clarity throughout each step of the home-buying process.

 Courtesy of Angela Calla, AMP – DLC Angela Calla Mortgage Team

There are a growing number of families living in Vancouver, or moving to the region, who are choosing the option of buying a second home in the lower mainland or in one of the many great locations throughout British Columbia.

When it comes to mortgage financing, there are many lender programs available at the best rates. Homeowners buying a second home can purchase the second property with as little as 5% down with the following considerations:

1. Down payment can be from own resources or other sources

2. Property must be owner occupied during the year or occupied by a family member

3. Property can be new construction

4. A maximum of two homes can be insured by CMHC in Canada

5. Financing is available to permanent residents of Canada

6. Property must have year round access by car or ferry

7. Maximum $1,000,000 purchase price

8. No time shares or life leases and rental pool are excluded

For home owners buying a second home with more than 20% down payment, insurer guidelines may not apply and lender rules will assigned. Talk to us at Dominion Lending Centres for specific requirements to meet your needs.

Courtesy of Pauline Tonkin, AMP – DLC Innovative Mortgage Solutions 

mis-con-cep-tion (noun) – a view or opinion that is incorrect because it is based on faulty thinking or understanding; mistaken notion; an erroneous conception.

With not knowing how to start this particular blog post, I decided to look for some images that might summarize the topic best – What is the difference between a RATE HOLD and a PRE-APPROVAL?

I thought this picture 100% represented how these terms are perceived, you say one thing but you mean the opposite. For most people the term PRE-APPROVAL is more commonly used than the latter. The term RATE HOLD is generally only used in the broker/lender sphere.

Many years ago (seems like the ice age ago) one could place a phone call to their personal banker and lock in a mortgage, then it switched to only requiring a paystub maybe a bank statement and T4s.  Whereas now one requires their entire biography and proof of net worth followed by a blood sample… somewhat facetious, but there is more involved as lenders need to make an accurate risk assessment.

Times have changed and so should our line of thinking. Underwriting mortgages is not cheap and lenders have upfront costs that take years to recoup.

Rate Hold

These are generally automated where nobody even looks at the application.  The system only analyzes basic criteria; beacon score, loan-to-value, name and birthdate. No documents are even reviewed. A rate hold is simply just that, a rate hold. It’s just a certificate guaranteeing the stated rate for a stated period of time, usually to a maximum of 120 days. Rate holds are mostly utilized for borrowers who are going to purchase or refinance in the near future.

Pre-Approval

The pre-approval approach is generally a more detailed process, with all documents being reviewed, except for the subject property. The lender will have to approve the covenant based on the information provided such as employment, source of the down payment and credit history criteria. Approval of these three pillars is NOT a guarantee that the mortgage application will be approved. The lender still has to do its due diligence on the fourth pillar (subject property) as it must still meet all the lender’s and insurer’s guidelines if there is less than a 20% down payment.

The most common question you will hear during the purchase process is, ARE YOU PRE-APPROVED?

I have to worked with numerous clients that thought they were PRE-APPROVED by their ‘bank.’ But during the subject removal timeline found out that they were NOT pre-approved, all for various reasons. Instead there should be a series of questions asked:

• Have you consulted with your Mortgage Expert?
• If so, when was the last time you had a conversation with her/him?
• Is there a rate hold or pre-approval in place? Do you understand the difference(s)?
• Have you sent her/him your complete package of documents that was requested?
• Are there any changes to employment, credit, the down payment or the purchase price?
• Have you discussed the ‘plan’ for this property? This will determine the term and mortgage product chosen.
• …and much more…

As you can see, there is much more to consider than just, ARE YOU PRE-APPROVED?

No one mortgage is exactly the same as someone else’s. The mortgage process is a complex labyrinth of puzzle pieces that have to fit together perfectly. Note that the puzzle pieces are constantly changing in this industry.

Due to the steep underwriting costs of each mortgage application, most lenders are electing to follow the RATE HOLD process. By analyzing a complete 4 pillar mortgage application package (credit, employment, down payment and subject property), the lender is able to maximize dollars spent to acquire a new client. Navigating the RATE HOLD/PRE-APPROVAL process should be left up to your trusted Mortgage Expert.

The best PRE-APPROVAL is the one that comes from your Mortgage Expert because they can analyze and do a pre-underwrite even before doing a RATE HOLD. With their expert advice you can construct a strategy that is tailored specifically to your mortgage financing scenario.

If you have any questions, please don’t hesitate to contact us at Dominion Lending Centres!

Courtesy of Michael Hallett, AMP – DLC Producers West Financial 

What is a credit report and why is it necessary? It’s easy, it provides proof of your creditworthiness. Plain and simple!

In this day and age, it’s rare to find someone who doesn’t have some form of credit. This can include credit cards, personal loans, lines of credit, car loans,  student loans, mortgages and more. Anything that reports to one or both of the main credit reporting agencies in Canada, Equifax and TransUnion.

What this basically says is what your credit history and repayment habits are like. It reports when you paid on time, late or didn’t pay at all and you now have a collections company after you. It also reports when a creditor writes off a debt along with when there has been a bankruptcy or a consumer proposal. They also provide information on how well you have made your mortgage payments.

Your credit report will also show how much of your available credit has been utilized. So if the limit on your credit card is $2,000 and you owe $1,999, it gives the impression that you might be tight for funds and are using credit to keep afloat. Having several maxed out and over the limit debts can be a warning sign to credit issuers, along with mortgage lenders.

All this info creates scores which rate your credit worthiness. The higher the score, the better, especially when you are asking to borrow the most money you will probably ever ask to borrow – a mortgage on a house!

We have several categories of lending institutions. The best interest rates and terms are found with prime lending institutions such as the banks, monoline lenders (available through mortgage specialists), credit unions, etc. These options are usually only available to those with the best credit ratings.

There are lenders who will grant mortgages to those who have experienced credit challenges. Rates and terms are higher, often brokerage and lender fees apply. These “subprime” lenders also offer opportunities designed to assist those having difficulties to get out of the corner and improve their situation. Most of the time, these lenders are used in the short term until the borrower qualifies with prime lenders with better rates and terms.

There are circumstances where private lenders are also utilized. A good mortgage specialist will be able to assess the situation and tell you when this is necessary.

Of course, you will be notified well in advance anytime a fee will be charged by the broker or the lender.

Here’s what makes up your credit score and what impact they have on the bottom line. Payment History (how well you paid), Credit Debts (how many debts you have and how much they are utilized), Age of accounts (how long you’ve had these debts, the longer the better), Type of credit (they all impact differently, Credit Enquires, (are you a shopper spending lots of money, or in trouble?).

To find out how long negative comments stay on your credit bureau, check out this page on the Financial Consumer Agency of Canada’s website.

The biggest threats to your credit score are payments later than 30 days, maxed out credit cards, collections, proposals and bankruptcies.

The moral of the story….. Keep a close eye on those debts, keep payments up to date, don’t overextend yourself, and if you are having issues, talk with an advisor before it gets out of hand. There are many ways to prevent a credit rating breakdown, we here at Dominion Lending Centres can help.

Couresty of Anne Martin, AMP – Neighbourhood DLC Financial 

There is almost ALWAYS a mortgage solution. New to Canada? Self Employed? Maybe a few credit glitches in your past? You just need to ask the right mortgage consultant. Not everyone can qualify for bank mortgages today. It doesn’t make you a bad person, it makes you a business savvy person getting the best mortgage for your situation! With the mortgage rules constantly changing, private or alternative mortgages are becoming the only way some people can refinance or buy.

Did you know that according to a Globe and Mail report “self-employed now represent about 15.6 per cent of all working Canadians”?

There is a misconception that alternative or private mortgages are only for bad people. Some folks call it “subprime”. Don’t let the word “subprime” scare you as our lending practices here in Canada are very strict and all federally regulated.

What is Private Mortgage Financing and who uses it?

Private mortgage financing can be an excellent alternative for those that are either:
1. Self-Employed and declare little or no income
2. Micro-condos that are less than 600sqft (banks generally won’t finance these)
3. Foreign investors
4. Non-residents of Canada
5. Credit Challenged
6. Owe CRA back taxes
7. Property Taxes that are in arrears
8. People going through a foreclosure
9. Construction financing and commercial loans
10. Equity takeouts for starting a business
11. Short term financing that has is open and no penalties
12. Don’t want to refinance their 1st bank mortgage as the penalties are to high.
13. Requiring funds up to $20 million dollars

Banks and many mortgage brokers don’t specialize in private financing. It’s vital to ensure these types of mortgage files are submitted and packaged differently than a traditional bank type mortgage (Also known as A financing).

If it’s submitted without care and due diligence, you may pay a higher rate and HEFTY fees!

When you are applying for a traditional mortgage (meaning you are a typical T4 employed client, good credit and saved down payment) the CLIENT is qualified based on the PERSON first, then the property.

When you apply for private financing, the PROPERTY is qualified for the mortgage first and then a few details about the client.

The property and location, location, location is what the lender is lending on. A property in a marketable area such as Vancouver Westside, North Vancouver and West Vancouver are PRIME marketable properties that private lenders like. The risk is lower, so they can offer better rates. Certainly properties anywhere in Canada are all options for private financing, even in small communities as well. Mortgages are also available for remediated, non-remediated and legal grow op properties as well.

What about the Rates?

Valuable and marketable properties can get financing with 15-20% down, but you can expect to pay 2-3% higher rates than if you have 25% down, as there is more risk taken by the lender. The rates for a 1st mortgage today (2015) are as low as 5.75% for a strong mortgage file to 10% for a less desirable property. 2nd mortgages can range 12-15%. The bonus of course, it is you can opt to pay “interest only” and it can be fully open so you don’t have to pay the penalty to break the mortgage.

I hear there are fees?

There are almost always fees for private mortgages. This is how the broker is paid for working on your deal. A traditional bank mortgage doesn’t have fees as the bank pays the broker. Fees depend on your broker. I have seen as low as $500 to as high as 5% of the amount you’re borrowing; the average is 1% (for example: $400k mortgage would have a $4,000 fee), so good to ask this upfront and ask a few brokers that SPECIALIZE in private financing.

Having an EXIT strategy

If you get short term (1-2 year) private financing, as your mortgage broker, I want to ensure we have an “exit strategy” plan in place it have to moved to a traditional low rate mortgage soon. This is especially true if the reason for the private financing is credit, income or back taxes. We will work together to ensure this plan happens and is followed through.

What might this look like?
You want to purchase a $500,000 home in Vancouver

You’re paying fees to CHMC or another insurer with less than 20% down, so let’s look at fees in this hypothetical scenario:

With a traditional mortgage:
Purchase: $500,000 home
Down payment: 15% down – $75,000
CMHC fee: $7650.00 (built into the mortgage)
Payments per month: $1979.30 based on 2.69%, 5 year fixed, 25 year amortization
and LOTS of personal and property documents required! Here you would need excellent credit, proof of income, good job, saved down payment and weeks to close the deal.
OR
20% down or $100,000 down
$5,000 CMHC fee
Payments: $1852.81 per month.

Alternative mortgage, the simpler approach:
Purchase: $500,000 home
Down payment: 15% down – $75,000
Lender/broker fee: $8653.00 with 2% fee
Payments per month: $2271.51 per month, 6.5%, interest only, 25 year amortization.
OR
20% down – $8,000 fee
Payments: $2679.30 per month, Interest Only payments.
Next to no personal documents required to qualify

These are just estimates and ideas, but you get the idea. You’re paying a fee…one way or another.

This is just a sample…and certainly not a black-and-white scenario. Traditional mortgages qualify on strict matrix type qualifying rules, where private mortgages allow us to “think outside the box” to get your mortgage approved at the best rate for the property you are buying or refinancing. It is KEY to work with a mortgage expert that specializes in private financing and has connections and a good relationship to lenders.

There are many private lenders and their rates, fees and what they will fund vary. Contact us a Dominion Lending Centres so we can help you problem solve and find a reasonable solution that your bank can’t offer you. It’s quick and not as costly as it may seem, if it meets your immediate needs.

Moving up the property ladder is an exciting time in your life – having clarity on how the process works is key to your success.

1. Understand the terms of your mortgage and be prepared – get a pre-approval.

Just because you already have a mortgage now, doesn’t mean you automatically qualify for a new one. Policies change all the time along with your credit score, income type/structure & current debt load, which all contribute to what your current options are.

2. Have a deposit ready

These will be the funds you will use to put a firm contract in place. These cannot come from your sale proceeds initially unless the completion date has already passed and you have received the sale proceeds. You will need to have access to this cash up front and you may not qualify to borrow it from a lender, so being pre-approved will help you plan for that.

3. Get your dates in order.

Not many people can qualify to own 2 properties at once. This means you cannot buy another home or qualify for a bridge loan until someone has REMOVED subjects on your sale. Bridge financing is required when the sale of your place completes after the completion date of your new purchase, so the sale proceeds (down payment) aren’t available until after you’ve purchased a new home. Bridge loans come at a price – one that needs to be carefully considered. They usually include an admin fee, a short term higher rate charged on the amount being bridged and additional legal fees.

At Dominion Lending Centres, we will provide you with transparent, unbiased advice with the power of choice so you can make a decision with clarity moving forward with your plans. The service is free from the initial consultation to ongoing management and optimization of your mortgage.

Courtesy of Angela Calla, AMP – DLC Angela Calla Mortgage Team 

I receive calls every month from people who want to know how to qualify for a mortgage because they were declined by their bank. In many cases I can help them and in some cases they have to wait – but we identify what they need to do to get in a better situation to qualify.

Here are the top 5 reasons why people don’t qualify for a mortgage with their bank and come to see an independent mortgage specialist.

#5 Lack of a Down Payment or Equity

With the end of cash-back mortgages offered by the banks, borrowers now have to come up with the down payment on their own. They can receive it as a gift from a family member – but no more cash-back from the lender used for down payments. Minimum down payment is 5% for the purchase of an owner-occupied home or 20% for a rental property. Minimum 20% equity in the home if it is a refinance. This will help you qualify for a mortgage.

#4 Insufficient Income

With the high price of homes in the Vancouver area, sometimes people simply don’t earn enough money to manage a mortgage payment, property taxes and strata fees along with existing consumer debt and still have a life. For some home buyers, the only other option is to access more money for a down payment (gifted) or try to purchase a home with suite income or look at alternative lenders who accept room and board and other sources of income to help you qualify for a mortgage. In some instances, home buyers will look for someone else to go on title to add income to the application.

#3 New Mortgage Rules

For those with less than 20% down payment, the new mortgage rules are adjusted to the debt servicing ratios and amortization for borrowers. The new rules for debt servicing apply to those with good credit scores and allow for a max of 39% (gross debt servicing – GDS) of gross monthly income to cover the mortgage payments, property taxes and 50% of the strata fee. In addition a max of 44% (total debt servicing – TDS) of gross monthly income is allowed to cover the same and other consumer debts such as loans, credit cards and lines of credit. The maximum amortization was also reduced from 30 years to 25 years – effectively tightening qualification for borrowers equivalent to a 1% interest rate hike.

#2 Credit Issues

Some people don’t realize if they are late on credit card payments, their mortgage or loan payments the lender will update the credit bureau agencies and the late payments will reflect on their credit report, lowering their credit score. Other items can also effect credit scores such as a collection (if you didn’t pay that parking ticket or fitness membership fee they can send to a collection agency) and those marks on your credit report make your score drop like a rock. Going over your credit card limit, and applying for credit often requiring your credit report to be pulled by the bank, auto dealership and credit card companies will lower your score. Finally, consumer proposal and bankruptcy will greatly impact your score, which can stay on your report for up to 7 years if real estate was involved as is the case with bankruptcy.

#1 Too Much Debt

There are a growing number of consumers doing – well – too much consuming. Credit card debt is on the rise and over use of lines of credit are putting some people in a debt overload situation. Some pre-home-buyers go out and purchase that amazing new truck, along with a large monthly payment, which pushes their total debt servicing (TDS) ratio over the limit. Nice new truck – no home with a garage. Some home owners have so much consumer debt that they are unable to refinance their home to consolidate the mortgage and the credit card debt because the amount exceeds the maximum loan to value allowable (currently 80% of the value of the home) and if housing prices stabilize or drop in some areas – this makes it more difficult for home owners to qualify for that new mortgage and lower payments. Paying off your debt will help you qualify for a mortgage.

Do you want more information for your next mortgage? Contact any of us here at Dominion Lending Centres – we’re here to help!

Courtesy of Pauline Tonkin, AMP – DLC Innovative Mortgage Solutions 

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability .

You must be considered a first-time home buyer.

You are not considered a first-time home buyer if you or your spouse or common-law partner owned a home that you occupied as your principal place of residence during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal. (Dec 31, 2010 or prior for anyone buying in 2015)

However, if you are a person with a disability, or you are buying or building a home for a related person with a disability or helping such a person buy or build a home, you do not have to meet this condition.

In addition, ALL of the following conditions must apply:

• You must enter into a written agreement (Offer of purchase) to buy or build a qualifying home. The agreement may be with a builder, contractor, realtor or private seller.
• You intend to occupy the qualifying home as your principal place of residence. When you withdraw funds from your RRSPs under the HBP, you have to intend to occupy the qualifying home as your principal place of residence no later than one year after buying or building it. Once you occupy the home, there is no minimum period of time that you have to live there.
• Your repayable HBP balance on January 1 of the year of the withdrawal is zero.
• Neither you nor your spouse or common-law partner owns the qualifying home more than 30 days before the withdrawal.
• You are a resident of Canada.
• You buy or build the qualifying home before October 1 of the year after the year of withdrawal.

Your RRSP issuer will not withhold tax from the funds you withdraw if you meet the HBP conditions and complete Form T1036.

You can withdraw a single amount or make a series of withdrawals throughout the same year and January of the following year, as long as the total of your withdrawals is not more than $25,000.

If you buy the home with your spouse or common-law partner, or other individuals, each individual can withdraw up to $25,000 from his or her RRSP, provided each of you meet the HBP conditions.

Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP.

Your first repayment is due the second year following the year in which you made your withdrawals.

You have up to 15 years to repay the amount that you withdrew under the HBP. Generally, for each year of your repayment period, you have to repay 1/15 of the total amount you withdrew until the full amount is repaid to your RRSPs.

Courtesy of Len Anderson, AMP – DLC Origin