21 May

Buying a rental property? What you need to know about Rental Add-Back vs Rental Offset

Rental

Posted by: Kelly Hudson

Add-backs and offsets are two different methods for accounting for the rental income from an investment property.

If you are considering purchasing a rental property, understanding how add-backs and offsets work, is important when qualifying for your next mortgage.

Please note that regardless of the method used, lenders do not use 100% of the rental income, typically they use around 50%.

Rental Add-Back

Many lenders use the add-back method to account for the rental income on investment properties.

This means is that they will add a percentage of the rental income to the rest of your income. This will be used to calculate your ability to make payments on the rental mortgage and your other debts, hence the term add-back.

For example, if rent is $2000 a month ($24,000 per year) and the lender allows 50% add- back, therefore $12,000/year. An additional $12,000 income will not make a big difference to the amount of mortgage you can qualify for

Additional Mortgage available with $12,000 rental income (rule of thumb is 4-5 times) = $48,000-60,000 additional mortgage affordability

Rental Offset

In contrast, a Rental offset approach gives you more bang for your buck, since you can use a percentage of the rental income to offset (subtract from) your rental expenses.

A lender will typically use 50% of the rental income to offset the mortgage Principle, Interest and Tax mortgage payments (PIT).

Therefore, if your rental property earns you $2,000 per month, and the lender will allow for 50% offset i.e. $1,000 to offset (subtract from) the PIT payment.

To see how this works, let’s assume PIT payments equal $1,200. Since you earn $2,000 in income, and the lender uses a 50% rental offset rule, you deduct $1,000 from the $1,200 PIT payment.

Therefore, only the $200/month difference must be covered by your other income.

With Rental add-back – the whole PIT $1200 for the rental property must be covered by your income (including the $12,000 rental income with 50% Add-back).

The bottom line is, it is very difficult to qualify for financing on rental properties using the 50% add-back rule, especially in areas like Vancouver or Toronto which have higher home prices.

Regrettably, there is no standard with lenders regarding Rental income. Some lenders use Rental Add-Back while others use Rental Offset rules.

To overcome this financing obstacle, you need to work with your mortgage broker to decide which lender(s) have the best rental options for your situation.

Mortgages are complicated, but they don’t have to be… Engage an expert!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

11 Mar

4½ Types of Home Ownership – Freehold, Leasehold, Strata or Cooperative

Home Ownership

Posted by: Kelly Hudson

In general, there are four common types of property ownership in Canada: Freehold, Strata, Co-Operative and Leasehold with advantages and disadvantages to each of the type.  Therefore it’s important for home buyers to know the differences between the different types of property ownership when they’re shopping for a new home.

Freehold Property Ownership Freehold is the most common type of property ownership in Canada.

It’s what we traditionally think of as property ownership; you own the building and the land it sits upon.  A freehold interest (also known as a fee simple) is the more precise term for what we ordinarily refer to as “ownership” of a home

You own the building and grounds it rests upon for an indefinite period of time and have full use and control of the land and buildings on it, subject to any rights of the Crown, local land use bylaws and any other restrictions in place at the time of purchase.  You have the freedom to make changes to building and yard (subject to zoning, bylaws and permit limitations) and are responsible for cost and maintenance.

Most single-family homes are freehold.

Strata Property Ownership Most condo and townhouse developments are strata properties. Single-family detached home strata properties are rare, but they do exist.

When you buy a strata property, you have strata title with full ownership of all the interior elements of your unit, you also share ownership of common property that exists within the strata. Oftentimes this shared common property includes parking, hallways, amenity rooms, gym space, laneways, and the building’s entrances and exits.

As a strata owner, you are responsible for the maintenance and upkeep of your unit but the costs of looking after the common property are covered by monthly fees charged to every owner.

These strata/condo fees are proportional to the size of your unit; if you own a large two-bedroom unit you’ll pay more than someone living in a small bachelor suite.

As strata properties are comprised of a number of people sharing common spaces, there are rules and bylaws that govern how those spaces can be used. There may also be rules that regulate what you can do in your own private space so it doesn’t have an adverse impact on your neighbours, or the common spaces owned by everyone.

These rules are set by a council of owners that is elected by owners in the strata. The council is also responsible for the strata corporation that is set up to administer the strata. They set budgets, hire contractors, adhere to maintenance schedules, get repairs done, deal with complaints and infractions of the rules and bylaws.

 Co-op Property Ownership is similar to owning a unit in a strata.

In the cooperative form of ownership, each owner owns a share in a company or cooperative association which, in turn, owns a property containing a number of housing units. Each shareholder is assigned one particular unit in which to reside.

But instead of owning the interior of your own unit and sharing ownership of common property, owners in a co-op each own a share of the corporation that actually owns the building or complex. That share ownership then gives you the right to occupy a unit within the co-op, provided you don’t break any of the co-op’s rules and you pay your housing charges on time.

As you are not buying into the actual real estate when you purchase a co-op, you’ll require a different kind of financing from your lender called a share loan.  It works much like a mortgage except your share in the co-op is the loan’s collateral, instead of the property.

Like a strata, all owners in a co-op share the expense of repairs and maintenance through monthly fees.

Owners in a co-op must follow rules and regulations set and administered by a co-op board which is elected by members of the co-op.  The co-op board also has the power to approve or reject prospective new members, which must comply with provincial human rights legislation.

Leasehold Property Ownership You would own the actual building or unit, but would rent or lease the land itself for a set period of time and there are varying lease terms.

Living in a leasehold property is like living on borrowed time.  Leasehold interests are frequently set for periods of 99 years, but regardless of the length of the original term, you will only be able to purchase the remaining portion. Of course, the shorter the remaining portion, the less you, or the person who eventually purchases from you, will be willing to pay for the leasehold interest.

When you buy a leasehold property, you own the building but the property on which your home sits is owned by somebody else who has leased it back to a builder or developer. Typically, those leases last for 99 years. When the lease expires, the property’s owner could choose to renegotiate the lease to current market rates. Or they could reclaim the property as their own for redevelopment after buying out owners at fair market value.

There are 3 types of leased land: government (federal, provincial or municipal), First Nation reserve land and private companies/individuals can also own leasehold land.

Most developers prepay the cost of leasing the land, then incorporate that into the selling price of their projects. If they didn’t do that, then you’ll be paying rent on top of your mortgage payments, strata fees and taxes. And you won’t be protected from periodic adjustments to reflect the current value of the land.

While most properties appreciate over time, a leasehold property can actually depreciate, especially as the lease gets close to expiring. That uncertainty over a property owner’s future plans for their property can make it more difficult to get financing for a leasehold property. The lender could require a larger down payment, or it could be amortized over a shorter period of time.

Despite their uncertainty, leasehold properties can be a good option for property ownership, especially if they’re still early in the lease period. They can be cheaper than freehold properties or offer better value in desirable neighbourhoods. But the uncertainty that comes with leasehold can make them a poorer investment than other types of property ownership.

Leasehold interests can become particularly risky real estate investments as they approach the end of their lease, as the owner of the property can choose to resell the leasehold interest, redevelop the land entirely, or leave the area vacant.

Before you put too much effort in buying leasehold, find out how long the head lease is; most Financial Institutions require it be a minimum of 5 years longer than the amortization of the mortgage loan.

Co-owning a Property – There is another option for property ownership, called co-owning. It is becoming a viable option for some families who’ve been priced out of owning a home.

Co-ownership is when two or more owners enter into a legal agreement to own a single piece of property. Usually co-ownership involves family members, such as parents and grown offspring, who may share the same home or live autonomously in separate dwellings like a house and laneway house.

Co-ownership agreements are complex documents, with plenty of legal protections to safeguard both parties in the agreement as well as the lender financing the mortgage. If co-ownership is an option, you need to engage a lawyer experienced in constructing such agreements.

Information on obtaining a mortgage for Leasehold or Cooperative Ownership 

Typically, you will find your Mortgage Lender more cautious about financing Leasehold and Cooperative property as they are considered a riskier type of collateral and may come with a higher mortgage interest rate and/or higher down-payment.

Speak to your Mortgage Broker to obtain more information.

Mortgages are complicated, but they don’t have to be… Engage an expert!  Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

8 Jan

BC Property Assessment vs Home Appraisal

Mortgage

Posted by: Kelly Hudson

What is BC Assessment?

It’s January and people in BC have started receiving their property assessments.

BC Assessment is a provincial Crown corporation that values all real estate property in British Columbia. Every year, BC Assessment sends property owners a Property Assessment Notice telling them the fair market value of their property as of July 1 the prior year (July 1, 2019).

To see the most recent assessment for a property, click on the link BC Assessment and type in the address.

The real estate market is the single biggest influence on market values. Market forces vary from year to year and from property to property. The market value on an assessment notice may differ from that shown on a bank mortgage appraisal or a real estate appraisal because BC Assessment’s appraisal reflects the value as of July 1 of the previous year, while a private appraisal can be done at any time.

Use your BC Assessment as a starting point for the value of the property your planning your home purchase… Do not rely on BC assessment for the exact value of the property you’re considering purchasing.  Markets in BC can change quickly both increasing and decreasing in value depending on the area.

What is a Home Appraisal?

An appraisal is a document that gives an estimate of a property’s current fair market value.

Often there is no connection between BC Assessment and appraised value.  This is why lenders want an appraisal – an independent evaluation of the property’s value at this moment in time.

Primarily home appraisals are completed at the request of a lender.   Lenders want to know the value of a property in the current market before they are willing to lend against the home.

The appraisal is performed by an “appraiser” who is typically an educated, licensed, and heavily regulated third party offering an unbiased valuation of the property in question, trained to render expert opinions concerning property values.

When an appraisal is done, consideration is given to the property, the home, its location, amenities, as well as its physical condition.

Appraisals may also be required when an owner has less than 20% down payment and needs mortgage default insurance.

Who pays for the Home Appraisal?

Typically, the borrower pays the cost of the appraisal, and upon completion, the appraisal goes directly to the lender (does not go into the home buyer’s hands).

I know it sounds odd, but brokerages, lenders and appraisers cannot just show the buyer the appraisal on a property, even though the borrower paid for it.

  • Think of an appraisal as an administrative fee for finding today’s current value of the property

You need a Home Appraisal since the lender doesn’t want to lend on a poor investment and the appraisal helps the buyer decide if the property is worth what they offered (especially in hot markets like Vancouver & Toronto).

  • What if you offered $475,000 and the home appraisal came in at $450,000?

 Why don’t you get a copy of the appraisal?  The appraiser considers their client to be to the lender (the reason the appraisal was ordered).  The lender has guidelines for the appraisal, and the appraiser prepares his report according to those parameters.

The lender is free to share the appraisal with the borrower, but the appraiser cannot share it.  This is because the lender is the client… NOT the borrower!!  It doesn’t matter who pays for the appraisal.

Sometimes an appraisal can come in lower than the purchase price, causing angry calls to the Appraisal Institute of Canada (AIC), and the answer they give is: the Brokerage or Lender is the client of the appraiser, and as such has ownership of the report.

One of the main reasons the buyer pays for the appraisal, is that if the mortgage doesn’t go through, the lender does not want to be on the hook for paying for the appraisal and not getting the business.

Lenders are also aware that home buyers could take the appraisal and shop it around with other Lenders to try and get a better deal.

It is rare for Lenders to share the report. With most appraisal companies, the appraisal may be provided after the closing of the mortgage transaction and must have the lender’s approval.

After the funding of your mortgage, some mortgage brokers may offer to refund your appraisal fee.

While a lender does not have to release the entire appraisal, there are some pieces of information that remain the personal property of the buyer, and PIPEDA legislation guarantees them access to that. However, any information on the report that does not relate to the property itself (such as the neighboring properties or other data about the community) would come off the report before the lender provided it.

Some other reasons for getting an Appraisal:

  • to establish a reasonable price when selling real estate
  • to establish the replacement cost (insurance purposes).
  • to contest high property taxes.
  • to settle a divorce.
  • to settle an estate.
  • to use as a negotiation tool (in real estate transactions).
  • because a government agency requires it.
  • lawsuit

Getting your home ready for an Appraisal:

The appraiser report involves a report including pictures of the home and property with the appraiser’s value of the property, along with a short summary of how that information was derived.

BLOG Need an Appraisal – 7½ Tips for Success 

Most lenders have an approved appraiser list which requires appraisers to have the appropriate designation. Lenders tend to reject appraisals that are ordered directly by property owners.  Lenders want the appraisal to be ordered by the broker or the lender, primarily to avoid potential interference from the property owner.

Home Appraisal Costs

Appraisal costs do vary.  Most home appraisals start around $350 (plus tax) but they can go much higher depending on how expensive the home is, location, complexity of the appraisal and how easily the appraiser can access comparable data.

BC Assessment vs appraised value: lenders want an appraisal – a professional, independent evaluation of a homes value, at this point in time!

Mortgages are complicated, but they don’t have to be… Engage an expert!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

31 Oct

Mortgages for Expensive Homes – Not as Easy as it Sounds!

Mortgage

Posted by: Kelly Hudson

 Large home purchases that require a mortgage present unique challenges in the Canadian Mortgage market. Sliding scales, director approval, multiple reviews, it all adds up to difficultly getting larger mortgages approved, unless you’re working with an experienced mortgage broker.

In 2012 the government of Canada removed the mortgage insurers ability to approve mortgages of $1 million (or more) with less than 20% down payment. As a result of this change, the minimum down payment for homes over $1 million starts at 20% of your purchase price and increases.

Since any home purchase over $1 million cannot be insured against default, the lender applies a sliding scale to reduce their potential for loss if the borrower defaults.  Consequently, large mortgages present a unique challenge, especially in the Vancouver/Toronto market. 

Depending where you live, most lenders consider home purchases over $500-750K to be large enough for them to want to mitigate their risk.  In larger urban centres like Vancouver & Toronto, lenders will consider purchases up to $1 million before increasing the down payment with sliding scale.

Sample sliding scales for Vancouver/Toronto

  • 20% down payment on the first $1,000,000, plus 40% down payment on the balance over $1,000,000
  • 20% down payment on $1,250,000, plus 50% down payment on the balance over $1,250,000
  • 20% down payment on $1,500,000 plus 40% down payment on the balance over $1,500,000

Every lender has their own risk level for expensive home purchases.

As you can see, the typical lender sliding scale for jumbo mortgages is very punitive and can result in a much higher down payment when purchasing a home over $1 million.

Lenders want to alleviate the higher risk on purchases of expensive homes, because there is a smaller pool of potential buyers compared to lower home prices. This makes expensive homes more vulnerable to market corrections.  If there is a price correction, it can be more difficult for lenders to get their money back, should they need to foreclose. 

Lenders are risk adverse!  When they perceive a risk, they are either going to charge higher interest rates OR lessen their risk with a sliding scale, requiring home buyers to put a larger down payment on properties over their threshold.

Example:

  • Base line with no sliding scale home purchase $1,500,000
    • Minimum 20% down payment = $300,000
  • Down payment required for a home purchase with Sliding Scale 20% down payment on the first $1,000,000, plus 40% down payment on the balance over $1,000,000
    • 20% down payment on $1,000,000 = $200,000
    • 40% down payment on $500,000 (amount over $1M) = $200,000
      • Down payment required $400,000

20% down payment = $300K versus sliding scale $400K down payment required – Yes sliding scale can make a big difference in your required down payment!

Sliding scale is designed so that as a property’s price increases, you need a larger down payment. 

  • Therefore, the maximum loan/mortgage amount available decreases on a proportionate basis.

To minimize the size of your down payment, you need an experienced mortgage broker who works with a multitude of lenders, giving you the most flexibility with sliding-scale.

Other points to keep in mind with a large mortgage:

  • Pay attention to the terms and conditions of your mortgage, especially your prepayment penalties.
    • Larger loan amounts amplify the differences in the penalties charged by different lenders.
  • Most large mortgage loans must be escalated up the ranks for management approval. This means it can take lenders an extra day (or two) to get your approval back so your subject removal date may need to be longer.
    • Typically, I recommend 10 business days for subject removal on large mortgages.

 Another important point to keep in mind, when real estate prices flatten or drop, lenders can become much more conservative when underwriting higher-end real estate. As such, there can be wide disparity in the value different lenders will assign to a property.

Partnering with an independent mortgage broker will help ensure that you and your property are matched with the lender who is offering the best fit for your situation.

If you know anyone looking for a high-end home, who needs a mortgage, I can help them arrange the financing.   We’ll work together to figure out a budget and down payment (based on sliding scale).  Then, we will work with a lender for a pre-approval, so we have a clear picture for affordability.  BLOG Pre-Approved for Your Mortgage…  What Does that Really Mean???

Mortgages are complicated, especially over $1 million… you need to engage an expert!!!   Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Broker
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

 

7 Oct

Mortgages 101 – What You Need to Know about Mortgages

Mortgage

Posted by: Kelly Hudson

  Mortgage [ˈmôrɡij] NOUN

With a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the home’s occupants and sell the house, using the income from the sale to clear the mortgage debt.

Mortgages are complicated, but they don’t have to be… let me break down the basics for you.

Mortgages in a Nutshell

Since homes are expensive, a mortgage is a lending system that allows you to pay a small portion of a home’s cost (called the down payment) upfront, while a bank/lender loans you the rest of the money. You arrange to pay back the money that you borrowed, plus interest, over a set period of time (known as amortization), which can be as long as 30 years.

When you get a mortgage loan, you are called the mortgagor. The lender is called the mortgagee.

How Do You Get a Mortgage?

The companies that supply you with the funds that you need to buy your home are referred to as “lenders” which can include banks, credit unions, trust companies etc.

Mortgage lenders don’t lend hundreds of thousands of dollars to just anyone, which is why it’s so important to maintain your credit score. Your credit score is a primary way that lenders evaluate you as a reliable borrower – that is, someone who’s likely to pay back the money in full WITHOUT a lot of hassle. A score of 680-720 or higher generally indicates a positive financial history; a score below 680 could be detrimental, making you a higher risk.  Higher risk = higher rates!

For more information about Credit check out Solving the Puzzle – 5 factors used in determining your Credit Score

How Mortgages Are Structured

Down payment:   This is the money you must put down on a home to show a lender you have some stake in the home.  Ideally you want to make a 20% down payment of the price of the home (e.g., $60,000 on a $300,000 home), because this will allow you to avoid the extra cost of Mortgage Default Insurance which is mandatory with all down payments of less than 20%.  5 GREAT Reasons To Provide a 20% Down Payment when Buying a Home

Every mortgage has three components: the principal, the interest, and the amortization period.

Mortgages are typically paid back gradually in the form of a monthly mortgage payment, which will be a combination of your paying back your principal plus interest.

  1. Principal: This is the amount of money that you are borrowing and must pay back.  This is the price of the home minus your down payment
    • taking the above example, purchase price $300,000 minus $60,000 down payment to get a mortgage (principal) of $240,000.
  1. Interest rate: Lenders don’t just loan you the money because they’re nice guys.  They want to make money off you, so you will be paying them back the original amount you borrowed (principal) plus interest—a percentage of the money you borrow.
    • The interest rate you get from the lender will vary based on:  property, lender, credit bureau, employment and your personal situation.
  1. Amortization means life of the mortgage, or how long the mortgage needs to be, in order to pay off the complete loan (principal) plus interest. Mortgage loans have different “amortizations,” the two most common terms are 25 & 30 years.
    • Within the life of the mortgage (amortization) you will have a Term. The length of time that the contract with your mortgage lender including interest rate is set up (typically 5 years). After your term completes, you can renew your mortgage with the same lender or move to a new lender.

When to Get a Mortgage

First Step:  connect with a Mortgage Broker for a mortgage before you start hunting for a home.  You need to know what you can afford – especially with all the new government regulations.

Ideally you need a mortgage pre-approval, which an in-depth process where a lender will check your credit report, credit score, debt-to-income ratio, loan-to-value ratio, and other aspects of your financial profile.

This serves two purposes:

  1. It will let you know the maximum purchase price of a home you can afford.
  2. A mortgage pre-approval shows home sellers and their realtors that you are serious about buying a home, which is particularly crucial in a hot housing market.

Another easy first step? Before you start browsing online listings or visiting open houses, plug your info into my online home affordability calculator, which will give you an idea of how much mortgage you can qualify for.

Types of Mortgages

How do you figure out which mortgage is right for you? Here are the 2 main types of home loans to consider:

  1. Fixed-rate mortgage:This is the most popular payment setup for a mortgage. A fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
  2. Variable rate mortgage aka Adjustable Rate Mortgages (ARM) A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions and the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the term. These types of mortgages usually start off with a lower interest rate but can subject the borrower to payment uncertainty.
  3. Check out my BLOG Fixed vs. Variable Rate Mortgages – Pros & Cons

How to Shop for a Mortgage?

Use a mortgage broker, a professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.  BLOG What is the difference between a Mortgage Broker & a Mortgage Specialist (hint – specialists work for the bank)!!

I specialize in Mortgage Intelligence, educating people about mortgages, how they work and what lenders are looking for.  Everyone’s home purchasing situation is different, so working with me will give you a better sense of what mortgage options are available based on the 4 strategic priorities that every mortgage needs to balance:

  • lowest cost
  • lowest payment
  • maximum flexibility
  • lowest risk

Most Canadians are conditioned to think that the lowest interest rate means the best mortgage product. Although sometimes that is true, a mortgage is more than just an interest rate. You can save yourself a lot of money if you pay attention to the fine print, not just the rate.

Banks tend to concentrate on the 5 year fixed mortgage rate (since that’s the best option for them)… rates are important, however I look at the total cost of the mortgage.  I will advise & explain mortgage options, help you understand the implications of your choice and help you avoid the pitfalls of choosing a mortgage based on rates alone.

My services for a typical mortgage are FREE (I get a finder’s fee from the lender) and I help people save money.  I LOVE my job!

Mortgages are complicated, but they don’t have to be… Engage an expert!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

4 Sep

Everything You Need to Know About the First-Time Home Buyer Incentive

Mortgage

Posted by: Kelly Hudson

On Sept. 2, 2019, the Canadian federal government launched the new First-Time Home Buyer Incentive (FTHBI).   The intent of the plan is to help makes mortgages more affordable for qualified first-time home buyers.  The government has allocated $1.25 billion over three years for the First-Time Home Buyer Incentive.  Mortgages approved under the program can close Nov. 1, 2019 or later.

The FTHBI will start providing interest-free shared-equity loans to interested home buyers in the form of down payment assistance.  The federal government will help with your down payment in exchange for an equity share in your home.

How the program works:

Participants must put down at least 5% of the home’s value with their own money, while the government (through the Canada Mortgage and Housing Corporation) would contribute an additional 5% of the down payment if the purchase is of an existing home, or 10% if it’s a new build.

Home buyers don’t need to make any monthly payments (principal or interest) on FTHBI, and the loan must be repaid after 25 years or when the home is sold.

The CMHC shares proportionately in any future gains or losses in home value.

How does this help you as a first-time buyer?

The additional down payment from FHTBI helps reduce your mortgage default insurance premium, and lowers your monthly mortgage payments, which can result in significant savings over the life of your mortgage.

Who is eligible for the Incentive? To qualify for the Incentive, the following must apply:

  • The Home buyer’s total qualifying annual income shall be no more than $120,000.
  • If there is more than one Home buyer, the combined qualifying annual income shall be no more than $120,000.
  • Examples of qualifying annual income include salary before taxes and investment income
  • Total borrowing is limited to no more than 4 times the qualifying income. The combined first insured mortgage and Incentive amount cannot exceed four times the total qualifying income. If there is more than one Home buyer, the combined borrowing is limited to no more than 4 times the combined qualifying income.
  • The Home buyer must be a Canadian citizen, permanent resident or non-permanent resident who is legally authorized to work in Canada.
  • At least one Home buyer (if more than one on title) must be a first-time Home buyer, as per the definition below:
    • they have never purchased a home before; or
    • in the last 4 years, they did not occupy a home that they or their current spouse or common-law partner owned; or
    • they are experiencing a breakdown of a marriage or common-law partnership (in certain cases, even if/when the other first-time Home buyer requirements are not met).

What Kind of Property Can I Purchase?

The mortgage of a property cannot exceed more than four times the maximum household income of $120,000, which caps out at $480,000. This means the highest price for a home available to be purchased through this program will be between $500,000 and $575,000, depending on the size of your down payment.

Sadly, if you’re looking to purchase property in a city like Vancouver or Toronto, it won’t be a house. Pricing in these markets is competitive and the cost of a home is steep. In July 2019, the average price of a home in Vancouver was $826,165 and in Toronto, $982,427, Bloomberg reports.

CMHC President and CEO Evan Siddall has responded to criticism over the effectiveness of the program in these markets by saying: “No program is going to work as well in higher-priced markets. Using 2018 data, 2,300 home buyers would have qualified in Toronto and 1,100 in Vancouver. Around 25% of home sales in Toronto in 2018 were for homes under $500K and 17% in Vancouver.”

The CMHC expects 100,000 home buyers to participate in the program over the next three years.

How Much Will This Program Save Me?

If a family is looking to purchase a new $500,000 home with a $25,000 down payment, this program could save them as much as $286 per month or more than $3,430 a year. This statistic will change depending on the type of home purchased, amount of FTHBI (5% or 10%) and in which market it is bought.

How Do I Apply?

Work with your mortgage broker to complete and sign the application documents. Your mortgage broker will submit the application to the Program Administrator on your behalf and at your request.

  • Your mortgage broker will notify you if you have been approved for the Incentive under the FTHBI program and work with you to complete the next steps.

 Restrictions

  • The mortgage must be insured with Mortgage Default Insurance
  • It’s only available to first-time buyers with a household income under $120,000
  • Participants must have a minimum 5% down payment
  • Household income cannot exceed $120,000 per year
    • Something to consider is that if you choose not to use the FTHBI program, with the same income of $120,000 your maximum purchase price would be higher. Allowing for property taxes and heat, your purchase price would be approximately $575,000.

Additional Information

The government’s contribution to your down payment will be registered as a second mortgage against your home

  • There will be an additional charge at the lawyer’s for registering the equity share against the title of your home. You will need to get a quote from your specific legal representative (estimated around $200)
  • When it comes time to repay the equity share, an appraisal will be required to determine the current value of your home, so there will be the cost of the appraisal to cover.

Repayment of the government’s share is triggered by either the sale of your home or when you hit the 25 years.

Other Programs to Help Homeowners

Government of Canada Programs to Support Home buyers check out the link for programs that government offers to help home buyers

  • Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.

Resources

Legal Documents and Forms

To learn more and apply for the First-Time Home Buyer Incentive, visit www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive

Mortgages are complicated, but they don’t have to be… Engage an expert!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

 Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

7 Aug

Need an Appraisal – 7½ Tips for Success

Mortgage

Posted by: Kelly Hudson

Do you need to get a current value of your property?  Then you are going to need an appraisal.

Banks and other lending institutions want to know the “current” market value of your home before they consider loaning money on the property.  An appraiser checks the general condition of your home and compares your home to other similar homes which have recently sold in order to define a comparable market value for your home.

Here are 7½ tips that can help you get top current market value

Short version – Prepare your home as if it was going to be sold!!

Long version… If a picture is worth a thousand words, think what kind of story the pictures from your home are telling?

In the world of mortgages, lenders seldom set foot on the property before making a loan decision.

Instead, they rely on their trusted list of approved appraisers.  All a lender usually gets is the appraiser’s pictures of your property and their comments about how your home was appraised.

Tip #1  Clean up.  The appraiser is basing the value of your property on how good it looks. Before the appraisal, prepare your home as if you’re selling it. Clean and declutter every room, vacuum, and scrub. Do whatever you can to make your home as presentable as possible.
Tip #2 – Pay attention to curb appeal. An appraisal is all about first impressions. And the very first one the appraiser gets is when they walk up to your property. Spend an hour or two making sure the outside of your house, townhouse or condo is warm and welcoming.

Tip #3 – The appraiser must be able to see every room of the home, no exceptions.  Refusal to allow an appraiser to see any room will be noted in the appraisal can be a game stopper.   There are times when it is not appropriate for the appraiser to take pictures of certain things and appraisers and lenders understand this, but refusal to grant access could kill your deal.

Tip #4 – Make a list of upgrades and features.  It’s important that the appraiser is made aware of any updates you’ve made, especially those which are hidden, like new plumbing and electrical. If possible, give the appraiser this list. That way they have a reference as to what has been updated and how recent or professional that work was done.

Tip #5 – If you need to spend to update, be prudent. Many people think “bathrooms and kitchens” are the answer for getting high prices on home value. They aren’t. First, consider that kitchen and bathroom remodels can be some of the priciest reno costs. For that reason, it may be more prudent to spend a bit of money, for just a bit of updating. Paint, new flooring, new light or plumbing fixtures don’t break the bank, but can provide a dramatic impact and improve your homes value.

Tip #6 – You know your neighbourhood better than your appraiser does. Find out what similar homes in your neighbourhood have sold for. Your property might look like one down the street, but if you believe the value of your property is worth more, let them know why.

Tip #7 – Lock up your pets.  I’m sure most appraisers like pets, but some may be put off by your cat rubbing against their leg or the dog barking or following them around.

Tip #7½One last tip – don’t annoy the appraiser with questions and comments and follow them around. Instead, simply be prepared to answer any of their questions and, if you do have concerns or queries, wait until they’ve completed their viewing of the property, then ask.

Mortgages are complicated, but they don’t have to be… Engage an expert!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com 
www.KellyHudsonMortgages.com

8 Jul

20 Terms that Home Buyers Need to Know

Mortgage

Posted by: Kelly Hudson

Buying a home is one of the most important financial decisions you will make.

It’s common for a first-time home buyer to be overwhelmed when it comes to real estate industry jargon, so this BLOG is to help make some of the jargon understandable.

To help you understand the process and have confidence in your choices, check out the following common terms you will encounter during the home buying process.

  1. Amortization – “Life of the mortgage” The process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero.  Typical amortizations are 25 years or if you have over 20% down payment – 30 years.
  2. Appraisal An estimate of the current market value of a home.  A property is appraised to know the amount of money that a lender is willing to lend for a buyer to buy a particular property. If the appraised amount is less than the asking price for the property, then that piece of real estate might be overpriced. In this case, the lender will refuse to finance the purchase.  Appraisals are designed to protect both the lender and buyer. The lender will not get stuck with a property that is less than the money lent, and the buyer will avoid paying too much for the property.
  3. Closing Costs – Costs you need to have available in addition to the purchase price of your home. Closing costs can include: legal fees, taxes (GST, HST, Property Transfer Tax (PTT) etc.),  transfer fees, disbursements and are payable on closing day. They can range from 1.5% to 4% of a home’s selling price.  Don’t Forget the Closing Costs When You Purchase a Home
  4. Co-Signer A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.  Would a Co-Signer Enable You to Qualify for a Mortgage?
  5. Down Payment – The portion of the home price that is NOT financed by the mortgage loan. The buying typically pays the down payment from their own resources (or other eligible sources) to secure a mortgage.  5 GREAT Reasons To Provide a 20% Down Payment when Buying a Home
  6. Equity – The difference between the price a home could be sold for and the total debts registered against it (i.e. mortgage). Equity usually increases as the mortgage is reduced by regular payments. Rising home prices and home improvements may also increase the equity in the property.
  7. Fixed Interest Rate – a fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage. Fixed vs. Variable Rate Mortgages – Pros & Cons
  8. Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS) 
    • GDS – Typically mortgage lenders only want you spending a maximum 35-39% of your gross income on your mortgage (principle & interest), property taxes, heat and 50% of your strata fees.
    • TDS – typically, lenders want you spending a maximum 39-44% of your gross income on your GDS – PLUS any other debt obligations you have (credit card debt, car payments, lines of credit & loans). 3 “Rules of Lending” what Banks look at when you apply for a Mortgage in Canada
  9. High-ratio mortgage / Conventional Mortgage – a high ratio mortgage is a mortgage loan higher than 80% of the lending value of the home. A conventional mortgage is when you have more than 20% down payment. In Canada, if you put less than 20% down payment, you must have Mortgage Default Insurance (see below) and your mortgage affordability (GDS & TDS) is “stress tested” with the Bank of Canada’s qualifying rate (currently 4.64%).
  10. Interest Rate – This is the monthly principal and interest payment rate.
  11. Mortgage – A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.
  12. Mortgage Broker – A professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.  What is the difference between a Mortgage Broker & a Mortgage Specialist (hint – specialists work for the bank)!!
  13. Mortgage Default Insurance – Is required for mortgage loans with less than a 20% down payment and is available from Canadian Mortgage & Housing Corp. (CMHC) or 2 other private companies. This insurance protects the lender in case you are unable to fulfil your financial obligations regarding the mortgage.  Everything You Wanted to Know about Mortgage Default Insurance
  14. Open / Closed Mortgage 
    • An open mortgage is a flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term, because of the flexibility the interest rates are higher.
    • Closed mortgages typically cannot be paid off in whole or in part before the end of its term. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment. If you try and “break your mortgage” or if any prepayments are made above the stipulated allowance the lender allows, a penalty will be charged. Mortgage Penalties – Ouch… How Much??
  15. Pre-Approval – A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines. Pre-Approved for Your Mortgage… What Does that Really Mean???
  16. Refinance – Refinancing is the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.
  17. Term (Mortgage) – Length of time that the contract with your mortgage including interest rate is fixed (typically 5 years)
  18. Title – The documented evidence that a person or organization has legal ownership of real property.
  19. Title Insurance – Insurance against losses or damages that could occur because of anything that affects the title to a property. Insurance Title insurance is issued by a Title Company to insure the borrower against errors in the title to your property.
  20. Variable Rate Mortgage or Adjustable Rate Mortgage (ARM) A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions, the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty. Fixed vs. Variable Rate Mortgages – Pros & Cons

For additional information about mortgages – check out Check out Kelly’s AWESOME First Time Home Buyer Guide!!

Mortgages are complicated, but they don’t have to be… Engage an expert!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com