1 May

Would a Co-Signer Enable You to Qualify for a Mortgage?

Mortgage

Posted by: Kelly Hudson

There seems to be some confusion about what it actually means to co-sign on a mortgage… and any time there is there is confusion about mortgages, it’s time to chat with Kelly Hudson, your trusted mortgage expert!!

Let’s take a look at why you would want to have someone co-sign your mortgage and what you need to know before, during and after the co-signing process.

Qualifying for a mortgage is getting tougher, especially with the 2017 government regulations. If you have poor credit or don’t earn enough money to meet the banks requirements to get a mortgage, then getting someone to co-sign your mortgage may be your only option.

The new ‘stress test’ rate is especially “stressful” for borrowers.  As of Jan. 1, 2018 all home buyers need to qualify at the rate negotiated for their mortgage contract PLUS 2% OR the government posted rate 5.34% (this rate varies) which ever is higher.  If you have less than 20% down payment, you must purchase Mortgage Default Insurance and qualify at 5.34%.

The stress test has decreased affordability, and most borrowers now qualify for 20% less home.

In the wise words of Mom’s & Dad’s of Canada… “if you can’t afford to buy a home now, then WAIT until you can!!” BUT… in some housing markets (Toronto & Vancouver), waiting it out could mean missing out, depending on how quickly property values are appreciating in the area.

If you don’t want to wait to buy a home, but don’t meet the guidelines set out by lenders and/or mortgage default insurers, then you’re going to have to start looking for alternatives to conventional mortgages, and co-signing could be the solution you are looking for.

In order to give borrowers, the best mortgage rates, Lenders want the best borrowers!! They want someone who will pay their mortgage on time as promised with no hassles.

If you can’t qualify for a mortgage with your current provable income (supported by 2 years of tax returns and a letter of employment) along with solid credit, your lender’s going to ask for a co-signer.

Ways to co-sign a mortgage

  1. The first is for someone to co-sign your mortgage and become a co-borrower, the same as a spouse or anyone else who you are actually buying the home with. It’s basically adding the support of another person’s credit history and income to those initially on the application. The co-signer will be put on the title of the home and lenders will consider them equally responsible for the debt should the mortgage go into default.
  2. Another way that co-signing can happen is by way of a guarantor. If a co-signer decides to become a guarantor, then they’re backing the loan and essentially vouching for the person getting the loan that they’re going to be good for it. The guarantor is going to be responsible for the loan should the borrower go into default.

Most lenders prefer a co-signer going on title, it’s easier for them to take action if there are problems.

More than one person can co-sign a mortgage and anyone can do so, although it’s typically it’s the parent(s) or a close relative of a borrower who steps up and is willing to put their neck, income and credit bureau on the line.

Ultimately, as long as the lender is satisfied that all parties meet the qualification requirements and can lessen the risk of their investment, they’re likely to approve it.

Before signing on the dotted line

Anyone that is willing to co-sign a mortgage must be fully vetted, just like the primary applicant. They will have to provide all the same documentation as the primary applicant. Being a co-signer makes you legally responsible for the mortgage, exactly the same as the primary applicant. Co-signers need to know that being on someone else’s mortgage will impact their borrowing capacity while they are on title for that mortgage. They’re allowing their name and all their information to be used in the process of a mortgage, which is going to affect their ability to borrow anything in the future.

If someone is a guarantor, then things can become even trickier the guarantor isn’t on title to the home. That means that even though they’re on the mortgage, they have no legal right to the home itself. If anything happens to the original borrower, where they die, or something happens, they’re not really on the title of that property but they’ve signed up for the loan. So they don’t have a lot of control which can be a scary thing.

In my opinion, it’s much better for a co-signer to be a co-borrower on the property, where you can actually be on title to the property and enjoy all of the legal rights afforded to you.

The Responsibilities of Being a Co-signer

Co-signing can really help someone out, but it’s also a big responsibility. When you co-sign for someone, you’re putting your name and credit on the line as security for the loan/mortgage.

If the person you co-sign for misses a payment, the lender or other creditor can come to you to get the money. The late payment would also show up on your credit report.

Because co-signing a loan has the potential to affect both your credit and finances, it’s extremely important to make sure you’re comfortable with the person you’re co-signing for. You both need to know what you’re getting into. I recommend looking into Independent Legal Advice between all co-borrowers.

Co-signing is NOT a life sentence

Just because you need a co-signer to get a mortgage doesn’t mean that you will always need a co-signer.

In fact, as soon as you feel that you’re strong enough to qualify without your co-signer – you can ask your lender to reconsider your application and remove the co-signer from the title. It is a legal process so there will be a small cost associated with the process, but doing so will remove the co-signer from your loan (once you are able to qualify on your own), and release them from the responsibility of the mortgage.

Removing a co-signer technically counts as changing the mortgage, so you need to check with your mortgage broker and lender to ensure that the lender you choose doesn’t count removing a co-signer as breaking your mortgage, because there could be large penalties associated with doing so. For more information, check out Mortgage Penalties – Ouch… How Much??

Co-signing is an option that could help a lot of people buy a home, especially first time home buyers who are typically starting their career and building their credit bureau.

A final mortgage tip: a couple of alternatives to co-signing that could help someone out:

  • providing gift funds for a down payment
  • paying off someone else’s debt, giving them more funds to pay the mortgage

Are you looking at buying a home? As you can tell there is lots to discuss, give me a call and let’s have a chat!

Kelly Hudson
Mortgage Expert
Dominion Lending Centres – Canadian Mortgage Experts
Mobile: 604-312-5009 
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

30 Apr

How to Pick the Best Mortgage for YOUR Situation!

Mortgage

Posted by: Kelly Hudson

Most Canadians are conditioned to think that the lowest interest rate means the best mortgage product. Although sometimes that is true, a mortgage is much more than just an interest rate. You can save yourself a lot of money if you pay attention to the fine print for the total cost of your mortgage.

In order to pick the best mortgage, you need to understand your options. This comes with Mortgage Intelligence, understanding how mortgages work and the pros and cons of the various options.

Once you’ve selected the type of mortgage, then you’ll need to shop for the most competitive option available to you and that means making some decisions based on your specific situation including:

  • Are you planning to move in the next 5 years
  • Will your family be growing/shrinking?
  • Will your employment change and if it does will you need to relocate?
  • Would $1000’s in penalties impact you if you need to break your mortgage?
  • What types of debts do you have?  Credit cards? Car loan? Student loan? Line of Credit?

Why do all this work? Because it will have a direct impact on your bottom line. A mortgage is made up of two parts—the principal and interest—you need to pay attention to how and when these parts get paid down. Ideally, you want to minimize your interest payments and maximize the principal payments.

New Government Stress Test Jan. 1, 2018 – whichever is the highest is how you must qualify for a mortgage.

  • Qualify at the Chartered Bank Benchmark Rate (Government Rate) which fluctuates (currently 5.34%)
  • OR the contract rate your lender gives you PLUS 2% i.e. 3.69% + 2% = 5.69%
    • Since 5.69% is the highest – that would be the stress tested rate.

What this means to you is… if you have to qualify for a mortgage at a rate about 2% higher than the lender is giving you, your buying power decreases by about 20%. 

To pick the best formula for your situation, you’ll first need to understand some of the factors that impact how much interest you’ll pay for your mortgage loan.

Understanding these 6 mortgage terms will help you make the best decision for your situation

Amortization

Amortization is a fancy word that means the “life of your mortgage” OR how long it takes to pay off your mortgage if you paid your mortgage for “X” years.  The amount of your mortgage loan repayment is calculated based on a length of time you agree to paying off that debt.  In Canada, the standard amortization period is 25 years.

Picking the best mortgage is not just about qualifying for the mortgage. The amortization period is integral in the best mortgage decision because it will decide how much or how little interest you will pay during the life of the mortgage loan.

  • The longer the amortization period (25 years vs 30 years) the more interest you will pay.
  • Therefore, a shorter amortization period will lower your overall cost of borrowing BUT you must be able to afford the higher payments.

Once you’ve decided on your amortization, you will need to decide if how frequently you would like to make your mortgage payments.  Every mortgage payment (consisting of both interest and principal) will help reduce your principal (the amount of money you borrowed) and eventually reduces the overall interest you pay on this loan.

Term

In the 1980’s mortgage interest rates were as high as 22%.  Interest rates can change over time therefore, lenders don’t want to negotiate a 25-year loan at 4% interest if the interest rates go up to 10% in 5 years. To avoid the risk, lenders break your mortgage amortization into smaller terms.

  • The term is shorter than the amortization period and locks you into your pre-negotiated rates during that time.
    • The length of term you choose (most Canadians choose 5 years) will depend partly on if you think interest rates will rise or fall. Typical terms are: 1, 2, 3, 4, 5, 7 & 10.

About 3-6 months before your current term matures, your current lender usually sends you a renewal notice with options on rates for the various terms they offer (typically 1 to 10 years).

Once you get your renewal notice, you need to contact your mortgage broker to ensure you’re choosing the best option for your situation.

Closed Mortgage

A closed mortgage usually offers the lowest interest rates available.

Closed mortgages cannot be paid off before the end of its term without triggering a penalty. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment.

Open Mortgage

An open mortgage is a more flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term without penalty, because of the flexibility the interest rates are higher.

  • The interest rates for an open mortgage are typically 3-4% higher than a closed rate mortgage.
  • i.e. a home buyer could pay 6.99% for a 5-year open mortgage vs. 3.99% for a five-year closed mortgage.

If you plan to sell your home soon or expect a large sum of money, an open mortgage can be a great option.  Most lenders will allow you to convert from an open to a closed mortgage at any time (and switch you to lower rates).

Fixed mortgage – you have the same payment for the term of the mortgage

Variable mortgage – the mortgage rate and your monthly payments will vary depending on the Bank of Canada rate (Prime)

Fixed vs. Variable Pros & Cons (in a nutshell) for more information check out my BLOG Fixed vs. Variable Rate Mortgages – Pros & Cons

Fixed Rate:

  • Pro – you would have the same mortgage payment for the entire term of the mortgage
    • Your mortgage payments are not affected by Bank of Canada Rate or Canadian Bond Yield
    • Think of fixed rate as an insurance policy – you pay a premium to guarantee “fixed” rates for the balance of the term
  • Pro – can port a fixed mortgage
  • Con – higher interest rates
  • Con – MUCH higher penalties if you need to break your mortgage (can be 4-5% of outstanding balance with Banks/Credit Unions)
    • 60% of home owners, break their mortgage before it matures!  There are penalties to break your mortgage, click on this GREAT 3 minute video from the Globe & Mail explaining how Banks calculate mortgage penalties for both Variable & Fixed mortgages and how banks squeeze even more money out of their clients by giving discounts off their inflated posted rates Drawing Conclusions: How much does it cost to break a mortgage?

Variable Rate:

  • Pro – lower rates than the Fixed Rate – you would pay less now that you would for a Fixed Rate mortgage
  • Pro – Penalty for breaking is 3 months interest (about 0.5-1% of outstanding balance).
  • Pro – you can lock into a fixed rate mortgage (assuming your mortgage is in good standing) at any time, based on the amount of time remaining on your mortgage and the current posted rates.
    • i.e. If you have a 5-year variable mortgage and you want to move to Fixed after 2 years, you would lock into the lenders current 3 year fixed posted rate
  • Con – Can not port a variable mortgage
  • Con – Mortgage payments will increase/decrease based on the Bank of Canada rate – currently 1.75% and the lenders prime rate = Prime is currently 3.95%
    • Bank of Canada meets 8 times a year
    • Every 0.25% increase with the lender Prime rate will cost you an extra $13/$100,000 borrowed.  i.e. $300K mortgage = will be about $39/month more/less

BLOG 10 Helpful Words to Know when Buying a Home

The best way to decide on the best mortgage is to contact your friendly neighbourhood mortgage broker.  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)!

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

9 Apr

7 Steps to Buying a Home

Mortgage

Posted by: Kelly Hudson

I’ve created a 7-step checklist to help you understand the home buying process

Step 1: Down Payment

The hardest part to buying a home is saving the down payment (a gift from the Bank of Mom & Dad also works).

  • For purchases under $500K, minimum down payment is 5%.
  • Buying between $501-999K you need 5% on first $500K PLUS 10% down payment for anything over $500K.
  • Buying a home over $1M you need 20% down payment.

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

For any home purchases with less than 20% down payment, you are also required to purchase Mortgage Default Insurance.  BLOG Everything You Wanted to Know about Mortgage Default Insurance

Step 2: Strategize, Define Your Budget and get Pre-Qualified

Unless you can afford to buy a home, cash in hand, you are going to need a mortgage.

You need to get pre-qualified, which should not be confused with the term pre-approved.

The big difference is that no approval is ever given by a lender until they have an opportunity to examine the property that you wish to purchase.  The bank may love you… but they also must love the property you want to buy.

Pre-qualifying will focus on gathering documentation to prove the information on your mortgage application including credit, debt load, income/employment, down payment etc.

BLOG Pre-Approved for Your Mortgage…  What Does that Really Mean???

Mortgage brokers will make sure you get a great mortgage rate.  Just as important as rates are the terms of your mortgage which should include:

We also discuss what type of mortgage fits your current situation

  • fixed vs variable?
  • life of the mortgage (amortization) 25 or 30 years etc.
  • payments – monthly, semi monthly, accelerated bi-weekly

Step 3: Set Your Budget

Keep in mind that just because you’re pre-qualified for a certain amount of mortgage, doesn’t mean you can actually afford that amount. Prepare your own monthly budget to be sure.

Typically, your total home payments (including mortgage, property taxes, strata fees & heat) should not exceed 32-39% of your gross (pre-tax) income.

Step 4:  Find the Right Property – Time to Engage a Realtor

Once you have been pre-qualified for a mortgage, based on your budget… you need to find a realtor.

Selecting the right real estate agent is a very important step in the home buying process.  When you work with an agent, you can expect them to help you with many things, including:

  • Finding a home
  • Scheduling tours of homes
  • Researching the market, neighbourhood and home itself
  • Making and negotiating your offer to purchase, and counter-offers
  • Providing expert advice on home buying
  • Handling the offer, gathering documentation and closing paperwork

I recommend interviewing at least 3 realtors.  You will quickly decide who has your best interests in mind.  Do you want to deal directly with a realtor who’s going to work with directly when you go home hunting, or do you want to deal with a BIG name realtor, who has buyers & sellers realtors working under them?  There are advantages to each – you need to decide what is the best fit for your situation.

Get referrals for realtors from friends and family… OR ask me, I have a group of realtors that I know and trust.

Step 5:  Mortgage Approval

Once you have found the property you would like to call home, your mortgage broker will send your mortgage application and property information to the lender who is the best fit for your situation, based on your input.

If the lender likes your financial situation and the property, they will issue a “commitment” letter outlining the terms of the mortgage.  The lender will send you a list of documents, so they can verify and validate all the information you told them on the mortgage application.

Step 6:  Time for the Solicitor (Lawyer or Notary)

Once the lender has reviewed and approved all your mortgage documentation and the property documentation, your file will be sent to your solicitor (in BC you can use a lawyer or notary).  They will process all the necessary title changes and set up a time for you to meet, review mortgage documents and sign.

Step 7:  Get the Keys

On the closing day the documentation for your home purchase will be filed at the land titles office by your solicitor.  Typically, the possession date is 1 or 2 days later, giving time for the money (down payment & mortgage) to get to the home seller.  On possession day you set up a time to meet with your realtor to get the keys.

Congratulations you’re done – you now own your home!!

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

13 Feb

5 Reasons Why You Don’t Qualify for a Mortgage

Mortgage

Posted by: Kelly Hudson

It’s not just because of finances

As a mortgage broker I receive calls from people who want to know how to qualify for a mortgage.   Most of the time it comes down to finances but there are other reasons as well.

Here are the 5 most common reasons why your home mortgage loan application could be denied: 

1.  Too Much Debt

When home buyers seek a mortgage, the words “debt-to-income ratio” quickly enters into the vocabulary, and it’s not without reason. Too much debt is a red flag to lenders, signifying you may not be able to handle credit responsibly.

Lenders will analyze how much debt you carry and what percentage of your income it takes to pay your debt. Debt ration is just as important as your credit score and payment history.

Two affordability ratios you need to be aware of:

  • Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 32% of your gross monthly income.  
  • Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 42% of your gross monthly income.

Check out my BLOG 3 “Rules of Lending” what Banks look at when you apply for a Mortgage in Canada

If you don’t have a good debt to income ratio, don’t give up hope. You have options available including lowering your current debt levels and working with your Mortgage Broker. 

2. Poor Credit History

Some people don’t realize if they are late on their credit card/loan/mortgage payments the lender sends that information to the credit bureaus.

  • Late/non payments on your credit report will make your score drop like a rock
  • Exceeding your credit card limit, applying for more credit cards/loans will lower your score.
  • Bankruptcy or Consumer Proposal will significantly impact your score, and stay on your credit report for up to 7 years.

Your credit history is a great way for a lender to tell whether you’re a risky investment or not. Lenders look not only at your minimum credit score, but also at whether you have a significant amount of late payments on your credit report.

Your Mortgage Broker will run your credit bureau to see if there are any challenges you need to be aware of. Check out Solving the Puzzle – 5 factors used in determining your Credit Score  

3. Insufficient Income and Assets

With the high price of homes in the Vancouver & Toronto area, sometimes people simply don’t earn enough money to afford: mortgage payments, property taxes and strata fees along with their existing debt (credit cards, loans, lines of credit etc.).

You need to prove your previous 2 years’ income on your taxes with your Notice of Assessments (NOA). This is the summary form that the Federal Government sends back to you after you file your taxes, showing how much you filed for income and if you either owe money or received a refund. 

If you can’t provide documentation to prove your income, then you will likely get denied for a home mortgage loan.

Some home buyers will need to provide more money for a down payment (perhaps a gift from their family) or try to purchase a home with suite income. In some cases, home buyers will need to add someone else on title of the home, in order to add their income to the mortgage application. 

4. Down Payment is Too Small

A lender looks at the down payment as how much of an investment a buyer will be putting in their future home. Therefore, bigger is always better when it comes a down payment to satisfy your home mortgage loan application. Start saving now.

To qualify for a mortgage in Canada the minimum down payment is 5% for the purchase of an owner-occupied home & 20% for a rental property.

In Canada if you have less than 20% down payment, the federal government dictates that the home buyer must purchase CMHC Mortgage Default Insurance which is calculated as a percentage of the loan and is based on the size of your down payment. The more you borrow the higher percentage you will pay in insurance premiums. Check out Everything You Wanted to Know about Mortgage Default Insurance

For those with less than 20% down payment, the maximum amortization is 25 years, with more than 20% down payment 30-35 years (depending on the lender).  Check out 5 GREAT Reasons To Provide a 20% Down Payment when Buying a Home

5. Inadequate Employment History

Most lenders will want to see a consistent employment history of 2 years when applying for a mortgage, because they want to know you’re able to hold down a job long enough to pay back the money they’ve loaned you.

To prove your employment, you will need to prove a Job Letter with salary details.

If you’ve been denied a mortgage, chances are it was because of one of the above five reasons. Don’t be deterred, with a little patience and some work on your end, you can put yourself in a position to get approved the next time you apply.

The chart below lists the 10 main reasons people either don’t want or can’t get a mortgage.

list-of-reasons-for-not-buying-a-home-sept2016

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

18 Jan

5 C’s of Credit to get a Mortgage

Credit

Posted by: Kelly Hudson

Whether you are buying your first home or have been a home owner for years, when you are looking at purchasing a property, finding the best mortgage solution for your specific situation can be an intimidating experience.

Working with a licenced mortgage broker will ease that tension, along with knowing the basics of what lenders are looking for will help you better understand the process.

 The Five C’s of Credit/Mortgages

The five Cs of credit is a system used by lenders to gauge the creditworthiness of potential borrowers. The system weighs five characteristics of the borrower and conditions of the mortgage, attempting to estimate the chance of default and, consequently, the risk of a financial loss for the lender.

Higher Risk = Higher Rates!

Know Your 5 C’s:

Every client has individual mortgage needs when buying a home and my goal is to find a mortgage loan that’s right fit for your situation! The first step in getting the mortgage process started involves understanding what lenders are looking for in order to get mortgage approval.

The approval process is called the Five C’s of Credit and they consist of:

  • Collateral– the property that you are planning to purchase
  • Credit – do you have good credit? Do you have a good history of repayment for all loans?
  • Capacity – Proof of being able to pay for your mortgage with your provable income
  • Capital – How much equity do you have in the property? The borrower’s net worth.
  • Character – The borrower’s willingness to repay the loan and their reliability
  1. Collateral 

    Collateral reflects the strength of the property itself.  Lenders look at if the property is owner occupied (do you live there) or is it a rental dwelling?  Is the property a home, condominium or cottage? Is the property located in a metropolitan neighbourhood or a rural area? Is there a single family living in the home or multiple families? All these factors are taken into consideration by the lender for marketability when rating your property. An appraisal is one of the tools used to assess the “current” value of the property.

BC Property Assessment vs Home Appraisal  

  1. Credit 

    Shows the lender a snapshot of what the borrower’s repayment history has been over a period of time. This is the only way a lender can predict the borrower’s propensity to make future payments. The credit score (also called credit history, credit report, credit rating) is the primary measurement factor.  When you borrow money, your repayment history is reported to the credit bureau – this rating is called your credit score.  How do you pay your bills – always on time or sometimes a few days late or not at all, will determine what type of credit rating will apply.  Some other factors that affect your credit rating are if your credit card balance is greater than 25-50% of your credit limit, if any accounts have gone to collection, or if there have been multiple inquiries into your credit.

Solving the Puzzle – 5 factors used in determining your Credit Score

8 Credit Rules You Need to Know, Before You Buy a Home

9½ Steps to Repair & Improve Your Credit

  1. Capacity 

    The most important by far! How are you going to pay for your mortgage? The lender’s main concern is how you intend to repay your mortgage and will consider your income (from all sources) against your monthly expenses.   Proof of income will differ depending on your employment status: salaried, commissioned, self-employed, full time, or part time.  Lenders will determine what types of documents are required to confirm your provable income and how much mortgage you can qualify for. This is represented as TDS Total Debt Service Ratio and GDS Gross Debt Service Ratio.

3 “Rules of Lending” what Banks look at when you apply for a Mortgage in Canada

  1. Capital 

    Capital refers to your personal net worth and how much equity you have in the property.  Where is your down payment coming from? In Canada your minimum down payment is 5% for a “high ratio” insured mortgage* or a “conventional” mortgage with 20% down. The down payment money can come from your own resources or can be gifted from a family member.

* Everything You Wanted to Know about Mortgage Default Insurance

  1. Character 

    Character is a subjective rating and basically reflects a combination of above 4 factors. Your character tells a story to the lender about your individual situation.  Lenders want to know that as a borrower, that you are trustworthy and will meet your payment obligations to them. Lenders will take factors such as length of employment, your tendency to save and use credit responsibly to establish your character and determine whether you are a borrower that they can trust with their mortgage.

The goal is to get a yes with your lender. The Five C’s of credit outlined above determine a borrower’s ability and willingness to make payments. Understanding what a lender is looking for allows you to set yourself up to put your best foot forward.

There you have it – the 5 C’s that lenders analyze when reviewing a mortgage application. 

If you have any questions or concerns feel free to contact me anytime, I’m here to help!

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

6 Nov

How to Get a FREE Copy of Your Credit Bureau

Credit Score

Posted by: Kelly Hudson

Think of your credit score as a report card on how you’ve handled your finances in the past.  A credit score is a number that lenders use to determine the risk of lending money to a given borrower.

There is always someone willing to lend you money however, higher risk = higher rates!

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

Step 1 for good credit – you need to know your credit history

  • In Canada there are 2 credit bureaus – Equifax and TransUnion.
  • You can receive a FREE copy of your credit report from both Equifax Canada  and TransUnion Canada once a year
  • You can pay Equifax or TransUnion for a digital copy, which is much faster, BUT you have to pay, which sucks. ☹

I recommend you order a copy of your credit report from both Equifax Canada and TransUnion Canada, since each credit bureau may have different information about how you have used credit in the past.

Ordering your own credit report has no effect on your credit score.

  • Equifax Canada refers to your credit report as “credit file disclosure”.
  • TransUnion Canada refers to your credit report as “consumer disclosure”.

Once you have obtained your free credit report, check it for errors:

  • Are there any late payments that have been erroneously attributed to your credit history?
  • Are the amounts owing in your credit report accurate?
  • Is there anything missing on your credit bureau
    • Sometimes the credit bureau has more that one file with your name, which can be merged, but it takes time.

If you find any errors on your credit report, you need to dispute them with your credit bureau.

How can I get a copy of my credit report and credit score?

There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You should check with both bureaus.

Credit scores run from 300 to 900. The higher the number, the greater the likelihood a request for credit will be approved.

The “free-report-by-mail” links are not prominently displayed, since credit bureaus would love to sell you instant access to your report and credit score online.

Equifax, the instructions to get a free credit report by mail are available here.  

Equifax Free Credit File Options for Canadian Residents

You may request a free copy of your credit file through one of the options below:

  1. To order your free Equifax credit report by phone, call 1-800-465-7166 To request your credit report free of charge by phone, use our Interactive Voice Response system (IVR) is an automated tool that gathers the required information to process your request through voice response or key pad selection. It is important to note that when requesting your free credit report by phone, you will be required to enter your Social Insurance Number (S.I.N.). If you do not wish to provide your S.I.N., you will need to select a different option to submit your request such as mail or in person.
  1. To order your free credit report by mail or fax, please fill in this Canadian Credit Report Request Form and forward to National Consumer Relations using the address or fax number listed on the form.

The form must be completed, with photocopies of your identification to:

National Consumer Relations;
P. O. Box 190, Station Jean-Talon
Montreal, Quebec H1S 2Z2
Or by Fax: 514-355-8502

If/when you complete the identity validation process, your credit report will be sent to your home address via Canada Post within 5-10 days.

Click here to purchase your one-time Equifax credit score and report OR your Equifax credit report.

Correct an Inaccuracy on Your Equifax Credit Report

If you find any information that you believe is inaccurate, incomplete or a result of fraud, you have the right to file a dispute with Equifax Canada. You will need to complete the Credit Report Update form enclosed with your package. You can also review how to dispute information on your credit report for additional details on the Equifax dispute process.

For TransUnion, the instructions to get a free credit report by mail are available here

Online New! Quick and easy online access to view and download your free yearly Consumer Disclosure.

By Phone Request your Consumer Disclosure by phone using our Interactive Voice Response system: 1(800) 663-9980 (Prompt 1)

IVR or Interactive Voice Response is an automated tool that guides you through the use of your touch-tone phone or voice. The TransUnion IVR serves consumers who wish to obtain a copy of their Consumer Disclosure through a secure and effective channel without having to wait to speak to a representative. It is a service provided to you free of charge which asks you a series of questions to authenticate your identity in order to provide you with a copy of your Consumer Disclosure. If/when you pass the authentication process, your Consumer Disclosure will be sent to your home address via standard mail.

Mail It’s easy to request your free Consumer Disclosure by mail. Simply download and complete the Consumer Request form.

Click here to purchase your one-time TransUnion credit score and report OR your TransUnion credit report.

Credit Report DisputesYou can dispute your TransUnion credit information or update personal information on our credit report in three ways.

Equifax & TransUnion do NOT offer a free service to access your credit score.

Credit Score Scale May 2015The bottom line: when it comes to financing your life, through credit cards, mortgages, car loans or any other kind of debt – your credit score has a BIG impact on what kind of terms you can negotiate.

Keeping an eye on your credit score is important — if there’s a problem or an error, you want to know and have time to fix it before you apply for a loan.

For more information check out 9½ Steps to Repair & Improve Your Credit

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

17 Oct

7 Tips for Buying Your First Home in BC

First Time Home Buyer

Posted by: Kelly Hudson

House in the Palm of HandAs a licensed Mortgage Broker, I am often asked “what do I need to know when buying my first home in BC?”

Everyone has their own aims and objects when buying their first home. As a Mortgage Broker, I specialize in making sure your financing is in order to facilitate your dreams of owning a home.

Buying your first home is very exciting, but it can easily be overwhelming. Being prepared is the first step. The decision to purchase your first home can be a huge, life-changing event and you need to know exactly what you are getting into.

To get you prepared with the knowledge you need, here are my 7 tips to consider when you buy your first home in BC.

1.  Strengthen your credit rating

It’s pretty simple: the higher your credit score, the lower your mortgage rate will be.

Spend the time now to improve your credit. Check your credit report. Many credit reports have errors, so you need to ensure that your credit bureau is current and correct.

ALWAYS pay every single one of your bills on time. Set up automatic payments if you have had any late payments over the last couple of years.

Stop applying for any new credit a year before you are considering buying and continue until you sign the closing papers on your home. Spend only 30% of credit limits on credit cards.

Solving the Puzzle – 5 factors used in determining your Credit Score

8 Credit Rules You Need to Know, Before You Buy a Home

2.  Find a Mortgage Broker and figure out how much you can afford to spend

The home buyer’s mantra: Get a home that’s financially comfortable.

Contact me, your Mortgage Professional. I work with you up to a year in advance to analyze your situation, and tell you how much mortgage and monthly payments you can afford.

Lenders like to see that you spend a maximum

  1. 32-39% of your Gross income on mortgage payments, maintenance fees (if applicable), heat & property taxes
  2. 38-44% of your Gross Income on all debts
    • Including #1 above PLUS loans, credit cards, additional financing etc.

1 year+ prior to going home shopping, calculate the mortgage payment for the home in your intended price range, along with the increased expenses (such as taxes, insurance and utilities). Then bank the difference between the home payments and what you’re paying now. Not only will that simulate ownership, it also helps you save for your down payment!

When you are ready to start shopping for your home, as your Mortgage Broker, I gather all your financial documentation that the lender requires, in order to figure out much you can afford to spend. Then I work with you to get a preapproval and lock in a low interest rate to protect you in case rates rise between now and the time you by your new home.

What is the difference between a Mortgage Broker & a Mortgage Specialist (hint – specialists work for the bank)!!

3.  How long will you live in your new home?

The transaction costs of buying and selling a house are substantial including: real estate fees, legal fees, Property Transfer Tax, selling in a down market, moving, etc.

If you don’t plan to live in your new home for at least 3-5 years, you may not gain enough equity to make selling worthwhile.

Short-term home ownership can be a pretty expensive proposition. If that is the case, holding off on purchasing could be your best option.

4.  How much house you need?

Buying a cheaper, smaller home might sound like a good place to start, but could end up costing you more if you need to move due to changes in your lifestyle, including a growing family. Then again, buying more house than you currently need will cost you more with higher mortgage payments, higher maintenance, energy and tax costs.

Prioritize your housing wish list. They say that the 3 most important things to think about when buying are home are location, location, location. In Greater Vancouver your first choice for location i.e. Kitsilano or Yaletown may not be within your means. You also need to think about how the new home space will be used and whether it will fit your lifestyle now and in the future.

5.  Build a savings account

Start now to build a healthy savings account. To avoid paying CMHC Mortgage Default Insurance you need to prove you have a 20% down payment.

Building your savings account, over and above the money you will require for the down payment and closing costs. Lenders want to see that you’re not living paycheck to paycheck. If you have three to five months’ worth of mortgage payments in your savings, that makes you a much better loan candidate.

Everything You Wanted to Know about Mortgage Default Insurance

6.  Remember closing costs.

While you’re saving your down payment, you need to save for closing costs too. They’re typically 1% to 3% of the purchase price and due on the completion date.

In BC you need to also pay Property Transfer Tax (PPT). The amount of tax you pay is based on the fair market value of the land and improvements (e.g. buildings) on the date of registration unless you purchase a pre-sold strata unit. The tax is charged at a rate of 1% for the first $200,000 and 2% for the portion of the fair market value that is greater than $200,000.  3% on the portion over $2,000,000 and if the property is residential, a further 2% on the portion greater than $3,000,000

Don’t Forget the Closing Costs When You Purchase a Home

7.  Shop for a Realtor that has your best interests in mind

Interview at least three Realtors. Get referrals from people you trust who have recently bought or sold, including me, your mortgage broker. I work with a lot of realtors, some of whom are outstanding in their field. Once you’ve decided which Realtor is the best fit for you, they can help you focus your search to find your perfect home. There is no cost for the Realtor for the home buyer since the home seller pays the commission.

Besides the 7 tips I’ve listed above, there are many other things you should need to be aware of prior to buying your first home.

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

Kelly Hudson
Mortgage Expert
Dominion Lending Centres – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com

ON THE WEB

4 Oct

Mortgage Insurance 101

Mortgage

Posted by: Kelly Hudson

Mortgage insurance… sounds simple doesn’t it??

For a first-time home buyer, the types of insurance surrounding a mortgage can be confusing, so it’s important to know what insurance covers what.

There are 3 main types of insurance to know about when buying a home.

Mortgage Default Insurance – If you put less than 20% down on a home you are buying, Government rules are you must pay for Mortgage Default Insurance which covers the lender should you default on your mortgage payments.

There are three mortgage default insurers in Canada – Canadian Mortgage & Housing Corp. (CMHC), Genworth or Canada Guaranty) The purchase of this insurance solely benefits the bank/lender.

For more information check out Everything You Wanted to Know about Mortgage Default Insurance

Mortgage Insurance and/or Life Insurance

You’ve just made the biggest purchase of your life: a new home for you and your family.

  • What’s the best way to protect your investment if you die?

Insurance is the answer. But what kind: mortgage insurance or life insurance? 

There are important differences between the two that we’ll examine.

Mortgage Insurance Life Insurance
Tends to be quicker to process. Can take 30-90 days to put into place.
Can be easier to qualify for. With individual owned insurance the medical underwriting is completed up front, so you know what is covered when your policy is approved.
Decreasing benefit – the amount of coverage with mortgage insurance decreases as you pay down the balance each month, while the monthly insurance payments remain the same. If you get coverage for $500K, it stays at $500K until you decide to change it, or your term expires.

Beneficiary is the lender/bank who holds your mortgage. You can designate the beneficiary/beneficiaries.
Mortgage insurance is attached to the outstanding balance on your mortgage. Life insurance is attached to you rather that your debt.
Typically, your mortgage insurance policy pays off the current balance on your mortgage to your lender/bank. The beneficiary(ies) decide what to do with the insurance.  Funds can be used to pay off the mortgage or any other bills (funeral, hospital/home care expenses, living expenses, education etc.).  It’s your money, and you can decide how to use it.
You can cancel anytime i.e. you find an insurance product that suits you better. You can cancel anytime i.e. you find an insurance product that suits you better.
Portability – mortgage broker sold Mortgage Insurance policies are portable. Which means that if you switch lenders or buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable.·         Take note that when the bank offers you Mortgage Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender or property thereby limiting your future financing options. Completely portable.  Doesn’t matter if you buy a different home or switch lenders/banks, life insurance follows you not your property.

Please note:  Mortgage/Life Insurance is not mandatory to qualify for a mortgage.

You have made the biggest purchase of your life… how do you protect yourself and your family?  Many people say they have life insurance through their work, but is it enough?

  • The question you should be asking is – do you currently have enough life insurance in place right now, equal to your mortgage amount?

Top Benefits of purchasing Mortgage/Life Insurance

  1. Peace of Mind – creates a sense of security that your loved ones will be taken care of if you pass on.
  2. Mortgage Can be Paid Off – whereby any other policies that are held will be able to assist with other needs.
  3. Family can Stay in their Home – if there is the unfortunate life event that is the death of the Mortgage/Life Insurance policy holder, the mortgage can be paid off which will allow the family to stay in their home and not become displaced, causing additional anguish.
  4. The Younger you are, the Less Expensive – Which means that insurance is extremely affordable for a young, and likely, first time home buyer.
  5. Good Health = Coverage for Unexpected Illness Later on – After illness strikes, it is more difficult to acquire life insurance.

Mortgage/Life Insurance is an option that anyone with a mortgage should consider. Ask me about a referral for reputable and credible insurance.

While we’re discussing insurance, there are other types of insurance you need to consider as well…

  • Fire insurance – most lenders will want to see that you have fire insurance in place, prior to funding your mortgage to “protect” their investment.

Additional insurance options:

  • Disability insurance
  • Personal content insurance

Mortgages are complicated… BUT they don’t have to be!  You need to protect your investment by engaging 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

16 Aug

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

Home Ownership

Posted by: Kelly Hudson

Home & Cdn CashThere are many challenges that come into play when you’re in the market to buy a home.

Buyers say the number one obstacle to homeownership is saving enough for a down payment, the amount that the buyer provides toward the purchase of their home.

Exactly how much do you need to put down? Assuming you can finance the debt with your current income you can get a mortgage for as little as 5% down PLUS pay for Mortgage Default insurance if you put less than 20% down.

A smart rule of thumb is always try to put a least 20% down.

Although that may be a challenge in Greater Vancouver where the current Vancouver MLS stats indicate an average house price of $1,227,420

  1. Easier to service your debt Putting 20% down reduces the size of your monthly mortgage payment, making you more likely to qualify for and afford, your mortgage. Lenders want to make sure you can service your debt with your current income using 2 rules:
    • Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 35-39% of your gross monthly income.  Housing costs include – your monthly mortgage payment, property taxes and can include heating.  If you are buying a condo/townhouse with strata property then the GDS will also include ½ of your strata fees.

      Principle + Interest + Taxes (+ 50-100% Strata Fees if applicable)

      Gross Income

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

      (Principle + Interest + Taxes) + Other Payments 

      Gross Income

  2. A Smaller Monthly Mortgage Payment! You pay LESS!! I’m all about making smaller mortgage payments and having money for the fun stuff in life. More money down means, you borrow less money, which means you will have a smaller mortgage, which means you have smaller, more affordable mortgage payments.
  3. No private mortgage default insurance Putting 20% down allows you to avoid paying for mortgage default insurance.
    • In Canada, mortgage insurance is required federally on high-ratio mortgages (a down payment of less than 20%). This insurance, which protects the bank/lender in case the borrower defaults, gives lenders the flexibility to offer homebuyers with low down payments the same low interest rates they would offer to homebuyers with more equity.
    • Mortgage insurance premiums are based on the amount of the mortgage. The higher the loan-to-value ratio, the higher the premium cost. In other words, the lower your down payment, the more expensive the insurance. This premium may be paid in cash in a lump sum upon closing, it is usually added to the mortgage amount and paid over the length of the mortgage.
    • Canadian Mortgage & Housing Corp. (CMHC) and Genworth Canada provide mortgage default insurance. Click on CMHC or Genworth for the sliding scale, the bigger your down payment the less insurance you pay. Once you hit a 20% down payment, mortgage default insurance is no longer mandatory.
  4. Pay Less Interest over the Life of the Loan You pay less interest with 20% down payment, since you’re putting more money on the house compared to if you put 5% or 10% down.
  5. Instant Equity Building A significant down payment builds instant equity in your home. A 20% down payment immediately puts equity into a home when you purchase it. That down payment gives you some cushion, in case the market takes a downward turn.

Let’s discuss which mortgage down payment works for you NOT the bank!

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