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 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

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

18 Jan

5 C’s of Credit to get a Mortgage

First Time Home Buyer

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

6 Aug

Want to Buy Rural Property? 6 Things to know before you buy!

First Time Home Buyer

Posted by: Kelly Hudson

Living in the country has extreme appeal for some people.  Space, peace and quiet, big home, big yard, place to raise your family… the list goes on.  If you are considering buying a rural home, there are a number of things to consider, not the least being how different it is to get a mortgage.

When lenders are considering your mortgage file it’s always about managing risk.  Higher risk, higher rates.  The risk that you’ll pay them back as agreed and they don’t have to seize the asset and sell it to recoup their investment.

  • Mortgage lenders don’t really want to own your property, because foreclosing on your property means it will take time and effort to get the homeowner off the property, list it for sale, then actually get it sold where they can finally get (some of) their money back.
  • With rural properties, depending on remoteness of location and condition of the property it could take months to sell when compared to the quicker sale for a home in an city where there is much more demand.

Mortgage lenders don’t like waiting years to get their money back on a non-performing loan, so they have implemented special rules related to rural properties to reduce their risk.

A rural property, for most lenders and their home appraiser, includes only one house, the garage and 10 acres in the valuation, any additional buildings will not be considered. This policy applies to both conventional and insured mortgages.

Here are 6 things to think about before plunking down your hard-earned cash on a country home.

Hire a real estate agent knowledgeable about rural properties and local zoning laws.  The names of the zones and the related details are determined by each local government so there may be variation between communities throughout each province.

Many lenders will not mortgage properties that are zoned agricultural.

  • Why? Lenders are all about risk.
    • If you buy a rural property and you default on your mortgage, the process of foreclosing on an agricultural property is very different and difficult for lenders. Taking a farm away from a farmer means taking their livelihood away, so the government has implemented many obstacles to prevent this.
  • Provided you are not planning to grow crops or raise animals for sale, financing a home in the country can be similar to financing an urban home.

Water & Septic In order to live in a house, you need to be able to drink the water and flush the toilet.  In the country you need to take care of these yourself.  When buying, if you are not on municipal water, your water will probably come from a well.

  • Many lenders will ask for a potability and flow test for the well because a house without water is very hard to sell.
  • Chances are your sewerage may be in a septic tank.  You need have the septic system inspected by a qualified septic inspector. At a minimum, ask the homeowner to agree to a warranty clause in the agreement that the system has been in good operating condition and it will remain that way until closing.
  • Both the well equipment and septic system can be very expensive to repair or replace. Thus, when you buy in a rural location, be sure you include these with your conditions.

Land – most lenders will mortgage a house, one outbuilding and up to 10 acres of land, anything above this amount will not be considered in the mortgage.

Appraisal – Your lender will want to see an appraisal to ensure the value of your land. The appraised value may come in lower than expected, because rural properties do not turn over as quickly as city properties.

  • Be prepared for the inspection to cost more than it cost you in the city, since the appraiser needs to travel farther to see the property.
  • If you LOVE the place and have to have it, be ready to have to come up with the difference between the selling price and the appraised value of the property.

Wood Energy Technology Transfer (WETT) – If there’s a wood stove or wood-burning fireplace, you make want to make your offer conditional on receiving a satisfactory WETT inspection report, which confirms the safeness and correct installation of the wood-burning unit.

Buy (or Check Into) Title Insurance Many buyers don’t realize that farmland, particularly larger, more remote tracts of land, may have been used as a dump-site for toxic chemicals.

  • Buying title insurance, or checking the title for the specific property, will let you know if the property has been listed as a toxic dump-site, or a hazardous waste site.
  • Your insurance company may insist on a copy of title insurance before they agree to issue a policy.

House/Content/Fire insurance – Lenders want to ensure you have insurance in place to protect their investment. If you can’t get insurance – it has the potential to be a serious problem, since your mortgage company may not advance the closing funds.

  • Living in the country is nice, however you are also far from fire hydrants and fire stations, you will pay more for home insurance.

If you are considering buying a home in a rural area, you need to have a frank discussion with your realtor, mortgage broker and lawyer before submitting your offer.

Mortgages are complicated… 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