The Mystery of Mortgage Lenders

General Pam Pikkert 27 Oct

So it’s time for a mortgage.  You call up your friendly mortgage professional to discuss your options, provide all the paperwork they are looking for and then you sit back to await a phone call letting you know that you are good to go.  Alas, when you get that call it’s to hear that only a “b” lender is willing to look at your application.  Why is that and what in the heck does it mean to you?  This week we are going to take a look at just that.

There are 4 types of lenders in the mortgage world.    We will take a quick look at the first 2 and go more in depth on the others.

  1. The Big 5, local credit Unions and Treasury Branches- You are all familiar with this first group.  There are branches located throughout your community and you will likely see their advertising.  These lenders offer mortgages to you based on their pre-set criteria.
  2. Monoline Lenders – This group of mortgage providers typically source their mortgages through the mortgage broker channel.  There are banks, trust companies and other mortgage companies within this group.  These lenders are also bound by all the Bank of Canada and OSFI regulations.  The funds they lend typically come from the major banks in category 1 and from investors.  It can be a great resource to utilize these companies as they often have different lending guidelines which can fit your situation.
  3. B or Subprime lenders – This group of lenders is also comprised of banks and a variety of mortgage providers.  There are many reasons that you would go with a lender from this group.
  • You may be recently self-employed or are fully commissioned.
  • Your credit may be blemished from a divorce, illness or other life situation
  • High debt ratios

              You will need a larger down payment for these lenders.  They mitigate the higher risk associated with these applications by requiring you to put more money down.  There may also be fees and the rates are generally higher than those offered by the first 2 groups of lenders.  Subprime lenders also ask for documentation not generally required by the other groups.

So should you go with this type of a lender?  The answer can be a big yes.  Let’s take a look at the groups listed above.

Self Employed – If you have followed your accountant’s advice you have likely paid yourself very little in the way of taxable income.  This can be a great strategy for avoiding taxes however when it comes to a mortgage, the lenders now require you to prove you can afford the payments.  Subprime lenders are able to take a look at the whole picture to determine income reasonability.  It is very important to note that if you do a Stated Income through a mainstream lender with less than 20% down you will pay a 6% mortgage insurer premium.  On a $300,000 purchase that would mean you would pay $16,200.  Suddenly the higher interest rate is worth examining to compare which way will cost you less.

Credit Issues – Most mainstream lenders require a clean 2 year history on your credit bureau and a full explanation of any credit issues you had before.  Subprime lenders are able to look at a much broader scope including those brand New to Canada without documentation, those recently discharged from bankruptcy or those with low credit scores.  The maximum loan value for each borrower type is lender dependent.

High Debt Ratios – Subprime lenders generally allow your debt servicing levels to be much higher than the mainstream lenders. 

 

  1. Private Lenders – This group of lenders is generally sources the funds they lend through a group of private investors.  The rates are higher though given the competitive lending landscape they have certainly dropped a lot in the past year.  Who would consider these mortgages?
  • Those with tax arrears.  If you owe money to the Canada Revenue Agency, the Provincial Government or have property tax arrears, you may have to.  The first 2 groups of lenders will not proceed if you have outstanding taxes and the third it is a case by case situation
  • A short term fix – Perhaps you need to payout your ex-spouse or business partner.  Or maybe you want the funds to payout your taxes or other debts to stop the ceaseless phone calls. 

               These lenders offer an acceptable short term solution.  You will work with your mortgage professional to develop a plan to get you back to the first groups of lenders ASAP.

Call your local mortgage professional to see which options will be the best fit for you.  Happy Halloween!!

Renovation Financing

General Pam Pikkert 21 Oct

 

So you have found a great house.  The neighborhood is wonderful.  Mature trees, lower property taxes, schools within walking distance and easy access to a variety of amenities.  But the house, how do we put it, is retro at best.  You wonder how you will tolerate the bright pink carpets and the vast array of energy inefficient items has you wondering if you will be able to pay the astronomical heating bills.

What now?  Should you look for something newer? No way my friend, there is a mortgage product made just for this situation and this week we are going to take a look.

Purchase Plus Improvements is the name of this product and this is how it works. You head out with your Realtor to choose the best house for your needs.  You write up an offer and bargain your way to the best price.   In the meantime, you contact a qualified contractor or other service providers, to get quotes for the work you would like to do.  These quotes are provided to the lender as a part of the financing process.  The lender reviews and provides the thumbs up. 

But you before to rush out to do just this you really need to know a few things. 

  1. The day of possession the funds are transferred for the purchase of the home so you are able to move in and start the renovations. The balance of the funds are held in trust with the lawyer and will not be released until the work is 100% complete.  An appraiser will be sent to your home to verify the work is done. You may want to arrange access to a line of credit so you will be able pay for any deposits or other costs in the interim as you will only get the funds upon completion.
  2. There is a maximum amount you are allowed.  Most lenders will allow you $40,000 or 10% of the home’s value as your renovation budget.
  3. You will have to have at least 5% of the improved value to put down.  For example, if your new home costs $300,000 and you are going to do $30,000 of improvements, you will need to have $16,500 down instead of $15,000.
  4. Not all improvements you propose will be acceptable to the lender.  The travertine tile imported from Italy may be gorgeous but it does not necessarily add a dollar for dollar value.   Lenders like new kitchens, flooring, bathrooms, siding, windows, furnaces, garages, roofing or other substantial upgrades. They will sometimes allow appliances or landscaping but this is a case by case decision
  5. You must do the upgrades you said you would do to get the funds.  It has happened that once a homeowner took possession of their home they opted to make different improvements, however the lender is not likely to release the funds for work they did not agree to in the first place.
  6. There is a time restriction.  Most lenders allow only 90 days for the work to be completed.  If some of the work is seasonal you should make sure your lender will allow a relaxation on the restriction.

This product can also be great for people purchasing a brand new home.  This is a easy way to get the funds you need to finish the basement or the fencing.

There is also a similar program for homeowners looking to upgrade their existing home.  In this case, the value of the home is determined via an appraisal as is and as is complete system.   The current mortgage is paid out and the balance of the funds is held in trust with the lawyer until the work is complete.  The same restrictions as the Purchase plus Improvements apply.

The really nice part of this program is that you are able to borrow the funds to complete your renovations at today’s very low rates and your mortgage payment will be only slightly higher.

So there you have it.  A simple way to get the funds you need to turn your house into your dream home. Your mortgage professional can answer the questions you may have about this program.

The Pros and Cons of Buying a Home in the Fall and Winter

General Pam Pikkert 13 Oct

 

                So perhaps circumstances have deemed it your time to purchase a new home.   We have all heard of the brisk spring market but what can you expect when you look to buy in the fall or winter?  Let’s take a look shall we?  I will warn you all that the ‘s’ word is going to be used.  That’s right, we will be talking about snow.

            Always look on the bright side of life, as the song goes, so let’s start with the pros.

  1. Fall is a really pretty time of year.  The upside is that you will be able to look at your potential new backyard before the snow hides any flaws.  You will also get the chance to peek through the trees as the leaves fall to know just what your view will be throughout the winter when those same trees are bare.
  2. The natural light of fall is very comparable to the winter light.  You will be able to see your new home as it will be through the winter, at its least vibrant.  This is a true benefit in my opinion, you are seeing the property in its truest and most naked form.
  3. The fall market is generally slower.  This means less chance of competing offers on the property.  The sellers may be more motivated to negotiate on the details such as the price or possession date.
  4. You will be shopping with certain features in mind.  This time of year reminds us that winter is indeed coming.  Energy efficient furnaces and windows, a garage built for 2, in floor heat and a myriad of other features are at the top of the list when you shop in the fall.  Given how long the winters can be here and how much it costs to heat your home for those long months, this can be a great benefit.
  5. And finally, if you move in before the holiday season you get to enjoy your new home all decked out while snuggled on the couch in your pj’s. 

 

And now the cons.  Remember, you were forewarned that we would be discussing snow.

  1.  The snow can come quickly and when it does it can be very hard to get a true sense of the land once it is covered.  You will not be able to determine how well the yard was maintained or what level of ongoing maintenance will be required for the landscaping.  If you are purchasing a home with pets you may even want to negotiate for the cost of poop clean up for the spring.
  2. Given the snow, you may not be able to determine if the traffic near the home is lighter than usual due to adverse road conditions. 
  3. You will have to view the potential properties much earlier in the day to be able to see the property in the natural light.
  4. The inventory is much lower in December and January given first the preparation for, the enjoyment of and the recovery from the Christmas season.
  5. Lawyers and lenders often close or operate on greatly reduced staff during the holiday season.  Any glitch to the mortgage funding may not be addressed until business as usual resumes in January.
  6. Moving in the winter when it is minus 40 give or take with the wind chill and when the snowdrifts prevent the moving truck from getting closer than a half block make moving during the winter less than ideal to say the least.  Yikes, that’s all I have to say about that.

So there you have it. The pros and cons of buying a home during the fall or winter.  Until next time!!