Things Mortgage Professionals Wished the Self Employed Knew

General Pam Pikkert 29 May

Things Mortgage Professionals Wished the Self Employed Knew

 

The next installment in the things we wished people knew series is targeted at the self-employed.   This intrepid group of risk takers are entrepreneurial and help keep the economy moving but all too often we meet with these people and have to give news we would rather not give so let’s look at what we wish they knew.

  1. Surround yourself with professionals.  You are the expert in your field without a doubt, but that doesn’t translate to being able to do it all.

Having a knowledgeable book keeper and a well-qualified accountant can save you a fortune in tax deductions and time lost.  They are in your corner come tax time and heaven forbid through an audit by the CRA.  Their job is to know the ins and outs of taxes so that you can put your focus on growing your business.

A lawyer is also invaluable.  They will protect you against loopholes you didn’t know to look for in contracts.

Mortgage professionals are also a must.  They can help you with your home, a rental portfolio if you plan to diversify and commercial lending when you are ready.

  1. You can’t have your cake and eat it too.   The lending landscape in Canada has totally shifted in the past few years.  Long gone are the days of simply stating what you earn without any verification of such and being offered a mortgage with little money down and low rates.    If you choose to write off as much of your income as possible to avoid as much taxes as possible then you will pay a higher interest rate on your mortgage
  2. You have to keep your affairs up to date.  That mean getting the accountant prepared financials, filing your annual returns and most importantly paying your taxes.  If you have a large outstanding tax balance you are going to find it nearly impossible to get a mortgage.  Taxes trump mortgage in order of who gets paid first so there are no prime or near prime lenders out there who will lend to you until these are paid.
  3. The magical number in the mortgage world is 2.  You have to have a 2-year history of self-employment with accompanying documentation to be able to proceed with the mainstream lenders in most cases.  You also need 2 types of credit each with at least a $2000 limit to keep your credit strong.   Be aware of how debt may affect your purchasing ability.  A large credit balance and a high vehicle payment will dramatically affect your ability to purchase a home.  That $13,000 line of credit or a $400 vehicle payment will each decrease your purchasing power by $100,000.

 

The bottom line is this, make sure that you use your whole team.  If you are wanting to buy a home within a couple of years then before you go fully self-employed or purchase that new truck or write off all the income you can, talk to your mortgage professional to ensure you are not inadvertently putting your home ownership goals on hold.

 

Mortgage Facts to Know before You Buy This Spring

General Pam Pikkert 22 May

 

Buying a home can be a really exciting time so the last thing we want is for you to be hit by any surprises.  Let’s take a look at 5 thing to keep in mind before you write an offer.

  1. Get your mortgage in place before you write an offer. Meeting or speaking to an actual person who will take your application and pull your credit is the best strategy.  You will get a firm amount of how much of a mortgage you may qualify for.  This is also a great time to make some decisions like if you want a fixed rate or variable rate, if you want a monthly or biweekly payment. You are far removed from stress of meeting any condition of financing dates at this time so you have the luxury of time to ask your questions
  2. Be ready to provide the necessary paperwork. If I was lending someone $300,000 I would want to know that they could pay me back and so would you I’m sure.  You are going to be required to provide a lot of paperwork.   Getting a complete list ahead of time and starting to gather it really makes it less stressful for you once the offer is accepted.
  3. There are extra costs. It is not just a matter of having the down payment.  You will also have to pay for legal fees, title insurance, property tax adjustment if necessary, mortgage default premiums and on and on.   That is why you have to have at least 5% down and an additional 1.5% of the purchase price in your account to cover these costs.  The banks also really like to see that you have a fallback position of extra cash in case you get sick or downsized.
  4. You can get extra funds for improvements to the new home added to your mortgage. Most lenders allow up to $40,000 for upgrades.  These have to be things such as flooring, windows, exterior, kitchen, bathroom or any other manner of upgrade which will stay with the property.  The funds are held at the lawyer’s office until an appraiser verifies the work is complete so you will have to be able to cover any costs in the short term.
  5. Here is how the process goes.
  • You get the mortgage pre-approval
  • Find a home and place an offer with a condition of financing date and likely a home inspection one as well
  • The application is sent off for approval based on both you and the property and you provide all the necessary paperwork
  • The bank says they are 100% happy with you and you say you are 100% happy with the offer of financing and you remove the financing condition. Do not make any changes to your financial picture after you remove the condition. It can be cancelled if you leave your job, take on more debt or rack up the credit cards.
  • You meet with the lawyer to provide the balance of the down payment, cover the other costs
  • Day of possession you are given the keys once it is confirmed that the funds have transferred to the seller
  • Congrats! You own an home

This has been a crash course in buying a home but there are so many resources online or available to you for free over the phone that it shouldn’t be too awful.  Happy House hunting!

 

Things Mortgage Professionals Wished Young Adults Knew

General Pam Pikkert 8 May

 

So we are going to do a series over the next few weeks of things the average mortgage professional wished people knew so that they would not be held back by inadvertent missteps.

This week we will look at young adults just starting out. Let’s outline 5 things you really need to be aware of to set yourselves up for true financial dominance

1.      Credit is not evil, it is necessary.  If you grew up in a home where only the dangers of credit were discussed then you need to hear the flip side as well. Credit itself is not dangerous. The misuse and over extension of it, is. You have to have established credit to do almost anything from buying a home to getting a cell phone, from getting utilities to renting an apartment. Proper management of your credit will save you money as you will have a proven history and will receive the best offers for credit cards and mortgages.

2.      Everybody starts out being given the benefit of the doubt. There are 2 credit agencies in Canada which all lenders of all things report to monthly. You will be graded on your ability to make your payments on time, stay within your limits and as to how much overall credit you have. Everybody is given a strong score at the beginning. It is up to you to keep it.  Even the cell phone providers report to the agencies so make sure you pay that on time too.

3.      The magic number for the rest of your life is 2! You need to have 2 types of credit, reporting for at least 2 years with a minimum limit of $2000. If you pay off a car loan, make sure you still have 2 types of credit. If you decide to stay home with your future family, still make sure you have 2 types of credit reporting in your name.  One of the credit facilities should be a credit card. The way you manage this revolving access to credit is looked at carefully by potential lenders.

4.      The onus is on you.  Nobody is going to call you to remind you that a payment is due. If you move to a new area you are the one responsible to let the companies know where to forward the bill to. If you are offered a $13,000 line of credit and a $54,000 car loan and you accept, you cannot later blame them for ‘letting’ you get yourself into trouble. If you accept a mortgage, it is up to you to ask questions before you sign. A large credit balance and a high vehicle payment will dramatically affect your ability to purchase a home. That $13,000 line of credit or a $400 vehicle payment will each decrease your purchasing power by $100,000.

5.      To keep your score strong:

·        Make your payments on time

·        do not exceed 50% of the available credit limit

·        Be cautious in how many credit inquiries you allow

 

There you have it. The things we wish young people knew so that when they are ready to move into the next phase of their life they will not be abruptly stopped and have to wait and wish someone had told them. There are so many amazing mortgage professionals who are more than happy to answer your questions so ask away before you get stung.