22 Feb

Help for First Time Home Buyers

General

Posted by: Jenni MacDonald

The Cornwall and Area real estate market has been hot for over 10 months now and by the looks of the current trend, it will just get hotter for the spring market.  Prices are increasing at an unprecedented rate.  If you are getting ready to purchase your first home, there are some basic steps that every borrower can follow in order to prepare for finding the perfect mortgage.  We will look at Pre-approvals, Income, Down Payments, and Credit Scores.

PRE-APPROVALS

You have probably heard the term “pre-approval”. Real Estate agents will often ask home buyers if they are pre-approved.  This term is deceiving.  In most cases, a home buyer actually has a “rate hold” instead of a “pre-approval”.  The only way to be sure if you have a pre-approval is if your Mortgage Broker has collected, examined, and verified all of the required income and down payment documentation.

In our current market, many properties are receiving multiple offers significantly higher than the listing price.  You may hear your real estate agent refer to “cash” offers.  This refers to an offer or Agreement of Purchase and Sale (APS) that has been submitted on a property that has no conditions.  Even with a pre-approval, a lender will still have to approve the property that you choose so a “Condition of Financing” will be necessary on your offer.  Putting in an offer with no conditions is very risky if you are counting on being approved for a mortgage.  There are ways to make it possible but you must make sure you have the options in writing from your Mortgage Broker before you take this drastic step.

It is wise to see a Mortgage Broker at least 6 months before the date that you would like your mortgage to close (the day you get your keys).  Usually, if there are any issues that need to be tidied up, 6 months will allow the time needed to collect the correct documentation and make a mortgage application stronger.  Once all of your documentation is verified, a Mortgage Broker can advise you on the appropriate purchase price that you would realistically qualify for.

A good Mortgage Broker will make sure you understand the monthly mortgage payment amounts.  You will be made aware of other monthly costs, such as Property Taxes, Water taxes, Insurance, and Utilities, to get a more accurate picture of the true cost of owning a home.  It’s better to be prepared than surprised when it comes to owning a home!!

DOWN PAYMENTS AND CLOSING COSTS

The amount of down payment required depends on the specific deal.  Generally, if you are purchasing an owner-occupied single-family home or a duplex that you are going to live in, you can apply for a mortgage of up to 95% of the purchase price (5% down payment).  Triplex and fourplex properties (in which you will live), require at least 10% of the purchase price for the down payment.  If you are purchasing any property that will be solely used as a rental income property, then you will require a minimum of 20% down payment and, in some cases, 25% down payment.  A property with more than four units is typically considered a Commercial property.  If you have questions about Commercial properties, please feel free to contact me directly.

Keep in mind that when you purchase a property, in addition to proving you have a down payment, you will also need to show the lender that you have enough to pay for the closing costs as well.  Typically, closing costs will be around 1.5% of the purchase price but often they can add up to even more.  A quick phone call to a lawyer is always a good idea to find out what your closing costs may total.

Down payments can come from your own resources, gifts, existing equity, vendor takebacks (VTBs), and/or the First Time Home Buyer Incentive from the government.

OWN RESOURCES

You can use your Savings accounts, Chequing accounts, RRSPs, Tax-Free Savings Accounts (TFSAs), Stocks, Bonds, and other Investments that are saved in your name.  You may notice that I do not mention “cash” as an option…. Lenders require 3 months Statements showing the name of the borrower, the transactions, and the current balance to prove the down payment and closing costs are available.  If there are any large deposits (over $1,000 individually or within a week) that are not from a paystub or government, the lenders will ask for a paper trail of where the deposit came from.  Some real estate agents will accept cash for the deposits but the amount is limited and the lender may ask for where the cash deposit came from so it is best if you can avoid using actual cash for your down payment.

As a first-time homebuyer, the government allows you to use a large number of your RRSPs without penalty for your down payment.  You have 15 years to pay them back or claim 1/15 as income each year on your personal taxes.  RRSPs must have been invested for at least 90 days before they can be used to purchase a home.

GIFTS

You are also allowed to have all or some of your down payment gifted to you.  The gift must be from a direct relative (grandparent, parent, sibling, child).  A gift letter is signed by both parties at the time a mortgage is being applied for.  Each lender has its own version of a gift letter.  A bank statement showing the exact matching amount of funds deposited into the purchaser’s account is required at least 15 days before the closing date. If the funds are not deposited into your account at least 15 days before the closing date, then the lender will ask for 3 months of bank statements from your family member’s account to prove that the funds are there.  I recommend having your gift deposited into your account as soon as possible so that you know it is there and available to you.

A family gift is not just monetary.  If you are purchasing a property that currently belongs to your family member, they may choose to gift you the equity in the property rather than money.  In this case, your down payment is in the form of a “gift” in value that is specified on your Agreement of Purchase and Sale.  In these cases, an appraisal determines the actual value of the property so that the amount of the gift is accurate.

VENDOR TAKE-BACK (VTB)

On very rare occasions, lenders will allow the party selling the property to give a second mortgage to the party buying a property to help with increasing the down payment amount.  This second mortgage is called a Vendor Take Back. It is a very complicated option and is difficult to have approved by any major lender.  You would definitely want to have a Mortgage Broker involved at all stages of this option.

FIRST TIME HOME BUYER INCENTIVE

If you can provide your 5% down payment and you qualify for the Incentive, then the Government of Canada provides 5% down payment for a first-time buyer’s purchase of an existing home.  Rules are different for newly constructed homes.  The Incentive is registered by your lawyer as a lien on your property but there are no monthly payments.

1. You can repay the Incentive at any time in full without a pre-payment penalty.

2. You have to repay the Incentive after 25 years or if the property is sold, whichever happens first.

3. The repayment amount of the Incentive is based on the property’s fair market value.  If your Incentive amount was 5% of your purchase price, then you would have to pay the government 5% of the current market value of your property at the time you sell and/or pay it back.

NOTE: If your property value goes down, you still only repay 5% of the current market value at that time of repayment.  The government will share the loss!  

In order to be eligible for the Incentive, you must be a first-time homebuyer.  

That means you either:

  • • Have never owned real estate or
  • • Have not owned a home in at least the last 4 years or
  • • Are recently divorced/separated
  • • You need to have the minimum down payment
  • • 5% for a single-family home or owner-occupied duplex
  • • 10% for an owner-occupied triplex or fourplex
  • • Your maximum qualifying income (combined for all applicants) can be no more than $120,000 (gross income)
  • • Your total mortgage amount can only be up to 4 times the qualifying income (maximum mortgage amount $480,000)
  • • Investment properties are not eligible
  • • The total of your down payment and the Incentive add up to less than 20% of the purchase price (it has to be a qualified, insured CMHC, Genworth, or Canada Guaranty mortgage)

INCOME

Lenders can vary on the documents that they require for proof of your income but there are general documents that are always required by all lenders. I have attached a general list of documents below.

If you have an employer, you will need to provide a paystub and a job letter.  Most lenders will also call your workplace to confirm the details of your job letter.  

Your Mortgage Broker will confirm that the number of hours stated on your paystub match the number of hours listed on the job letter.  Your “year-to-date” total on your paystub will also be cross-checked with your guaranteed hours on the paystub and job letter to ensure they match.  Lenders will use your gross income to qualify for the mortgage. Sometimes, the lender will ask for your most recent Notice of Assessment to ensure that you don’t owe any personal taxes to CRA. 

If you are part-time or are full time but receive overtime or bonuses – the lender will ask for 2 years of T4s and use an average of those incomes.  If you have not been at your employment for a full 2 years yet, then the lenders will only use the guaranteed hours stated on your job letter.

If you as self-employed, the lender will ask for your most recent 2 years of full T1 Generals and Notice of Assessments from your personal taxes.  Lenders will only consider the income that you claim and pay taxes on.  If your business is primarily cash and you do not deposit or claim that income, you will need at least a 20% down payment to have any realistic mortgage options.   

CREDIT SCORES (See Cheat Sheet for tips on your credit score)

YOUR CREDIT SCORE IS YOUR POWER WHEN APPLYING FOR A MORTGAGE

With all the recent mortgage changes, your credit score is more important than ever.  Most Lenders rely on the “Equifax” score.  Equifax calculates a credit “risk” score out of a maximum score of 900.  A score of 700 or higher is considered an excellent score and opens the doors to better interest rates and bank approvals.  If you have used Creditkarma.ca or the free credit score report from your bank to find out your score, you are accessing a TransUnion client score based on 6 months of history.  While that version of your credit score is not currently used by lenders; it will give you an idea of the status of the accounts showing on your credit bureau are accurate.

Let’s look at the factors that determine your credit score.

1. PAYMENT HISTORY determines about one-third of your score.  Even a one-day late payment can negatively influence your score and shows on your bureau for 6 years.  It’s more important to pay the minimum payment on time than to pay a larger amount late.  Setting up all your accounts on pre-authorized payments for the minimum amount will ensure that you will never have a late payment.

The MOST important credit advice is to avoid having anything sent to COLLECTIONS.  No lender will provide a mortgage to someone with an unpaid collection.  Each one decreases your score by about 80 points.  If you are having a dispute with your cell phone or internet provider, pay the bill and then argue about it later!!!

2. AMOUNT OF CREDIT USED is another large factor in determining your credit score.  The more of the credit you have used, the lower your score will be.  Keeping your balance under 30% of the total available amount will help your score increase.  If you are in a hurry to improve your score, consider calling your credit companies for a limit increase.  The secret to this trick is to NOT use the increase once it is applied!!

3. AGE OF YOUR ACCOUNTS is more important than you may be aware.  Lenders will want to see at least 2 different kinds of credit established for at least 2 years for a total limit of at least $2,500.  If you are considering closing any of your current credit, make sure you never close your oldest credit card.  Be aware that if you close an account, your score could drop by almost 100 points!!

4. TYPE OF CREDIT you have affects your score.  A combination of credit cards, loans, and lines of credit are desirable.  Since Lines of Credit are the most difficult types of credit to acquire and usually offer the lowest interest rate, you may want to make sure you always keep one open for future emergencies.

5.  NUMBER OF ENQUIRIES on your credit in the last 36 months will affect your score.  Numerous calls looking for credit from different companies are a red flag for lenders and will lower your score.

Do you want to see if you would qualify for a mortgage?  Just complete the online application at www.jmacdonald.ca.  Once your application is received, we will send you a list of documents and questions to complete the preapproval process.  After that, we can let you know your best mortgage options.

Feel free to text, email or call anytime.

Thanks, Jenni MacDonald   613-551-0639

jmacdonald@dominionlending.ca

20 Dec

Refinancing Your Home

General

Posted by: Jenni MacDonald

The holidays are a very joyful time of year. However, it can also become an expensive time of year.  If you’re looking for extra funds to get you back on track, or to even help financially during these challenging COVID times.  Maybe a home refinance is right for you. 

HOW MUCH CAN I GET?

Whether it’s for some new furniture, some house upgrades or to cover some monthly costs, the mortgage rules allow a maximum amount of up to 80% of the appraised value of your home to be available for a refinance.  If you qualify, the rates will not be the advertised rates that you see from major lenders.  Typically, the rate for a refinance mortgage is about 0.3 – 0.4% higher than the advertised rates on a 5-year fixed term.  You also have the option of getting an extended amortization of 30 years to help offset the higher monthly payments.  The longer amortization may also help with having to qualify the payments at 2% over the interest rate you will pay (stress test).  However, if you have been laid off due to COVID-19, some lenders may not accept your income at this time.  We do have a list of lenders that are still accepting income from clients that are on temporary COVID lay-offs.  

WHAT IS THE COST?

If you are refinancing your first mortgage and it is not time to renew yet, there will probably be a penalty.  The amount of the penalty will vary so your best option is to call your current lender and ask what the penalty would be to payout the current mortgage.  The other possible costs with refinancing a first mortgage is an appraisal (Cost around $350) and legal fees to discharge the current mortgage and register the new mortgage (Cost around $1,500).  

WHAT IF THE PENALTY IS TOO HIGH?

In rare cases, you may need to consider looking at a private mortgage in a new first mortgage position or getting a private second mortgage.  Private mortgages in first position are usually at higher rates (around 10%  plus fees).  Private mortgages in second position are even higher at 12% – 15% interest plus fees. 

WHAT IF I AM A SENIOR AND DON’T HAVE ENOUGH INCOME TO QUALIFY?

If you are over 55 years of age and have limited income and owe less than 50% of the value of your home, you may want to consider a CHIP Reverse Mortgage.  This option has become the best choice for some clients that have lost their part-time jobs.  Please contact me for details regarding your specific situation to make sure it is the best option for you.

While I don’t always recommend a refinance; in specific cases, it may be your best financial option to get through a crisis.  Getting good advice from a Mortgage Broker is the best first step to make when you are considering the refinance option.  

If you are interested in finding out more, I’d be happy to look at your mortgage options with you.

10 Nov

How to get the best Credit Score EVER!

General

Posted by: Jenni MacDonald

The Equifax Credit Score uses a numerical range of 280 to 900, where higher scores indicate lower credit risk.  Banks will want clients to be at a score of 700 or higher!!  While no one knows the exact formula (except the inventor, Fair Isaac Corporation), Beacon scores are roughly based on:

Here are a few tricks to help you improve your credit quickly:

  1. Keep your balances at less than half the available credit or less (30% or less is perfect)
  2. Call to have your limit increased (and then don’t use the new amounts available!!)
  3. Set up your payments on pre-authorized payment (either full amount or minimum payment) so you will NEVER have a late payment
  4. Get a copy of your credit report at least once a year and make sure they are accurate (Creditkarma.ca is free and has an app)
  5. Pay down your credit cards before you pay off loans
  6. Make sure you have at least one revolving credit and one loan
  7. Make extra credit card payments just before the “Statement Date”
  8. Use your oldest credit cards consistently
  9. Pay your phone, cable and utility bills on time. You can argue later!

 

If you are wondering about your score and what you can do to improve it, please feel free to call, email or text me anytime.  I can show you your bureau and where we can make some improvements – at no charge!!!

For more information on Credit Scores visit https://jmacdonald.ca/mortgage-tips/credit-scores-score/

19 Oct

Should I Declare Bankruptcy or File for a Consumer Proposal?

General

Posted by: Jenni MacDonald

Many people go through challenges in life that affect their finances.  Whether it’s divorce, job loss, health issues, or a worldwide pandemic, it can be difficult to get your finances sorted out and back on track.  Too often, people wait YEARS to confront their debts and are then overwhelmed and not sure where to go for help.  If a mortgage broker can’t help a homeowner relieve the financial stress, then a consumer proposal or bankruptcy might be required.  

If you currently own a home, you may have a refinance option available to help you use the equity in your home to pay off some of the debts that are dragging you down each month.  If the equity in your home is not enough to cover the debts you need to pay, then a Mortgage Broker can work with a Bankruptcy or Consumer Proposal Trustee to put together a plan that will get you back on your feet faster than if you went out on your own.

Keep in mind that Mortgage Lenders/Banks view Bankruptcies, Consumer Proposals, and Debt Programs all the same…bad credit management.  There is a trend within the Banking world where lenders are starting to review clients’ credit situations when their current mortgages are up for renewal.  In the past, clients could just choose a term option and sign a piece of paper and their mortgage was renewed.  In the future, if a client has had a Bankruptcy or Consumer proposal during the term of the mortgage, lenders may not approve the renewal.  

If a Debt Management Plan is absolutely necessary, then it is important that you know how to improve your credit score after a debt program is entered into.  By getting your credit score back on track quickly, you can have a better chance at qualifying for some other mortgage options whether it is for a purchase or refinance, or renewal in the future.  

What are some steps you can do so that your credit score gets repaired quickly?

  1. I would recommend that the moment you FILE that consumer proposal or bankruptcy you need to take steps to start rebuilding your credit.  I know it will be difficult but even a pre-paid credit card that reports to the credit bureau will help you establish new credit.  Ultimately, lenders will need to see 2 different credit trades for at least 2 years with a limit of over $2500.
  2. Secondly, pay off the consumer proposal or bankruptcy amounts as quickly as possible.  While most banks want 2 years of re-established credit, there are mortgage lenders that will consider approving mortgages for clients that are even one day discharged from a debt repayment program.  If you already have a home, a Mortgage Broker may have some options to help you pay off your Consumer Proposal faster and get you building your credit score sooner.  
  3. Third, once your program has been paid and discharged, your credit bureau will not be automatically corrected.  It will take 6 years after your discharge for the debts to “fall off” your credit bureau without being proactive.  If you contact Equifax and Trans Union directly, you can have your credit bureau updated within 30 days of discharge.  You can fax them a letter, 2 pieces of front and back of your ID and the full Statement of Affairs and Discharge Certificate to have your credit bureau correctly updated.  Your trustee will not do this step for you!  A Mortgage Broker may help you with this step as well. 

If you are looking to purchase your first home or move, please don’t hesitate to contact me today for a better understanding of the rules and what you qualify for.

For more information on Credit Scores visit https://jmacdonald.ca/mortgage-tips/credit-scores-score/

17 Jun

Changes to the Stress Test and What You Need to Know

General

Posted by: Jenni MacDonald

As you may have heard, the Bank of Canada recently changed the stress test rules as of June 1, 2021. With these changes, now both insured and uninsured mortgage borrowers will be subject to a stricter stress test when qualifying for their mortgage.

The new qualifying rate on uninsured mortgages – where the down payment is 20% or more – is now the contracted rate plus two percentage points or 5.25%, whichever is higher.

This means that any buyer whose down payment on a home is one-fifth of the purchase price or higher must show they can afford the mortgage payments if the interest rate was two percentage points higher than what the bank is offering, or the new five-year benchmark rate per the Bank of Canada.

Overall, the implementation of these tougher stress test rules will reduce buying power by roughly 4-5% for borrowers. To help illustrate how this change affects you, consider the following scenario with $100,000 gross income:

The previous stress test at 4.79% would give this individual the ability to borrow $469,530 (based on good credit score with max GDS/TDS qualifications at 39/44%). Now, with the current scenario of 5.25% stress test rate, they can now only borrow $448,880 (based on good credit score with max GDS/TDS at 39/44%). This is a difference of $20,650 which reduces your home options.

To ensure you are searching in the right price range and budgeting accordingly, it is important to consider this stress test change.

If you are looking to purchase your first home or move, please don’t hesitate to contact me today for a better understanding of the rules and what you qualify for.

For more information on Credit Scores visit https://jmacdonald.ca/mortgage-tips/credit-scores-score/


19 Apr

Credit Score & Mortgage Approval

General

Posted by: Jenni MacDonald

YOUR CREDIT SCORE IS YOUR POWER WHEN APPLYING FOR A MORTGAGE

With all the recent mortgage changes, your credit score is more important than ever.  Most Lenders rely on the “Equifax” score.  Equifax calculates a credit “risk” score out of a maximum score of 900.  A score of 700 or higher is considered an excellent score and opens the doors to better interest rates and bank approvals.  If you have used Creditkarma.ca to find out your score, you are accessing a TransUnion score based on 6 months of history which is not currently used by many lenders but it will give you an idea of the status of the accounts showing on your credit bureau are accurate.

Let’s look at the factors that determine your credit score.

1. PAYMENT HISTORY determines about one-third of your score.  Even a one-day late payment can negatively influence your score and shows on your bureau for 6 years.  It’s more important to pay the minimum payment on time than to pay a larger amount late.  Setting up all your accounts on pre-authorized payments for the minimum amount will ensure that you will never have a late payment.

The MOST important credit advice is to avoid having anything sent to COLLECTIONS.  No lender will provide a mortgage to someone with an unpaid collection.  Each one decreases your score by about 80 points.  If you are having a dispute with your cell phone or internet provider, pay the bill and then argue about it later!!!

2. AMOUNT OF CREDIT USED is another large factor in determining your credit score.  The more of the credit you have used, the lower your score will be.  Keeping your balance under 30% of the total available amount will help your score increase.  If you are in a hurry to improve your score, consider calling your credit companies for a limit increase.  The secret to this trick is to NOT use the increase once it is applied!!

3. AGE OF YOUR ACCOUNTS is more important than you may be aware.  Lenders will want to see at least 2 different kinds of credit established for at least 2 years for a total limit of at least $2,500.  If you are considering closing any of your current credit, make sure you never close your oldest credit card.  Be aware that if you close an account, your score could drop by almost 100 points!!

4. TYPE OF CREDIT you have affects your score.  A combination of credit cards, loans, and lines of credit are desirable.  Since Lines of Credit are the most difficult types of credit to acquire and usually offer the lowest interest rate, you may want to make sure you always keep one open for future emergencies.    

5.  NUMBER OF ENQUIRIES on your credit in the last 36 months will affect your score.  Numerous calls looking for credit from different companies are a red flag for lenders and will lower your score.

 

For more information on Credit Scores visit https://jmacdonald.ca/mortgage-tips/credit-scores-score/

If you are interested in finding out more, I’d be happy to look at your mortgage options with you.

10 Mar

GETTING READY FOR THE 2021 SPRING MARKET!

General

Posted by: Jenni MacDonald

The Cornwall and Area real estate market has been hot for over 10 months now and by the looks of the current trend, it will just get hotter for the spring market.  Prices are increasing at an unprecedented rate.  Whether you are getting ready to purchase your first home or considering selling your current house to purchase a new one, there are some basic steps that every borrower can follow in order to prepare for finding the perfect mortgage.  We will look at Pre-approvals, Down Payments, and Credit Scores.  

PRE-APPROVALS

You have probably heard the term “pre-approval”. Real Estate agents will often ask home buyers if they are pre-approved.  This term is deceiving.  In most cases, a home buyer actually has a “rate hold” instead of a “pre-approval”.  The only way to be sure if you have a pre-approval is if your Mortgage Broker has collected, examined, and verified all of the required income and down payment documentation (and current mortgage information in the case of a sale and purchase).  

In our current market, many properties are receiving multiple offers significantly higher than the listing price.  You may hear your real estate agent refer to “cash” offers.  This refers to an offer or Agreement of Purchase and Sale (APS) that has been submitted on a property that has no conditions.  Even with a pre-approval, a lender will still have to approve the property that you choose so a “Condition of Financing” will be necessary on your offer.  In addition, if you have a property to sell in order to have enough money for your down payment, your real estate agent will also include a condition on your offer that states your offer is conditional on the sale of your current property.  Putting in an offer with no conditions is very risky if you are counting on being approved for a mortgage.  There are ways to make it possible but you must make sure you have the options in writing from your Mortgage Broker before you take this drastic step. 

It is wise to see a Mortgage Broker at least 6 months before the date that you would like your mortgage to close.  Usually, if there are any issues that need to be tidied up, 6 months will allow the time needed to collect the correct documentation and make a mortgage application stronger.  Once all of your documentation is verified, a Mortgage Broker can advise you on the appropriate purchase price that you would realistically qualify for.  

A good Mortgage Broker will make sure you understand the monthly mortgage payment amounts.  You will be made aware of other monthly costs, such as Property Taxes, Water taxes, Insurance, and Utilities, to get a more accurate picture of the true cost of owning a home.  It’s better to be prepared than surprised when it comes to owning a home!!    

DOWN PAYMENTS AND CLOSING COSTS

The amount of down payment required depends on the specific deal.  Generally, if you are purchasing a personal home or a duplex that you are going to live in, you can apply for a mortgage of up to 95% of the purchase price (5% down payment).  Triplex and fourplex properties (in which you will live), require at least 10% of the purchase price for the down payment.  If you are purchasing any property that will be solely used as a rental income property, then you will require a minimum of 20% down payment and, in some cases, 25% down payment.  A property with more than four units is typically considered a Commercial property.  If you have questions about Commercial properties, please feel free to contact me directly.  

Keep in mind that when you purchase a property, in addition to proving you have a down payment, you will also need to show the lender that you have enough to pay for the closing costs as well.  Typically, closing costs will be around 1.5% of the purchase price but often they can add up to even more.  A quick phone call to a lawyer is always a good idea to find out what your closing costs may total.  

Down payments can come from your own resources, gifts, existing equity, vendor takebacks (VTBs), and/or the First Time Home Buyer Incentive from the government.  

OWN RESOURCES

You can use your Savings accounts, Chequing accounts, RRSPs, Tax-Free Savings Accounts (TFSAs), Stocks, Bonds, and other Investments that are saved in your name.  You may notice that I do not mention “cash” as an option…. Lenders require 3 months Statements showing the name of the borrower, the transactions, and the current balance to prove the down payment and closing costs are available.  If there are any large deposits (over $1,000 individually or within a week) that are not from a paystub or government, the lenders will ask for a paper trail of where the deposit came from.  Some real estate agents will accept cash for the deposits but the amount is limited and the lender may ask for where the cash deposit came from so it is best if you can avoid using actual cash for your down payment.  

As a first-time homebuyer, the government allows you to use a large number of your RRSPs without penalty for your down payment.  You have 15 years to pay them back or claim 1/15 as income each year on your personal taxes.  RRSPs must have been invested for at least 90 days before they can be used to purchase a home.

GIFTS

You are also allowed to have all or some of your down payment gifted to you.  The gift must be from a direct relative (grandparent, parent, sibling, child).  A gift letter is signed by both parties at the time a mortgage is being applied for.  Each lender has its own version of a gift letter.  A bank statement showing the exact matching amount of funds deposited into the purchaser’s account is required at least 15 days before the closing date. If the funds are not deposited into your account at least 15 days before the closing date, then the lender will ask for 3 months of bank statements from your family member’s account to prove that the funds are there.  I recommend having your gift deposited into your account as soon as possible so that you know it is there and available to you.  

A family gift is not just monetary.  If you are purchasing a property that currently belongs to your family member, they may choose to gift you the equity in the property rather than money.  In this case, your down payment is in the form of a “gift” in value that is specified on your Agreement of Purchase and Sale.  In these cases, an appraisal determines the actual value of the property so that the amount of the gift is accurate.  

EXISTING EQUITY

During a divorce, a “spousal buyout” allows a spouse, who wants to keep a matrimonial home, get a mortgage for up to 95% of the value of the property in order to pay out an amount owing to the other spouse.  The 5% down payment comes from the equity that is already in the house.  A fully executed separation agreement, an appraisal, and an Agreement of Purchase and Sale that specifies how much equity is remaining with the spouse keeping the house are required for this process.  Including a Mortgage early in the Separation process can help ease you through this horrible experience.  

VENDOR TAKE BACK (VTB)

On very rare occasions, lenders will allow the party selling the property to give a second mortgage to the party buying a property to help with increasing the down payment amount.  This second mortgage is called a Vendor Take Back. It is a very complicated option and is difficult to have approved by any major lender.  You would definitely want to have a Mortgage Broker involved at all stages of this option.

FIRST TIME HOME BUYER INCENTIVE

If you can provide your 5% down payment and you qualify for the Incentive, then the Government of Canada provides 5% down payment for a first-time buyer’s purchase of an existing home.  Rules are different for newly constructed homes.  The Incentive is registered by your lawyer as a lien on your property but there are no monthly payments.  

1. You can repay the Incentive at any time in full without a pre-payment penalty. 

2. You have to repay the Incentive after 25 years or if the property is sold, whichever happens first. 

3. The repayment amount of the Incentive is based on the property’s fair market value.  If your Incentive amount was 5% of your purchase price, then you would have to pay the government 5% of the current market value of your property at the time you sell and/or pay it back.  

NOTE: If your property value goes down, you still only repay 5% of the current market value at that time of repayment.  The government will share the loss!  

In order to be eligible for the Incentive, you must be a first-time homebuyer. 

That means you either:

  • Have never owned real estate or
  • Have not owned a home in at least the last 4 years or
  • Are recently divorced/separated
  • You need to have the minimum down payment 
  • 5% for a single-family home or owner-occupied duplex
  • 10% for an owner-occupied triplex or fourplex
  • Your maximum qualifying income (combined for all applicants) can be no more than $120,000 (gross income)
  • Your total mortgage amount can only be up to 4 times the qualifying income (maximum mortgage amount $480,000)
  • Investment properties are not eligible
  • The total of your down payment and the Incentive add up to less than 20% of the purchase price (it has to be a qualified, insured CMHC, Genworth, or Canada Guaranty mortgage)

YOUR CREDIT SCORE IS YOUR POWER WHEN APPLYING FOR A MORTGAGE

With all the recent mortgage changes, your credit score is more important than ever.  Most Lenders rely on the “Equifax” score.  Equifax calculates a credit “risk” score out of a maximum score of 900.  A score of 700 or higher is considered an excellent score and opens the doors to better interest rates and bank approvals.  If you have used Creditkarma.ca to find out your score, you are accessing a TransUnion score based on 6 months of history which is not currently used by many lenders but it will give you an idea of the status of the accounts showing on your credit bureau are accurate.  

Let’s look at the factors that determine your credit score.

1. PAYMENT HISTORY determines about one-third of your score.  Even a one-day late payment can negatively influence your score and shows on your bureau for 6 years.  It’s more important to pay the minimum payment on time than to pay a larger amount late.  Setting up all your accounts on pre-authorized payments for the minimum amount will ensure that you will never have a late payment.

The MOST important credit advice is to avoid having anything sent to COLLECTIONS.  No lender will provide a mortgage to someone with an unpaid collection.  Each one decreases your score by about 80 points.  If you are having a dispute with your cell phone or internet provider, pay the bill and then argue about it later!!!

2. AMOUNT OF CREDIT USED is another large factor in determining your credit score.  The more of the credit you have used, the lower your score will be.  Keeping your balance under 30% of the total available amount will help your score increase.  If you are in a hurry to improve your score, consider calling your credit companies for a limit increase.  The secret to this trick is to NOT use the increase once it is applied!!

3. AGE OF YOUR ACCOUNTS is more important than you may be aware.  Lenders will want to see at least 2 different kinds of credit established for at least 2 years for a total limit of at least $2,500.  If you are considering closing any of your current credit, make sure you never close your oldest credit card.  Be aware that if you close an account, your score could drop by almost 100 points!!

4. TYPE OF CREDIT you have affects your score.  A combination of credit cards, loans, and lines of credit are desirable.  Since Lines of Credit are the most difficult types of credit to acquire and usually offer the lowest interest rate, you may want to make sure you always keep one open for future emergencies.    

5.  NUMBER OF ENQUIRIES on your credit in the last 36 months will affect your score.  Numerous calls looking for credit from different companies are a red flag for lenders and will lower your score. 

 

 

If you are interested in finding out more, I’d be happy to look at your mortgage options with you.

10 Nov

Do You Need A Down Payment ?

General

Posted by: Jenni MacDonald

If you are purchasing a personal home or a duplex that you are going to live in, you will need a down payment of at least 5% of the purchase price.  Triplex and fourplex properties (in which you will live), requires at least 10% of the purchase price for the down payment.  A property with more than four units is typically considered a Commercial property.  If you have questions about Commercial properties, please feel free to contact me directly.

When purchasing a property, lenders require 3 months of Bank Statements showing the name of the borrower, the transactions, and the balance. These statements can come from a bank account, a Tax-Free Savings Account (TFSA) an investment account, and/or a Registered Retirement Savings Plan (RRSP).

You are also allowed to have all or some of your down payment gifted to you.  The gift must be from a direct relative (grandparent, parent, sibling, child).  A gift letter is signed by both parties at the time a mortgage is being applied for.  A bank statement showing the funds deposited into the purchaser’s account is required at least 15 days before the closing date.

But What If You Do NOT Have a Down Payment from Any of these Sources?

If you are a first-time home-buyer, it might be a good idea to get an RRSP loan if you want to purchase a house in 2021.  A financial planner at a bank or an investment company can help you apply for an RRSP loan.

The benefit of applying now is that you can claim the RRSP contribution that you “buy” with your loan on your 2020 tax return to get a tax credit when you file your 2020 taxes.  This could result in getting a refund on your taxes rather than owing to them.  Your RRSPs will have to be invested for at least 90 days in order to use them for your down payment in 2021.  Most lenders will allow you to take out the RRSP for down payment purposes and continue to pay the RRSP loan payments each month.  Voila!  You have funds for a down payment!

As a first-time home-buyer, the government allows you to use a large amount (up to $35,000 per person – $70,000 for a couple) of your RRSPs, without penalty, for your down payment and closing costs. This plan is called the First Time Home Buyers’ Plan (HBP). You have 15 years to pay them back or claim 1/15 as income each year on your personal taxes.  You must have an accepted offer on a house in order to release the RRSP using this plan.

What is a “first-time home-buyer”?  There is an obvious answer, of course.  But there are other definitions that the government accepts as well.  You are considered a “first time home buyer” if:

  1.  You have never owned a home before or;
  2. You did not occupy a home that you or your current spouse or common-law partner owned for at least the last 4 years or;
  3. You live separate and apart from your spouse or common-law partner for a period of at least 90 days as a result of a breakdown in your marriage or partnership.

 

If you are interested in finding out more, I’d be happy to look at your mortgage options with you.

16 Sep

Is Now A Good Time to Make Changes To Your Mortgage?

General

Posted by: Jenni MacDonald

Refinancing/Switching/Transferring Your Mortgage

With housing prices increasing and mortgage rates dropping to record lows, right now may be the best time to change your mortgage.

 

HOW MUCH CAN I GET WITH A REFINANCE?

Current mortgage rules allow a maximum amount of up to 80% of the appraised value to be available for a refinance.  If you qualify, the rates will not be the advertised rates that you see from major lenders.  Typically, the rate for a refinance mortgage is about 0.3 – 0.4% higher than the advertised rates on a 5-year fixed term.  You also have the option of getting an extended amortization of 30 years to help offset the higher monthly payments.  The longer amortization may also help with having to qualify the payments at 2% over the interest rate you will pay (stress test).  However, if you have been laid off due to COVID-19, or if you are currently deferring your existing mortgage payments, some lenders may not accept your income at this time.  We do have a list of lenders that are still accepting income from clients that are on temporary COVID lay-offs.

WHAT IS A SWITCH/TRANSFER?

If you do not want or need to take any equity out of your home and you are just looking for a better rate with a different lender, then we can look at the option to Switch/Transfer your mortgage.  In this case, we simply transfer your existing mortgage amount to a new lender that is offering a lower rate.

WHAT IS THE COST?

If you are refinancing/switching/transferring your first mortgage and it is not time to renew yet, there will probably be a penalty.  The amount of the penalty will vary so your best option is to call your current lender and ask what the penalty would be to payout the current mortgage.  The other possible costs with refinancing/switching/transferring the first mortgage is an appraisal (Cost around $350) and legal fees to discharge the current mortgage and register the new mortgage (Cost around $1200).  There are many lenders who will cover the costs of a switch/transfer.

EVEN WITH A LARGE PENALTY AND COSTS, YOU MAY SAVE MORE WITH THE LOWER RATE

With rates dropping to the low 2% at this time, if you are currently paying over 3% on your current mortgage, the savings may be more than what the penalty would cost you.  As always, each case is different.

If you would like to find out if you can save more money by refinancing your mortgage now, please contact me at 613-551-0639 or complete an online application at www.jmacdonald.ca. 

I can compare all of your numbers and let you know if now is a good time to pull out some equity for a refinance or get a switch/transfer to a new lender at a lower rate.

Getting good advice from a Mortgage Broker is the best first step to make when you are considering different mortgage options… and our advice is FREE!

If you are interested in finding out more, I’d be happy to look at your mortgage options with you.

23 Jun

CHMC Announces Changes to Underwriting Criteria

General

Posted by: Jenni MacDonald

On June 4, 2020, CMHC announced that they were tightening the underwriting policies for insured mortgages.  This means that if you have less than 20% down payment on the purchase of a new home, the rules will make it harder to qualify and you will qualify for less financing than before July 1, 2020.

The July 1, 2020 changes that CMHC have announced are:

  1. A minimum credit score of 680 will be required instead of the current 600, keep in mind that the credit score you get to see on Credit Karma is a Trans Union score and consumer scores are only based on 6 months of history whereas the score CMHC is referring to is a Bank Equifax score and is based on 6 years of history.  If you have questions on how to build your credit score, please visit my blog called “Credit Scores – How Do you Score?”
  2. Will reduce the total gross debt servicing ratios (cost of owning that house compared to income) to 35% of annual income, compared to the current 39% percent, and total debt servicing (all debts including the new house to income) to 42% versus as much as 44% now. This means currently a household income of $50,000 with no other debts could currently qualify for a purchase price of around $220,500.  With the new CMHC ratios that same household income of $50,000 with no other debts would be limited to a purchase price of about $191,700.  That’s about a $30,000 difference.  If you have other debts such as credit cards, loans, and lines of credit.  Your purchase price would be even lower.
  3. Borrowed down payments will no longer be acceptable. This was a rarely used option that very few lenders or banks ever used mainly because adding the monthly payment for the down payment loan or line of credit caused the ratios to be too high for clients to qualify for the mortgage they desired.  Gifted down payments are still allowed, as are 5% down payments from own resources.

Fortunately, CMHC is not the only insurer that Banks can use for insured mortgages.  There are two other companies, called “Canada Guaranty” and “Genworth” that provide insurance for lenders on insured mortgages.  The good news is that on June 8, 2020 both Genworth and Canada Guaranty have confirmed that they will not be changing their policies as CMHC has announced.  There are many Banks and lenders that will continue to use the other insurers during this time of change in Canada.

If you are wondering about the process to get a preapproval, we can complete a full process via online contact.  If you are looking for a list of documents that would be required for a full preapproval, please see my blog post “Documents”.

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If you are interested in finding out more, I’d be happy to look at your mortgage options with you.

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