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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24 Jan

Credit Scores – How do you score?

Mortgage Tips

Posted by: Jenni MacDonald

All the recent mortgage changes translates into needing a strong credit score more than ever.  Most Lenders rely on the “Equifax” score.  Equifax calculates a daily “risk” score out of a maximum score of 900.  Using Creditkarma.ca, will access a TransUnion score which is not used by many lenders but is a good way to monitor activity.  Establishing a score of 700 or higher is considered an excellent score and opens the doors to the better interest rates and bank approvals.

PAYMENT HISTORY

This factor determines about a 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 of your accounts on pre-authorized payments for the minimum amount will ensure that you will never have a late payment.

The MOST important advice I can give 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!!!

AMOUNT OF CREDIT USED

Amount of usage is another large factor in determining your credit score.  The more of the limit 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: DO NOT use the increase !!

OTHER FACTORS

Your Beacon score is also calculated by AGE OF YOUR ACCOUNTS, TYPE OF CREDIT you have and  NUMBER OF ENQUIRIES on your bureau in the last 12 months.  Lenders 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.  A combination of credit cards, loans and lines of credit are desirable.  If you make numerous calls looking for credit from different companies you will lower your score and is a red flag to lenders.  Keep in mind, if you close an account, your score could drop by almost 100 points!!

To have a closer look at your credit situation, make an appointment or apply online at jmacdonald.ca .  Start the year off strong!

8 Nov

Should You Take A Holiday From Your Mortgage?

Mortgage Tips

Posted by: Jenni MacDonald

Should You Take A Holiday From Your Mortgage?

Many lenders offer the option of a “Mortgage Payment Holiday”.

A mortgage payment holiday means that you can skip a mortgage payment for one or more months.  We all know that the Christmas Season can be expensive.  This seems like a great idea but I encourage you to avoid this feature if you can.

Why Is A Mortgage Payment Holiday a Bad Idea?

The issue is the accumulated interest.  Interest that you didn’t pay during your “vacation” has been added back into the principal of your mortgage.  It is called interest capitalization.  This means your mortgage itself has actually increased.  When your “vacation” is over, your regular mortgage payments could be even higher than before.  The Bank may extend your amortization to cover the higher amount.  This makes it take longer to pay off your mortgage.  You may pay thousands more for your mortgage in the long run.

When Might It Be OK To Use the Mortgage Payment Holiday Option?

If you are at a point where you aren’t sure you will be able to make your current payments and you are at risk of falling into arrears, speak to your lender or Mortgage Broker immediately.  You may be eligible to refinance your mortgage to make lower monthly payments.  Think of this “vacation” as an emergency strategy instead of a holiday may help put this option into perspective.  Keep in mind that Banks are under scrutiny by the Financial Licensing bodies of the country.  They will try to help you with emergency options.  Having a confidential conversation with your banker may help you save your home.  If you decide to use this strategy,  remember that you are still responsible to keep paying the property taxes and mortgage insurance premiums.

 

 

 

 

 

 

 

17 Mar

Getting Ready for a Mortgage – Rate Hold vs Pre-approval

Mortgage Tips

Posted by: Jenni MacDonald

Are you getting ready to purchase your first home?  Or are you considering a refinance of a property you already own?  There are some basic steps that every borrower can follow to prepare for finding the perfect mortgage.  Over the next few weeks, we will look at Pre-approvals, Down Payments, and Credit Scores.

Rate Hold vs Pre-approval

You have probably heard the term “pre-approval”. Buyers will often be asked by Real Estate Agents whether they are pre-approved before they start to show properties.  This term is deceiving.  In most cases, a home buyer actually has a “rate hold” instead of a “pre-approval”. A rate hold will simply keep the lowest rate for any deal happening in the next 4 months.

Documents

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 documentation.  This includes proof of income, personal taxes, down payment and current mortgage information (in the case of a refinance or renewal).

Even with a pre-approval of your documentation, a lender will have to approve the property.  We will use an offer, MLS Listing, and in some circumstances an appraisal when the time comes.

Early Analysis

It is wise to see a Mortgage Broker at least 6 months before the closing date.  If there are any issues that need to be tidied up, 6 months will allow the time we need 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.

In addition, a good Mortgage Broker will make sure you understand the monthly mortgage payment amounts.  Costs to consider are 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!!

If you have any questions about applying for a new mortgage, feel free to call or text Jenni at 613-551-0639