Since 2008 there have been a flurry of mortgage rule changes in order to taper the continuing rising market. The most recent change last year in 2012 was the elimination of zero-down mortgages. Previously a well-qualified buyer could enter the market with literally just their closing costs. Their mortgage could be financed up to 40-years amortization with absolutely nothing more than land tax and lawyer fees as the required amount. Fast forward today and there still exist three ways around the 5% down payment minimum, and I’ll argue here that each is absolutely crazy.
My motto? If you don’t have at least 5%, you should not be buying a house.
The first crazy way (and I’ll start with the craziest), is to go thru a credit union and go with a 5% cash-back. That 5% cash-back can be used…
Recently I had a repeat client email me about making a move upwards the property ladder, as they are in a small 1 bedroom condo with kids, and things are getting tight. Sure enough school zones are a priority for these buyers as they do not feel they can afford private schooling, therefore after reviewing the EQAO results page and doing some more digging, they identified some areas they’d like to move. Houses in these areas go for upwards of $550,000 to 600,000. They have less than 20% down which means the maximum amortization they can go for is 25 years.
We did the numbers and here is how they look:
Combined income $100,000.
Debt per month: $500
Taxes on new property $3500
Heat per month $75
Total mortgage under today’s rules that they qualify for is $382,000 at the stress-test rate…
Recently I’ve been asked about Assignment purchases with greater frequency, and with the estimated 44,000 units coming “online” or being registered in 2014 I think I’ll see a few more of these questions in the near future. In hopes of educating you the buyer and Realtor, here’s “How To Finance An Assignment”:
First of course, get pre-approved. This is critical before you buy anything, to make sure we’re all good with credit, income, and down payment. That is the financing triangle as I like to call it - you can get financed without one of the three but it’s always good to have all three taken care of and disclosed.
The issue with assignments it that the great majority of lenders only finance the assignment based on the original purchase price. Here’s an example:
Seller, John, paid $290,000 for a 1-bedroom condo in 2009 before the…
Lately I have been in the press talking about everything mortgages.
First we were talking about the state of new construction for condos in Toronto:
Then, the CBC ran with this story and took it to the next level (which was picked up by the Huffington Post and Yahoo!)
And finally today, we were discussing how gifts are a big driving factor when helping first-time buyers buy in this market:
Which lead to an on-air interview with CFRB 1010 NewsTalk radio:
Hope you can check it out!
I like to think I know what I’m doing when I get a potential client. After 10 years in the business and thousands of happy client relationships, I like to think I know how to size up a deal better than most, and provide options. However, when my deal falls into the hands of someone who is either not following the rules of home financing or who thinks that they can decide the fate of a deal based on their feelings of it, and not based on data, then I clearly have very little hope.
Clients of mine are newcomers to Canada, came here in 2011, and just started to establish their credit. There is an amazing newcomer program called, well, would you believe it’s called Newcomer to Canada? You’d be right. Under this program, limited credit is offset by such things as rent payments, insurance payments, car…
I wanted to touch on a very important and relevant topic that is an important requirement when getting mortgage financing approved - that being down payment. Due to Anti-Money Laundering Legislation or AML, lenders require to know where down payment comes from, before committing a deal. Furthermore because you as my client are dealing with me and not directly with the lender, we need to show the funds from the account(s) where the money comes from. Down payment can come from a variety of source: own funds, invoiced from work, RRSP, TFSA, investment savings or gift. For the most part, down payment cannot be borrowed as lenders are increasingly tightening up on this practice, however there are cases where this can fly on exception.
Almost always, lenders require a 3-month history from the accounts where the down payment is coming from, with the exception of when it is a gift.…
A question I often get asked is what exactly is APR or Annual Percentage Rate? It is found in your mortgage documents and can differ from your borrowing rate on the commitment. This causes heart levels to rise and stress to increase, because borrowers feel they are being charged a higher interest rate than what is being offered. Not true. An article in this month’s IMBA magazine sums up what APR is in plain language:
“What you’re doing is taking the total costs paid by the borrower up front, and the interest over the term, and effectively amortizing over the term to come up with an annualized percentage rate.”
I could not have said it better myself!
A topic that isn’t often discussed but may be of interest to you is appraisals. When is one needed? How much do they cost? Why do you need one? Are just some of the questions you may be asking yourself when the topic comes up, and I hope to help you understand the logic here.
When buying a home with less-than 20% down, your financing goes through one of the three insurers (Genworth, CMHC or Canada Guaranty). These insurers “auto-value” your property based on postal codes and property type, and their massive databases of transactions in the area of your choice. 99 times out of 100 the valuation isn’t an issue even in times where you end up paying more than the asking price in a bidding war, because let’s face it: asking price can be manipulated but the market sets the actual market price. The 1 out of 100…
Some more big mortgage news came down the pipe out of nowwhere yesterday morning when it was announced that CMHC would limit each lender’s loan portfolio of CMHC-insured loans to $350,000,000 per month, until it decided how to best proceed moving forward. This is in reaction to the news that almost 80% of the lending limit set up for the year has already been reached, just halfway through 2013. What does it mean? Means we Canadians like to keep borrowing, we are defying the market analysts who have long predicted a market correction and/or “crash” (to sell newspapers), means we are borrowing smartly with a great majority of borrowers locking in at-or-around 3% for 5-year fixed money (cheap, long-term), and means we are continuing to buy and sell and renovate and refinance regardless of what our newspapers tell us and what our Finance Minister tells us to do.
In a recent blog post I outlined new mortgage rules that will be taking into full effect very soon. A response from a reader (Steven Fudge at http://www.urbaneer.com) said to me I should tell people not only about the new rules but how to react and prepare for them. I’d like to offer some pointers especially if you have less than 20% down and will go with a mortgage-insured loan.
With respect to income, keep your documentation in a safe place but make sure you have it. If you can get your income documentation up front it would help your loan greatly, as lenders love seeing everything up-front to be able to make their decision quicker. Lenders will sometimes ask for Notices of Assessment so make sure you complete your taxes on time as well, and have these handy as T4s will not always be suitable replacements.