My Problem With The Internet As It Pertains To Real Estate

My problem with the internet as it pertains to real estate is this: It’s making consumers lazy which leads to very poor decision making. How? It makes people believe the process is very easy (it isn’t), that cash-back is a bonus that everyone should get (they shouldn’t) and that a couple of clicks here or there and there we go, you found a house (it doesn’t work that way):

One very prominent and web-fancy-shmancy website which I won’t name claims that the Realtors on that site are “top agents” from the “best brokerages”. How can this be? How can Realtors who pay to be on the site, and pay part of their commission back for a purchase made, be “top” agents? Really? It’s that simple? Well heck, then anyone with a pocketbook can be a “top” agent, no? What I like about this site is the wealth of information it is giving us. What I dislike is it makes naive consumers believe that the agents on there represent their best interests, when in reality, this may not be the case.

Another website just launched focuses solely on schools and their importance when searching for a home. I know countless of buyers who are looking for the best school zones mixed with many other factors such as commute times, value for money, walk-scores, safety, ... and the list goes on. Here’s the rub, though; How can one single Real Estate Team of only three Realtors even come close to scratching the surface of covering all of those above criteria in a mass market this big:

Do you realize that Toronto is 630 km2? Do you think only three Realtors will provide the necessary knowledge to cover each and every single area of a city this big?

So when…


5 Things I Tell You (Response To Moneysense)

I love Moneysense magazine because of how clear and concise the writing is. Their real-life examples strike a chord with me as it’s very easy to learn from other people’s mistakes and triumphs. However I take issue with their recent article 5 Things Your Mortgage Broker Isn’t Telling You and would like to take this opportunity to respond point-by-point:

1. Commission Is My Friend.

Well, duh. This is what I do and it’s how I get paid. However when someone asks me how much I make on a deal or how I get paid, I’m always upfront with them as I will be with you.

The longer the term, the more I make.

The lower the rate, the less I make.

That’s about the size of it. I promote lenders not because one pays me .1% more than the other. For example an average 5-year fixed rate mortgage with no discount will give me approximately .8% commission. So on $350,000 I will make .8% of that, or $2800 LESS fees (I pay for most appraisals, I have desk fees, association fees, file fees etc). This is my gross pay. A .1% difference will mean I’ll earn a paltry $280 more. Is it worth it? NO. Not if the deal doesn’t make sense to the client. Only a fool would take this approach if you ask me (and there are many fools in the mortgage broker community).

2. I Don’t Actually Work With 40 Lenders.

This is true. I don’t even know if in my world (the GTA), there are 40 lenders. Well, if you take into account the private world then yes, there are probably 40,000. But 40 Type-A lenders? Let me rhyme off a list: CMLS, Merix, Street…


Realtors, How To Finance Your Own Deal

Hello and Good Polar Vortex Morning,

Even though things have been made tougher, there are still a few ways to get financed for your own purchase, be it a rental OR owner-occupied. Let’s go down the list:

1. The easiest but most expensive way:

Lenders such as Home Trust and Equitable Bank will finance up to 80% (even 85% in extreme/rare cases) of your purchase. Caveat here is: higher rates, tighter appraisals, and higher fees.

Example I recently financed a Realtor at 75%LTV for a condo downtown, 3 year fixed 4.25% with a $750 fee.

Pros: You get the deal done with minimal hassle regarding income.
Cons: Higher rate, fees, and appraisal issues.

2. The second (and one of my most favorite) way:

Credit Unions are becoming more aggressive in the mortgage space. Why? Because they are not subject to mortgage rules like Banks and Lenders. Why not? Since they fall under provincial and not federal legislation, they can write their own set of rules (within reason, of course).

As such, a credit union I work with finances up to 80% of a purchase (owner or rental) using 2-year T1 “GROSS” average.

Pros: Decent rate, add .25bps to their regular rate. Use gross not net income, you should qualify. Good appraisal selection. Good branch features, good pre-payments.

Cons: Take forEVER to get approved (think 3-5 days). Very slow underwriting. .25 surcharge to rate. Lend at discretion.

Recently I had a case where my Realtor showed excellent income, had an existing mortgage with them, and they pushed it to 35% down - even though he met every single guideline. Why? At their discretion they will push back.

3. The Bank Way

This is very difficult. If you’re 100% commissioned then you (and I) will find it difficult…


Mistakes Buyers Make

In this post I want to put on my real estate observer hat and tell you about common mistakes buyers make. You see, I have a different perspective on this because I meet buyers sometimes before, but usually after they’ve made the single biggest purchase of their lives. I can also talk freely because I’m not the one showing them the properties, nor their Realtor, therefore I’m able to give you my observations of mistakes I have seen buyers make and how to avoid them in 2014 (and beyond)

Let’s start with the biggest mistake: Setting A Price.

I oftentimes ask buyers how much they want to spend and I get a range, followed by “but not over $x”. It could be $400,000 or $600,000, but definitely not over $600,000. What I find interesting about this is that setting a price ceiling has never worked to your advantage. First, if you’re setting a price ceiling you’re not looking at properties over that price, therefore you’re not opening yourself up to the opportunities of overpriced homes. Second, you must remember the art of negotiation. Just because your limit is $600,000 and you see a home for $639,000, doesn’t mean you can’t hit your mark with skilful negotiation. Third, did you know every $10,000 costs about $45 per month? If $600,000 is your limit because of cash-flow reasons, that’s one thing. If it’s your limit because, well, it’s a number you feel is high enough, that’s another. So determine your range and then look for houses over and under, to see what is the best value for your situation.

A second mistake I see is: Forgetting About Potential.

I had a buyer who had a very very very restrictive area they wanted to buy in because of a family situation. Fair enough.…


Got A Student Loan? Want A Mortgage? Read This.

As mortgage lending becomes tighter in Canada, new rules that came into effect are slowly being applied by lenders that will affect your qualifying ratios if you have student loans. Let’s use three examples of the recent changes to highlight how this will affect your borrowing:

If your loan is $50,000 or less, loan repayments will be based on a 7 year term at 5.34%. Using this metric, the payment per month is $713. Compare this to many student lines of credit where payments are interest-only and at 6% your payment is $250 per month.

If your loan is between $50,000 and $120,000, so let’s say $80,000 (right in the middle), that means you can amortize over a 10 year term or $861 per month vs $400 at interest-only.

If your loan is $120,000 or more, they amortize it over 15 years or $920 per month vs $600 per month at interest-only.

I can see both sides of the argument here as to whether this change makes sense. The market bears will say that someone between $50,000 and $120,000 in student loans should focus on paying these off first, and should not be buying a home with that heavy a debt load. My counter argument to this is, the times I have seen debt loads this high were for professionals such as Doctors, Lawyers, or MBA graduates. Rarely have I seen a client have a student loan in excess of $50,000 who did not earn a very healthy salary. If the student loan is agreed upon by a major lending institution like a big bank for a much longer or flexible repayment, isn’t it funny that the same bank would then apply a much more stringent loan repayment schedule to that loan if applying for a mortgage? And they will!…


Three Ways Around The Minimum Down Payment Rule

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 towards the down payment. Why is this so crazy you ask? Well, using “real world” figures of a $300,000 home with 5% cash-back will make your interest rate 4.85% (in-and-around-that). At 4.85% on $300,000 purchase with 5% down (which is the cash-back, so really zero down), your mortgage payment per month is only $350 more per month than what it would be if you had saved the 5% yourself (2.55% variable vs 4.85% fixed). So, take $350 times 60 is $21,000 paid back in excess for the right to borrow the $15,000 cash-back. Oh and if you break this mortgage before five years expires you not only pay the 5% cash-back portion you still owe but you also pay a crazy penalty.

Crazy, right?

There’s an equally crazy method of doing this and it’s called “CMHC Flex-Down”. This allows a well-qualified borrower to use their unsecured credit line to finance…


Effects Of Shorter Amortization For Buyers

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 of 5.34%, today’s 5-year posted rate. If they wanted to qualify at a lower rate (3.5% fixed average) then their maximum amount today would be $460,000 mortgage. Still far short of their goal to live in this area and enjoy great schooling.

Question from the buyer: If I originally had 35 years amortization why can’t I “carry” that mortgage amount at my remaining term, and take the new money at 25 years?

The reason is once you discharge your existing mortgage term and amortization, you are subject to the new rules since you are increasing your loan. CMHC insured loans are underwritten at 25-year amortization. So let’s look at how amortization has changed this buyer’s qualification scenario:

Using 5.34% to qualify:

40 years: $459,000
35 years: $439,000
30 years: $415,000
25 years: $382,000

Using 3.5% the numbers are even higher (since we’re using a lower qualifying rate):


How To Finance An Assignment

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”:

Step one:

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.

Step two:

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 shovels hit the ground. Today the true market value is approximately $335,000 and John does not want to close on the deal (and pay land tax, registration fees etc) but instead wants to cash out, and sell the right to that condo. The majority of lenders will say to Buyer, Tracy, that she can only finance $290,000 less her down payment. Then, Tracy must cover the difference on the side to John (in this case $45,000). How feasible is this? Not very.

Knowing this, there are a few lenders that will finance based on the higher price, if:

(and we go to..)

Step three:

1. You get the property appraised by an appraiser to establish the sale price is in line with market values.
2. You get the written consent from the original builder for this new price and transaction.
3. The seller is allowed to assign the…


Press Time!

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!


The Importance Of A Financing Condition Illustrated

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.

Example #1:

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 payments, mobile phone payments, all of which my client has. Under this program, 5% down is the minimum required, for two full-time individuals. Well guess what - thankfully I advised my clients to get a COF (Condition of Financing) because had I not, then their $20,000 deposit would be gone gone gone (tied up in court at least). Why? Because someone at both insurers feels there is too much risk, even though the deal makes good sense on all criteria.

Example #2:

Client moving from Calgary to Toronto, self-employed, wants to buy under a corporation name. Only a few lenders do self-employed borrowers, fewer do those who are moving between provinces, and even fewer do them under a corporation. Luckily we spoke on Sunday and he added a 5-day financing condition, as it turns out, the credit union doesn’t “like” the deal and won’t finance it, taking up three days…

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