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…


The Importance Of Down Payment

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 gift must be backed up by at least a gift letter signed by the giftor and giftee, and at times a lender may require to see a history from the account where the gift originates from, depending on size. If you receive $20,000 from your grandmother, that’s one thing. If she gives you $200,000, that’s another. My job is two-fold: to make this as easy for you, and as easy for them, and to make everyone comfortable with the source of funds.

A deposit on offer can definitely come from an unsecured line of credit. Sometimes a client will call in a panic worried if they take funds from their LOC will that create a problem? No. It only creates a problem if those are all the funds left for down payment, but not if those funds will be repaid from locked-in investments such as RRSPs which may not…


What is APR?

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!


Appraisals Appraisals Appraisals

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 times where this issue may come up and an appraisal is ordered is when either the property set a price record on the street, or, the property is very unique and needs an appraisal done. This is when the insurer would order an appraisal report (at their cost) and get it done, and this could slow down your condition of financing to a grind as they take 24-48 hours to complete.

When buying a home with more than 20% down you enter into the world of appraisals. Depending on the lender you pick, an appraisal may be necessary. Some “monolines” still go to insurers but eat the cost of the mortgage insurance, and therefore an appraisal is avoided. These companies include CMLS, Industrial Alliance, Merix Financial and other monoline lenders. When you go to a bank such as B2B, Scotia or TD, they almost always require a full appraisal usually…

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