You can typically get a much lower mortgage rate with a Specialist like me than the bank will offer.
Before You Pay Too Much For Your Mortgage!
Why use a Mortgage Broker? Unlike a bank employee, it isn’t just another position for me. I’m specially trained to find the best mortgage options for you. I only get remunerated by successfully seeing a mortgage fund as opposed to your bank mortgage person getting paid whether they help you or not. So, you see, it is both our interests to see me go the extra mile, to turn over every rock, to look at your situation in every way possible to get you the mortgage that best suits your needs, and not to have to take the one option your bank offers.
I work for YOU, not the lender! My highest interest is YOU!
99% of the time, my services are FREE for you; the lender pays me to bring them great clients like you. Only in extreme client circumstances do I need to charge you for my services, but you will know about all charges in advance and decide if you wish to move forward or stand aside.
Your time is valuable. It takes a lot of time to schedule time with several banks around town, go through the application process, and wait for days or even weeks for an answer. With one application, I can access almost 60 lenders throughout Canada. Most of these will respond within 24-48 hours so you find out quickly where you stand. I will offer you options for the mortgages available and let you decide which product best fits your needs!
You will save money because of my huge advantage over the banks.
New mortgage rates come out daily. Lenders have rate “sales” constantly which means a lender that has the lowest rate today may in all likelihood not have it tomorrow. As your broker, you will gain through my staying on top of the movement of rates on a daily basis and doing the “shopping” for you.
Have you had some credit problems in the past? I take the time to assist my clients and give them tips on how to improve their situation. My proactive thinking and problem solving skills will help you with your dream of being a homeowner. If not today, then at some point in the future.
We both know buying a home will be one of the largest purchases you ever make. Once the sale is negotiated, I’ll walk you through the entire process and be with you every step of the way.
SOME MORTGAGE BASICS
You will get the best potential rates with a minimum of 5% down payment from your own resources (not putting on a credit card) or a gift from an immediate relative. There are products available that allow more flexible ways to obtain a down payment, like putting on a credit card or line of credit, however, the mortgage insurance premium will be higher because the risk to the lender is deemed to be higher.
Anything less than 20% down is termed a “high ratio mortgage” and must have either CMHC (Canada Mortgage and Housing Corp) or Genworth mortgage insurance. This is paid by the borrower for the benefit of the lender. In case of default, where the lender cannot recoup their money from the borrower through the sale of the home, the lender will get their money from one of the above-mentioned corporations. The cost graduates from 4% of the mortgage value for 5% down to 2.8% of the mortgage value for those that put down 15%. The insurance premium can be added to the mortgage and doesn’t have to be an out-of-pocket expense. With 20% as a down payment, this is a “conventional mortgage” and, as such, doesn’t always require an insurance premium. Putting down more money such as 35% may get you a better interest rate but not always. Having a high ratio mortgage with high ratio insurance will get the best rate, so even with 5%.
Traditional lenders work with two equations. The first is 35% of the family’s gross income for those that are T-4’d. For those who may be self-employed, it is their net (taxable) income. (Line 150 on your tax return) For example, if a couple’s income is 60,000, then 35% of this would be $21,000. This is the maximum allowed and covers the mortgage payment (principal and interest), property taxes, heat (minimum of $900 annually and up, depending on the size of your house), and ½ of any applicable condo or strata fees.
The next equation is 42% and above. This leaves 7% for other debts, such as loans and credit card payments. Again based on a household income of $60,000, this would amount to $25,200. Let’s say you have a personal loan and you are paying $200 a month for it ($2400 annually) and a car loan of $350 per month ($4200 annually) and have $10,000 of credit card debt with minimum payments of 3% or $300 per month ($3600 annually). These debts add up to $10,200, which must be deducted from your $25,200 allowable. This leaves $15,000 (instead of $21,000) to pay for your mortgage, heat property tax, and applicable strata fees.
It is worthy to note that lenders calculate your liabilities at 3% of credit card or line of credit balance, even tho you may pay much less as your minimum payment. They take loan balance payments at the actual payment value.
If you have very good credit (score of 680 or higher), most lenders allow you to go to 39% for your GDSR (gross debt service ratio) and use a TDSR (total debt service ratio) of 44%. This would encompass your entire debt load.
There are non traditional lenders that will allow higher debt service ratios, however, as the risk increases, so does the rate.
There are programs available for those who are in business for themselves or run a business on the side. Some of them don’t require the borrower to prove their income and are called “stated income” mortgages. What we do is “state” the income needed to satisfy the debt service ratios. However, the income must be reasonable for the industry. You couldn’t say you’re running a daycare out of your home and have revenues of $500,000. Typically, you can’t state an income higher than your actual revenues. You will need to have 10% as a down payment (instead of 5% with “verifiable income” with at least half coming from your own resources (the other half could be gifted), and the mortgage needs to have high ratio insurance regardless of the loan to value. The rate may be a little higher than a mortgage that uses verifiable income. And the insurance premium is quite a bit higher than with verifiable income.
Traditional lenders require the borrower to have 1.5% of the value of the property in their bank to cover closing costs (such as legal fees, the property transfer tax if applicable, interest and tax adjustment to name a few). 1.5% often isn’t enough to cover all the closing costs (especially if you’ve owned a home before) but that’s all the lenders require you to have. This means that coming up with 5% as a down payment is a little misleading. It would be better to say 6.5%.
Sometimes, refinancing for home renovations is not an option in today’s mortgage market. This is because the maximum loan-to-value people can take out of their home for a refinance is 80% of their home’s equity. But if you’re purchasing a home, I have an answer regarding your renovations. For the sake of discussion, let’s assume the home you are looking at is priced at $400,000. You like the location, the size, the layout, and the neighborhood. However, it is an older home and will require quite a few repairs over the next few years. Perhaps $40,000 to make this your real dream home. You then think to yourself that $40,000 is a lot of money to save and could take years.
Both CMHC and Genworth have a program called Purchase Plus Improvements. Instead of getting a mortgage based on the $400,000 purchase price, you get a mortgage based on the improved value, in this case, $440,000. If you are putting down 5% for your down payment, instead of 5% of $400,000 ($20,000), you put down 5% of the improved value of $440,000 ($22,000). Your out-of-pocket expense is an additional $2,000, but you get your renovations straight away. The lender doesn’t simply give you the money; they will give it once the renovations are complete or in draws if the renovation is large. Feel free to call me to explain this in more detail.
BUYING AN INVESTMENT HOME TO USE FOR RENTAL INCOME:
You require 20% as a down payment to buy a rental home (as opposed to living in the home yourself and rent out say a suite in the basement). There are times however that the client that already owns a home will want another home and will move into the new home and rent out their existing home. In this case, you can still buy the home with as little as 5% down because it will be your owner occupied home.
Foreclosures: This is when a client defaults on the terms of the mortgage, and the lender takes back ownership of the home. This can be a way of obtaining a home at a discounted price because lenders are more interested in getting their money that is owed back as opposed to selling at market value. Here’s how the process works. First, you find a property and negotiate a price with the lender’s realtor. This doesn’t mean you’ll get the home for this price, but it sets the starting point. A court date is then set a few weeks in the future. (It is very important that you have the home appraised before you go into court, especially if the home is in a distressed condition.
The reason for this is that the successful purchaser MUST not have any “conditions” that would/could impede the purchase. The court takes a very dim view if the purchaser doesn’t complete the sale.) Then, everyone who is interested in purchasing the home turns up in court. If you are the only one who turns up, then you get the home at the negotiated price. However, if more than one turns up at court, everyone puts in a sealed bid, which the judge then opens. The highest bid typically wins and becomes the new owner. I want to reiterate that you may be charged with contempt if you cannot complete it. I did a deal where no traditional lender would lend against a property that had a lot of damage to it.
The damage wasn’t an issue to the buyer because he was a builder by trade and was going to remedy the home within the first month. However, lenders don’t take that into account and look into the future; they only look at the “now.” Their philosophy is “what happens if the new owner drops dead tomorrow, now all of a sudden we’re stuck with a damaged home”. Fortunately, my client had other means to complete the purchase and refinanced their new home once the renovations were complete, but they would have been in big trouble if they couldn’t have completed the purchase. The approximate cost of an appraisal is $250 – $400. The same can be said about your financing; you must know you will be able to get a mortgage on the property if you become the new owner.
First-Time Home Buyers: Several years ago, our government brought in a program to assist first-time home buyers by way of a tax credit when they are filing their taxes in the spring. You can get a taxable credit of up to $5000 (which equates up to a $750 tax refund to you. Talk to me or google first-time home buyers.
The same is true if you want to build your home. By keeping the cost to under $1,100,000 you won’t be charged the BC Property transfer tax even if you aren’t a first time buyer.
Few lenders actually “pre-approve” anymore (actually adjudicate an application). The reason is that, by the time a buyer actually purchases, I may find them a better rate elsewhere. What most lenders now do is simply issue a “rate hold” for clients. This guarantees the rate for usually 3 – 4 months. If the rate happens to drop during that time, the client gets the benefit of the lower rate. Also, things can change from the date of the rate hold until the time of purchase. Your income may change, you may make a new purchase that affects your liability, you may pay something off, etc.
RRSP HOME BUYER PROGRAM
You can withdraw RRSP money “tax-free” as part of your down payment…..
Highlights:
It allows you to use your RRSP savings to build or buy a home for up to $35,000 per person or $70,000 per couple. To participate in the Home Buyers’ Plan, you have to be considered a first-time homebuyer at the time you withdraw an amount from your RRSP(s) under the Home Buyers’ Plan. You are considered a first-time homebuyer if, at any time during the last five years before your withdrawal, you did not own a home while you occupied it as your principal place of residence.
If your spouse owned a home and occupied it as his or her principal place of residence at any time during the last five years and at any time during the period that your spouse owned a home and occupied it as his or her principal place of residence, you were married and also occupied that home, you will not qualify as a first time home buyer. For more information, contact Revenue Canada at their internet site, www.revcan.ca, or the Reference Canada line at 1-800-667-3355. They can provide you with the number for the nearest Revenue Canada office in your area.
First Time Home Buyers and Property Transfer Tax
Qualified purchasers are entitled to an exemption or reduction from the property transfer tax. To qualify, you must not have owned a principal residence anywhere in the world. If there are two or more purchasers of a property, each purchaser who is eligible for the exemption may claim the exemption up to the percentage interest that they are taking in the property. In B.C., the maximum home price for the B.C. Property transfer tax exemption is $835,000 with no tax payable on a home value of $500,000 and a sliding scale from $500,000 to $835,000. This increase comes into effect on April 1st, 2024, up from the current $500,000 limit.
SAVE THE PROPERTY TRANSFER TAX ON BRAND-NEW BUILDS.
As of April 1st, 2024, if you build a new building of less than $1,100,000, you are exempt from paying the BC Property Transfer tax.