20 Jan

WHY SO MANY MORTGAGE DOCUMENTS?

General

Posted by: Val Thibault

Documents, documents and more documents. Yes that’s right you will need to provide your Dominion Lending Centres mortgage broker with as many documents that we request upfront as possible. Why? Because the more supporting documentation you have available will help us as brokers to find you your best mortgage options. If you don’t have everything on hand e-mail a PDF of what you have and start digging up the rest as soon as possible.

Why so many documents you ask? While the lending market isn’t what it used to be, it is now much more strict and complex then a few years ago. Lenders are asking for WAY more documentation before they will lend you money. Yes, there have been instances of mortgage fraud that likely led to more scrutinized lending and Government regulations that lenders have to abide by are always changing. Mortgage lenders need to protect their investors and help ensure our Canadian housing market remains strong.

It may seem like a pain but ask yourself this if you had a large amount of money would you lend it out to somebody without proof they have income stability and/or the means to pay it back? Pretty sure your answer is no (at least mine is).

Below is a list of typical documents lender and mortgage insurers request. If you would like a tailored list please contact your DLC Mortgage Professional to discuss your application.

Income – lenders are looking for proof of income stability.

Self-employed Income

* 2 years of Income Tax Returns, Business Financials, CRA Notice of Assessments. Often it’s best to have your accountant e-mail them to us so no pages are missing.

Rental income

* Lease agreements

* T1-General tax returns with the Statement of Real Estate Activities. If you don’t claim your rental income let us know as this may affect how your mortgage is approved.

* Proof of the rental income being deposit on a regular basis into your bank account.

Guaranteed Employment Income

* A couple of recent pay stubs

* A job letter confirming your position, guaranteed pay and hours, if you are seasonal, contract or any specific information that relates to your income stability. Lenders will call your employer to verify the letter and ask for more information as possible. (Sample Job Letter)

* 2 Years of CRA Notice of Assessments

* 2 Years T1-Generals

Commission, Overtime, Seasonal, Contact or Bonus Income.

* A couple of recent pay stubs

* Job letter

* 2 years of T1-General Income tax returns

* 2 years of CRA Notice of Assessments

Liabilities – We will see most of your consumer credit accounts on your credit report however we may require some additional paperwork

* Current mortgage statements

* Property tax statements and proof of payment

* Child Support Payments proof via court orders and bank statements

* Alimony via Separation Agreements

* Proof your income tax has been paid. This is the most important item to pay because the Government has more power than the lenders. If you are wanting to refinance your mortgage to pay CRA contact us to discuss your options.

* Proof debts have been paid. If a zero balance is require you must show the account at a zero balance or the current balance and the proof of payment

Down Payment & Closing Costs

* The last 90 days of savings history. Any larger deposits have to be sourced.

* Gift Letter (some lenders have prescribed forms)

* Statement showing gift deposited into your account

* Property sale contracts and mortgage statements

About Documentation from Financial Institute

* Must have account ownership proof. For example e-statements are the best as they typically have your name, account number and the providers details already on the statement

* Screenshots work if the providers logo/name are clearly shown on them as well as the account holders name. If the account number only shows then you will have to provide an additional document from the provider with both your account number and name.

* If you are having your account history printed at a Teller please have the Teller stamp the paperwork

Documentation varies by applicant and lender. Be prepared by contacting your mortgage professional today for your tailored documents list.

20 Jan

Mortgage insurance premiums hiked once again

General

Posted by: Val Thibault

CMHC announced early Tuesday it is increasing its loan insurance premiums effective March 17.

“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said Steven Mennill, Senior Vice-President, Insurance. “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”

According to the Crown Corporation, the average homebuyer will see a $5 increase to their monthly mortgage payment as a result. That $5 certainly adds up, however, to a total of $1,500 over the course of a 25 year mortgage.

The increase is the result of last year’s mortgage rule changes, CMHC claims.

“Capital requirements are an important factor in determining mortgage insurance premiums. The changes reflect OSFI’s new capital requirements that came into effect on January 1st of this year that require mortgage insurers to hold additional capital,” it said in a release.

“Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.”


This latest hike comes less than two years after the most previous one, which was announced in April 2015.

See below for standard premium changes.

11 May

Are You Ready for Home Ownership?

General

Posted by: Val Thibault

Around the end of May 2014, the market started to experience a declining trend in mortgage rates. Though the housing market was already superb, professionals in the industry began gearing up for an influx in home buying. Their predictions were correct and we’ve seen more and more houses of higher value being sold into the summer months.

When an area with a hot market such as Calgary experiences a mortgage rate decline many renters make the hasty decision to purchase a dwelling before the rates jump up again. Though you could get a great deal you need to ask yourself if you’re truly ready for everything that home ownership entails.

Here are 6 key ways to decide if it’s the right time for you to buy.

1. You’re Ready to Commit

When looking to buy a home you need to consider your future. Do you see yourself living in the home for at least three to five years? This is the minimum ownership time you need to consider as it takes three to five years to regain your buying and selling costs. If you were to sell before you’ve recovered those costs then you may lose money and could be liable to pay capital gains taxes. Unless you’re sure that we can commit to a place for a few years then it’s better to continue renting until you’re more settled.

2. Budgeting is Second-Nature

Mortgage payments are bound to be your biggest monthly expense, but they aren’t the only payment you’ll be liable for when purchasing a home. You also need to factor in the insurance, property tax, and condominium fees if you live in a shared building. All of these expenses add up and you need to have solid budgeting skills to keep your finances in order so you know what you can afford. Always go into home buying with a budget so you don’t end up looking at homes out of your price-range.

3. Your Finances are in Order

Home ownership comes with an extremely high price tag and you need to be 100% sure you can afford it. Before buying a home, make sure you have a reliable job and income. Your expenses will come due every month no matter what changes your situation may experience. If you can’t pay them you could end up losing your investment and going into debt. Besides the income security, you also need to make sure you have little to no debt and good credit. These two aspects are the things a mortgage professional will look at first to make sure you’re financially stable and won’t have problems making payments.

4. You Have Savings

Homes don’t just have mortgages, they have down payments and hidden costs. You need to have a sizeable savings account to ensure you’re prepared for the initial and unexpected costs your investment will most certainly bring. Having a large down payment helps get you a lower interest rate, therefor, saving you money in the end. A large down payment typically means 20% of the home’s value. You also need to have an emergency savings fund for those unexpected costs, such as repairs, or in case you don’t have an income for a period of time if you get laid off.

5. Everything has been Researched

Do you know what the past and current mortgage rate trends are? Have you looked into what they’re predicted to do in the future? Do you know what kind of home you want and what they’re currently selling for? These are all things you need to know before buying your first home, plus much more. Make sure to do your research to ensure your investment is a sound one.

6. You’re Prepared to be a Landlord

Are you ready to take on the responsibility of a landlord? No longer will you be able to call up your manager to come unclog the toilet or fix appliances that have broken. All those tasks will fall on you and could be rather time consuming. You also need to be prepared if you plan on renting out the home to tenants in the future. This will involve collecting money and being on-call if the renters need anything.

If you’ve said yes to everything on this list then you could begin seeing mortgage and real estate professionals to begin the home buying process! If however, you weren’t confident in one or more area on this list then you need to take some time to resolve any barrier that may be in your way. You could also make appointments with mortgage and real estate professionals to discuss what your options are and what you can do to prepare for home ownership. It’s always best to take a little extra time to make sure that your investment is something you actually want, at the right time, and for a price you can afford. Happy house hunting!

14 Apr

Bank of Canada Cautious About the Outlook

General

Posted by: Val Thibault

To no one’s surprise, the Bank of Canada left its target overnight rate unchanged at 1/2 percent. The Bank, however, reduced its forecast for the global economy and for the U.S. economy as well, suggesting that the outlook for Canadian exports is less favorable than earlier forecast. (Table 1 below shows the Bank’s current global forecasts with the January forecasts in parentheses.)

While oil prices are off their lows and slightly above the level forecast by the Bank in January, the central bank now expects deeper cuts in oil sector business investment. The Bank expects crude oil prices to remain low (Chart 2). The Canadian dollar has increased sharply from its lows earlier this year, “reflecting shifting expectations for monetary policy in Canada and the United States, as well as recent increases in commodity prices.” The loonie has surged 15% in less than three months to its strongest level in since mid-2015. This, of course is bad news for exports, and the Bank played down the outlook for Canadian growth in its policy statement and Monetary Policy Report (MPR).

The Bank suggested the surprising strength in the first quarter is in part due to temporary factors and will reverse in the second quarter. Their estimate of output growth in the first quarter is now 2.8%, below consensus private-sector estimates of 3+%, slowing to 1% output growth in the second quarter. The Bank re-emphasized that the structural adjustment to the decline in oil prices is ongoing and will dampen growth over the next three years. This is a more pessimistic, but realistic view than the Bank took a year ago.

The Bank’s forecast for growth this year and next is significantly less optimistic than many market watchers expected, especially in light of the recent strengthening in the employment and monthly GDP data. The Bank’s Governing Council suggested that had it not been for the recent budget’s fiscal stimulus, the growth outlook would have been revised down from the January outlook. Including the effects of the budgetary easing, the Bank now forecasts Canadian growth this year at 1.7%, next year at 2.3% and and 2.0% in 2018. Slower foreign demand growth, the higher Canadian dollar and a downward revision to business investment all have negative impacts on the outlook but are more than offset by the positive effects of the fiscal measures announced in the federal budget in March.

The Bank of Canada also revised down its estimate of potential growth in the economy to roughly 1.5%, mainly reflecting slower growth in trend labour productivity as a result of weaker investment. The new growth profile, combined with the revised estimate for potential, suggests the output gap could close somewhat earlier than the Bank had anticipated in January, likely in the second half of 2017. Inflation is expected to remain at or below the target rate of 2%.

Bottom Line: Caution is the watchword for today’s Bank of Canada policy report.

Article Source: Dr. Sherry Cooper Chief Economist, Dominion Lending Centres 

9 Apr

Acceptable Down Payment Sources

General

Posted by: Val Thibault

So there seems to be some misunderstanding about down payments. It’s no wonder really given that there were a number of changes made over the last few years by the government in regards to all things mortgage. This week we are going to take a look at acceptable down payment sources so you can achieve your dream of home ownership ASAP.

RRSP’s

You are able to utilize up to $25,000 of your RRSP for your down payment. You will let you current RRSP provider know that you are using the funds for this purpose so that they can complete the process with the correct forms ensuring that you are not penalized for an early withdrawal. We will need to show the lender a 90 history on these funds. The expectation is that you will reinvest into your RRSP within 15 years.

Gift

Maybe your family is able to help with a gift? That works too. The gift must come from an immediate family member such as your parent, sibling or grandparent. An official letter will be signed by all parties which states that the gift is never expected to be paid back. You will also be required to show proof of the deposit going into your bank account. Heads up on this one that some of our lenders now require verification of the funds in the account of your family member.

Savings

The funds can of course come from a good old fashioned savings account or a TFSA. Again, we will have to provide a 90 day history on this account and if you have been transferring from another account we will need a 90 day history on that one too.

Sale of Assets

If you have a vehicle or a collection or a quad or any manner of asset that you are able to sell and we can properly document it through a receipt and proof of deposit, you have an acceptable down payment source.

Home Equity Line of Credit

Perhaps the mortgage on your current home is a Home equity Line of Credit? If so we are able to use an advance against this for the down payment on another home.

Borrowed Funds

A few of our lenders will still allow you to borrow the down payment from an alternate source. This could be a personal loan with set payments or a Line of credit where you are able to pay the interest only. You must have strong credit and have been with your current employer for a minimum of 2 years to qualify for this. We also have to factor in the repayment on the new loan as a part of your affordability ratios.

You have probably noticed a theme emerging. We are required to provide a 90 day history of all funds being used for the down payment on a home to make sure that all funds have been legally sourced. If you have a large deposit going into your account, the lenders will need to know where in the heck it came from.

The minimum down payment for a purchase is 5% and you will also need to show you have an additional 1.5% of the purchase price available for the closings costs which include the legal fees, property tax adjustments, title insurance and others.

So there you have it in a pretty synopsis. Have a great week!

11 Mar

Jingle Mail Debunked

General

Posted by: Val Thibault

          There have been many stories on the news in the last little bit about a surge in jingle mail. What is jingle mail you ask? It is when a homeowner is no longer able to make their mortgage payments due to a health issue, job loss or other life event so they choose to mail the keys to their mortgage lender thereby surrendering their home. The bank knows they have the house to do with what they will and the clients carry on unencumbered to deal with their life. The problem is that this is not how it works. At all. You cannot step away from your mortgage obligations and the consequences of not paying the mortgage in this way. I do not care what Bob at the coffee shop told you his brother did, it is simply not true. Let’s look at this myth and debunk it.

          So what can you expect exactly? If you stop paying your mortgage, for whatever reason, the bank and the mortgage insurers have legal recourse to come after you. I am not a lawyer and so I will not get into the particulars but you need to know that you are liable for the legal fees incurred by the lender to foreclose upon the property, any shortfall claim from the lender, the Realtor fees to sell the home, and the loss on the mortgage. These costs add up very quickly and are into the tens of thousands before you know it. They can take legal action against you even after the house has been sold to a new person. Yes, you are responsible for them and you agreed to be so in the mortgage documents you have signed.

          Another point to consider is this, once you have been foreclosed upon, the chances of you getting another mortgage are next to 0. The foreclosure will be reported on your credit report, to the bank and to the mortgage insurer if you had purchased the home with less than 20% down. Lenders are not likely to lend you the funds needed to purchase when you were clearly unable to meet your obligations the first time.

          So what should you do when life has left you unable to make your mortgage payment? Talk to the lender BEFORE things get out of hand to see if you can come to an agreement. If you don’t get anywhere that route, call your mortgage default mortgage insurance provider directly. Remember that big insurance premium which was added to your mortgage? It can come in very handy in this situation. Those companies do not want to see you mail your keys in as it is less expensive to help you now than it is to payout on a claim later. The 3 companies who provide mortgage default insurance in Canada are CMHC, Genworth and Canada Guaranty. Each has their own policy for these situations, as do the lenders, but they can help in a variety of ways.

1.  Capitalized Arrears- occurs when the money that was past due on your mortgage, along with any interest and penalties you have acquired, is just tacked on to the mortgage balance that you owe.

2.  Increased Amortization- The overall length of the mortgage can be stretched which will reduce the monthly payments.

3.  Partial or shared payment Plan – They may reduce your costs to interest only payments or a reduction to an interest plus a small amount to the principle.

4.  Deferred Payments – Your payments can be deferred up to 6 months.

5.  Promissory Note- The insurer can actually lend you the funds to catch up, often at 0% interest.

6.  Assisted Shortfall Sale – If the worst comes to pass and there is no way for you to keep the home, the insurer can assist in a shortfall sale. The benefit of this is that it leaves you in position that once you are back on your feet, you can be approved for another mortgage by the lenders AND the insurers. It is very important to note that each lender and insurer are different in their policies so you may not be able to access all of these solutions. If you put more than 20% down you are not likely to call upon the assistance of the default insurance provider. Call your lender, your mortgage specialist and you default insurance provider as soon as you think you may be in trouble. There are also insurance companies out there offering job loss and disability insurance so consider those options while you are healthy and employed.

That’s all for this week. Until next time.

9 Mar

Lines of Credit

General

Posted by: Val Thibault

         So there are vast arrays of financial products available for you. One of the more common is the line of credit or LOC for expediencies sake. Like most things it is neither good nor bad but let’s take a minute to have a closer look anyway, shall we?

         There are 2 types of lines of credit. The first is a Home Equity Line of Credit. It is important to note that this is in fact a type of mortgage. Your lender has taken the time to assess your home’s value and then has a lawyer register this against your home through the Alberta title system. This type of mortgage allows for great flexibility. You can pay it down as quickly as possible without penalty. You can also access the funds again should you have the need. The money can be used for whatever you like. And best of all you can make interest only payments which can be great for your overall cash flow. But as a well-known superhero says, “With great power comes great responsibility.” If you make interest only payments for the life of your mortgage, you will always owe the entire original amount. This product can be very insidious and needs to be managed carefully. It would be horrible to realize in 25 years that you still owe the lender the full amount.

         The majority of lenders have had to comply with recent government policy changes and now are only able to offer up to 65% of your home’s value for the LOC. Your local credit unions and a few others are still able to offer up to 80%.

         The other type of LOC is an unsecured product. With this one, you go to your bank and if your credit history is strong, they may give you a LOC. You are still able to use the funds for anything you need. Interest rates are often better than those available on a credit card. It can be a great tool for life’s bigger expenses such as a new furnace. Many lenders will still even allow you to use the LOC for the down payment on your new home. But the LOC can also work against you. First of all, you have to be disciplined enough to repay more than the interest only payments the lender will require. Set your repayment amount to 3% of the balance and you will be on the right track. As a part of the rule changes mentioned previously, we now have to calculate 3% as the monthly payment when qualifying you for a mortgage so carrying a high balance can hinder you come time to purchase a new home.

Use the LOC wisely my mortgage minions. That’s all.

9 Mar

Bank of Canada Maintains Rate At 1/2% Target

General

Posted by: Val Thibault

To no one’s surprise, the Bank of Canada announced today that it would leave its overnight rate target at 1/2%, just as it did on January 20 when it last met. The Bank noted that financial market volatility has slowed since the last meeting and oil prices and the Canadian dollar have strengthened. Consumer spending continues to underpin the economy as employment growth has held up despite continued weakness in the energy sector. Business investment is weak, owing largely to the demise of oil industry capital expenditure, but non-oil exports have rebounded owing to the weaker Canadian dollar. The Bank’s inflation assessment remains benign.

The Bank continues to anticipate significant fiscal stimulus in the federal budget slated for March 22 and will incorporate their assessment of the economic effects of such stimulus in their April projection. End of story.

What is more interesting is that today marks the seventh anniversary of the post-financial-crisis bull market in stocks. In March 2009, few people would have imagined that stock markets were on the precipice of a major and sustained recovery as the global economy was suffering the near-collapse of the banking system and the economy was in recession. But stocks have climbed that wall of worry more or less ever since thanks to enormously accommodative monetary policy. As Bank of America Merrill Lynch analysts point out in a note today, seven years of positive stock market returns came from 619 global interest rate cuts, $10.4 trillion worth of asset purchases by central banks, and $9 trillion worth of global government debt yielding zero percent or less.

Canada’s stock market was a top performer during the heydays of robust oil prices until 2014–but has underperformed since then. Nonetheless, the TSX is up more than 60% since the bull market began. This has been paled by the performance of the U.S. stock market which has surged 162% over the same period, which could well help to explain the remarkable success of Donald Trump and even Bernie Sanders.

The fact is, in the U.S. especially, the rich are getting richer and the middle class is falling further and further behind. Trump and, to a lesser degree Sanders, are appealing to the disaffected. Trump’s base are the lower-skilled, less-educated Americans who have not enjoyed the fruits of the economic recovery and stock market surge. They have seen their wages decline and their job prospects dim with Washington seemingly deaf and mute to their pain. These people are angry and fearful. Trump is promising a shake-up and playing into their xenophobia and prejudices, while Sanders is scapegoating Big Business and Wall Street. Both are blaming America’s free trade deals for killing American jobs and they have successfully touched a nerve. America has a long history of xenophobic fears of job loss–be it fear of the Japanese in the late 80s or the giant sucking sound of Mexico during the Ross Perot campaign in the 90s. This time, however, Trump has hijacked the Republican Party, garnering record turnouts attracting some alienated Democrats and Independents. Whether he runs against Hilary or Sanders, he will clearly be a formidable opponent. While he is not talking about building a wall between Canada and the U.S., he will likely continue to threaten free trade. Trudeau and Trump would not be comfortable bedfellows so Trudeau should enjoy his time this week with Obama as things could change drastically in the new year.

Article Source: Dr. Sherry Cooper Chief Economist, Dominion Lending Centres 

10 Feb

Changes In the Mortgage Industry

General

Posted by: Val Thibault

Five years ago, the mortgage industry began to radically change in ways many today aren’t even aware of. These changes need to be brought to the attention of homebuyers as new rules and regulations are making it more difficult to complete mortgage financing. The CMHC (Canada Mortgage and Housing Corporation) has established new rules that are affecting gifted payments, stated income for the self-employed, purchasing a second home, and the documentation requirements.

Many first-time home buyers receive cash gifts to put towards a home from family members or friends. In the past, a simple letter proving the gifted deposit to your account was all that was needed to apply the cash gift against your new home. After the CMHC’s new rules were instigated, homebuyers now need to prove cash gifts via a 90-day bank account history and in some cases a verification from the third-party donor is requested. This change in documentation requirements has also affected self-employed individuals. As of May 30, 2014, CMHC the 10% down-payment option for self-employed persons will be removed. This change affects second home purchases as well. Before this announcement, second homes could be purchased with a 5% down-payment, but due to high risk this allowance has been removed. This also means that if you already purchased a home with a 5% down-payment with CMHC and intend to rent it and move into another home, the 5% down-payment will not be available. If you would like to hold more than one insured property you can still use the stated income program through Canadian Guaranty and Genworth Financial.

In order to prepare yourself for a mortgage, preparing a few key items will ensure your success. First, save for your own down-payment and aim for at least 50% if you plan on receiving a cash gift. These funds should be stored in only a couple accounts so that money isn’t being transferred to and from different places frequently. You should also make sure your credit rating for the past 2 years is in good standing with no late payments. The goal with finances is to prove your stability to the lender. This stability is also reflected through employment. Before applying for a mortgage, a minimum of 3 months at you job is required. In order to guarantee your approval, longer than 3 months is preferred, as well as being in your industry for more than 2 years.

Though these changes have been made and more are to come, it’s not all bad news. The purpose of all this change is to minimize lost funds for lenders from pre-approved candidates choosing a different lending organization. This helps mortgage institutions ensure awareness in their mortgagees, and in turn benefits homebuyers. Too many consumers in the current market react impulsively, resulting in ill prepared commitments being made prematurely. By instigating the new regulations, less exceptions can be made in an attempt to increase vigilance. The key is to go into the mortgage process having done your research and have the necessary documentation prepared. As long as you do your due diligence, the process will not be difficult and you will end up with a mortgage that is appropriate for you.