Question 1

Are You Ready for Home Ownership?

Accepted Answer

Around the end of May 2014, the market started to experience a declining trend in mortgage rates. Though the housing market was already superb, professional 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 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.   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 a t 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.   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 condominiums 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.   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.   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, therefore, 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.   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.   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!

Question 2

Acceptable Down Payment Sources

Accepted Answer

The level of documentation which is required for the average mortgage these days can be very frustrating. It can seem endless and very nitpicky and annoying because we are able to purchase a vehicle with just a paystub. There are a few reasons for the increased documentation requirements.

The first is that the banks are mandated by the Anti-terrorism Act to make sure all funds are legally sourced. Criminal organizations do exist even here in Central Alberta and they are clever and will launder their funds however they can. I had the opportunity to attend an anti-fraud session led by the Edmonton police and he told a story of how a routine bylaw infraction led to the discovery of a criminal enterprise which involved more than 32 million dollars in mortgage fraud. Police resources, insurance proceeds, court time and on and on mean there was a genuine cost to the greater community. Increased due diligence prior to funding can help catch such things ahead of time.

The second is that your banks and mortgage lenders are accountable to the mortgage default insurers and their company’s investors and shareholders and to OSFI which oversees them all. If you default on your mortgage they have to be able to prove that they took every step possible to ensure you were in fact a solid borrower qualified for the mortgage.

Honestly, it boils down to this. If you were lending someone $350,000 wouldn’t you want to make sure they could afford to repay you?

So back to down payment sources. When you are providing documentation for your mortgage it is going to have to be pretty clear. It will have to show your name, financial institution holding said asset, account number and all transactions into the account for the past 90 days. Any deposits over $500 will have to be properly accounted for as per the above rationale. A quick reminder that you will have to have at least 5% to put down and an additional 1.5% for the closing costs so 6.5% all together though these days the banks and the mortgage insurers really like to see additional savings just in case you experience a job loss or illness.

Here are the most common and acceptable down payment sources and how each is to be verified. Keep in mind that you can use a combination of them but you will have to provide verification of each.   Savings – All accounts will need to be verified via a 90-day history. TFSA – Must be verified via a 90-day history. RSP – Will require a 90-day history and in most cases verification that the funds have      been redeemed via the forms to the RSP provider and have been deposited into your account. Gift – From an immediate family member. Need to see a signed gift letters stating it is in fact a gift which is not expected to be repaid and proof it has been deposited to your account. In some cases they will want to see the source of the gift which means a statement from the person giving you the funds. Loan – You can use borrowed funds for your down payment through certain lenders. They will need to verify the terms of the loan if it is new to make sure you can afford both it and your mortgage. Credit Card/Line of Credit – This is similar to the loan as above but in this case you usually only have to prove you can afford the payments for both. Sale of Asset – You can sell anything you own but make sure you document it properly. Bill of sale, copy of the cheque and proof it has been deposited to your account. Gifted Equity – If you are purchasing the home of a family member and they wish to, they can gift you the equity in the home and this can be used as the down payment. Inheritance – This is usually verified via the documents from the lawyer with corresponding deposit to your account. Sometimes I get questions about rare occurrences such as a lotto win. Even in this case, which I have actually seen, there is a paper trail.

So called mattress money is no longer acceptable unless you can show you have held it in a traditional account for the 90 days.
 Banks and mortgage lenders are stuck abiding by the rules which mean that so are we all. Until next time, have a great week.

Question 3

From Pre-Approval to Funding

Accepted Answer

After diligently saving your pennies and carefully managing your credit to be as strong as possible you are finally ready to start house hunting for that perfect dream home. Between you and your new life lies the seemingly terrifying mortgage process so let’s go over what you can expect so there are no surprises along the way.   Pre-Approval 
The first step should always be to choose a great mortgage professional. Referrals from friends and family and your real estate agent can help with this. You are trusting the largest loan you are likely to take to this person so make sure they know what they are doing. They are going to take an application, pull your credit, and determine what your maximum purchase price will be. You will be asked to provide a whole bunch of paperwork to verify your information. 
- Letter of employment and paystub
- Down Payment Verification
- 2 Year’s Notice of Assessment and/or T4’s
- Void Cheque

This list is the very least of what you may be asked for. If you are self-employed, separated, previously bankrupt, New to Canada, receive bonuses or many other scenarios then you will likely be asked for much more. Given the current state of the economy and the record levels of attempted mortgage fraud, the banks have to be very careful these days.

The other real benefit to the preapproval is that you can house hunt with confidence knowing that your entire situation has been assessed. You will not look at homes out of your price range either which can save you the heart ache of falling for a home you cannot afford. It also makes your offer very strong if you find yourself in a competition with another buyer.   Approval 
Hopefully you provided the bulk of the paperwork for the pre-approval but you may be asked for updated information such as a more recent paystub or bank statement. At this point your application is reassessed by the lender. They will take a look at the property you are purchasing and make sure it fits their guidelines. Then it is sent off for mortgage default insurer approval and once then you will get the official approval to sign. Make sure that you do not remove the financing condition until all lender conditions are met. Your mortgage professional will tell you when that is.   Final Steps 
Once you have met all of the conditions, the lender will send the paperwork over to the lawyer’s office. It takes the lawyer a few days to get things ready for you to sign and when you go you will be asked for: 
- Balance of the down payment in the form of bank draft
- 2 forms of ID
- Void Cheque

The day of funding, the lender sends the funds to the lawyer who sends them to the seller’s lawyer who upon receipt of the funds gives the all clear and you will be given the keys to your new home.

It is a great idea to call your lender a bit after the mortgage closes to make sure everything is set up the way you wanted.   Make sure to ask questions at each stage of the mortgage process. The onus is on you as the person signing the contract to understand the loan you are being offered and the terms it comes with. There are so many resources available to you as a home buyer that it is easy to learn a bit about mortgages before you sign.   It can seem a bit daunting but we broke it down into bite size pieces so you will be ready to navigate it like a boss and before you know it the realtor will be handing your keys and your new life can begin.

Question 4

How to Kill Your Mortgage Approval

Accepted Answer

Once upon a time there was a lovely young couple who saved and saved and saved all of their pennies for the down payment on a home. They met with a friendly mortgage professional to get a pre-approval and quickly provided all the required documentation. Their bright eyed Real Estate professional helped them to navigate the home buying process when they had discovered their dream home. The I’s were dotted and the t’s were crossed on all of the forms the lawyer set before them and so at long last they sat back to gleefully await the day to keys to their castle would be handed to them. The end right? Alas it is not. This story which should have the happiest of ending does not. Our heroes made a choice after the approval was granted but before the possession of the home which has killed their mortgage and put their dreams on hold.

Unfortunately all too often we see people make this mistake and so this week we are going to look at the things you must never do during the mortgage process. Or at least you should never do any of them without first asking your mortgage professional how it will affect your approval.   Change Jobs 
There may be an amazing opportunity for you at a new company but before you accept please keep the following in mind:   Will you be on probation? Lenders will not accept probationary employment. Is the new income paid the same as your current? By this I mean if there is any bonus, overtime or commission aspect to your pay you may be killing your approval. These types of income require a 2-year history before they are acceptable to the lenders and CMHC. Are you now considered as a contractor or even self-employed? Once again we require a 2-year history unless you are working in the exact same field as before and have an amazing contract in place and even then things have become tricky. Have you decided that you are simply unable to continue for personal reasons? Here’s the thing, the lender has approved you based on the information you provided and they verified. Unfortunately for you that means that you need to maintain the status quo until you take possession of the new home.   Buying a Vehicle 
Your car may finally have given up on you and you have to buy a new one but before you do call your mortgage pro to make the monthly payment will not put your affordability ratios out of line.   Change Your Credit Picture 
Do not pay for 12 months, 18 equal payments, a new line of credit or maxing out your credit cards can all affect your affordability ratios and kill your mortgage approval. Again, a quick call to your mortgage professional is all that is needed to find out if any of these things will be a problem.   Your Credit Score Drops 
The other thing to watch is that you make all of your payments on time. If you have chosen to build a home the lender will be pulling your credit again prior to possession and if your credit score has dropped because of late payments or maxed out credit cards they have the right to cancel the approval. So please, do not put yourself at risk and make sure that you keep your financial picture consistent throughout the mortgage process to ensure that your mortgage story ends happy. Until next time!!

Question 5

The Mortgage Process

Accepted Answer

Obtaining mortgage financing can be very confusing especially since the rules are constantly changing. Knowing the basics and what to expect along the way can take away some of the pain so this week we are going to do a quick rundown of the whole thing.

The application – At this point you are going to answer all sorts of questions about yourself. Lenders are looking to find out just who you are before they loan you a whole bunch of money. Employment – They need to know all the particulars including how long and how you get paid. If you are self-employed, commissioned or regularly receive bonus or overtime they will want to see a 2-year history before they will allow this income to be used to qualify you for the mortgage. Credit Bureau – Consider your credit history as a sort of report card if you will. You need to show that you have managed your current debts obligations satisfactorily. Lenders are looking for a 24-month history on 2 types of credit such as a credit card and a vehicle loan. Keep in mind that late payments on your cell phone, cards, loans or even a previous mortgage better have a very good reason. Assets – More and more lenders want to see that you have a safety net of some additional savings just in case. So you have completed the application and now it’s time to verify all of the information. A few bad eggs have wrecked it for the rest of us so you are going to be asked for a lot of paperwork. Mortgage fraud is huge and the lenders are accountable to the mortgage insurers, OFSI, and to their investors so you better bet they are going to verify until they are satisfied. Here are some of the things you will have to provide: Letter of employment outlining all the particulars and a recent paystub Last 2 year’s Notice of Assessment from the CRA and proof that all tax bills have been paid 3 month history on all accounts you are using for the down payment with explanations of any large deposits Mortgage statement, property tax bill and lease agreements on any other homes you own You may also be asked for T1 Generals and Business Financials if you are self-employed Various other documentation as required So your mortgage lender has approved the documentation you have provided and you are having a look at the paperwork in front of you before you sign on the dotted line. A few great questions to ask are:   What are the pre-payment privileges on my mortgage and do I have to wait for the first anniversary to make the extra payments? Is my mortgage portable across the country and to a wide variety of properties? How long do I have to port this mortgage? Porting is where you can take the mortgage from one house to another without penalty. Some lenders do not lend on rural properties for example and so if an acreage is in your future then you want to make sure yours does. Other lenders require the port to happen on the same day which can be trick to navigate. How are the prepayment penalties calculated? In Canada, there is no rule about how a lender has to calculate this number. I have seen them vary from $3,000 to $18,000 on the exact same mortgage amount with the only difference being the lender. Life happens and you want to make sure that if you have to break your mortgage that it will not cost you all your hard earned equity. And now that you have asked your questions and met all the conditions you are off to the lawyer for the final signing. There are a few costs you need to anticipate:   Mortgage Insurance – If you are purchasing a home with less than 20% down you will have to pay this which is based on a set percentage of the purchase price depending how much you are putting down and is added to the mortgage. Legal Fees – The lawyer will have to complete the final paperwork and register the mortgage for you and this can cost up to $1,750  Title Insurance – Many lenders now require this in lieu of an RPR – The cost is about $250 and will be collected at the lawyer’s office. And there you have it. The mortgage process as succinctly as possible. Have a great week.

Question 6

Types of Mortgage Lenders

Accepted Answer

Mortgages seem to have been in the news a lot in the last few weeks. The federal government came in and made some more changes to the mortgage rules. The reason for these changes is basically this: They guarantee, through their backing of the mortgage default insurers, that in the case of default the mortgage lenders have 100% assurance they will not lose any money. That’s why the government keep a very close eye on the housing industry. Taxpayers will have to cover the losses should they occur. The last round of changes saw the implementation of a stress test. Borrowers have to qualify at a higher rate than the one they are actually getting to ensure they can afford their mortgage payments when the rates go up. It looks like there will be additional changes coming soon but we will have to wait and see what those entail. Thankfully for the government we Canadians are a good bet on the whole and arrears are still very low. Approximately 1/10th of those in the United States.

So they keep referring to mortgage lenders which seems to me to leave some room for clarification. Given how rarely we go through the mortgage process and how quickly things seem to change, a quick recap of the types of mortgage lenders in Canada seems to be in order and the pros and cons of each.

Banks   This one is pretty clear. We have the Big 5 in Canada who have branches on every corner. In addition to them you have the Credit Union and the Treasury branches. There are also a few lesser known banks who do not have as many branches but operate and are regulated in exactly the same way. 
Pro – You have the ability to walk into the branch and have all of your borrowing neatly in one place. There is a peace of mind knowing that you are dealing with a company you drive by.   Con – Banks historically have higher penalties if you break the mortgage. Their porting policies can be cumbersome and most use what is called a collateral mortgage. This can make it easier to borrow additional funds down the road but it also allows other borrowing to be tied to your mortgage which can make it hard to move your mortgage later on.

Monoline Lenders   This is the term used for mortgage lenders who operate through mortgage brokers as compared to having branches and attempting to market to you directly. This is the term used for mortgage lenders who operate through mortgage brokers as compared to having branches and attempting to market to you directly. The insurance companies market to the insurance broker who then chooses the best one for you. It is just like this. They market directly to mortgage brokers who can offer these companies to you as a consumer. Saves the lenders a huge amount of advertising costs really.   Pro – Payout penalties are usually lower and you are less likely to get put into a collateral mortgage.   Con – There is no branch for you to go to. Your dealings with your lender is limited to phone, email and online portals.

Alternative Lenders   This is the term for a mortgage lender who will consider you when you cannot quite meet the qualification guidelines of the banks or the monoline lenders. An example of who may be looking at this type of a lender would be someone who is self-employed but chooses not to pay themselves a large income in order to avoid taxes. These lenders can be banks, divisions of banks or companies who have found a lending niche for an undeserved group of borrowers.   Pro – Mortgage approvals for people who do not qualify through the mainstream channels. These lenders do not go through the mortgage insurers so you can avoid the mortgage default insurer premiums.   Con – Often these lenders have higher rates and in some cases a lender fee which you will see either added onto your mortgage or you will pay out of pocket.

Private Lenders   I use this term to encompass a group of lenders who will lend to those people who cannot meet the guidelines of any of the above. No established credit, no verifiable income, damaged credit, previously bankrupt with no re-established credit, tax arrears or even those about to go into foreclosure are people who may consider these lenders. Once a foreclosure shows on your credit bureau it is almost impossible to get a mortgage in which case choosing one of these lenders ahead of time can be in your best interest.   Pro – They will lend to many people who will not be considered by the other groups allowing them to keep their homes, free up funds to restructure debts or become home owners years before they would otherwise be able to.   Con – These lenders charge higher interest rates and generally a fee. You also need to have a sizeable amount of equity and be located in a major centre to be considered by these lenders.

So there you have a brief summary of the types of mortgage lenders in Canada. They all have an important role to play and enable many Canadians to achieve and retain their status as homeowners. And hey, let’s face it, we are Canadians. We are historically a group who sees the benefit in owning our own homes so isn’t it great that we have so many lenders to help both us and our neighbours.

Question 7

Your First Mortgage Renewal

Accepted Answer

A lot can change in a year when it comes to mortgages. These changes can provide great opportunities for mortgagees to refinance their mortgage at the time of renewal in order to save money. Unfortunately, most people are under the impression that once they sign on the dotted line they are locked into their mortgage agreement for the specified term. One study found that a staggering 70% of people simply renew their mortgage every year without even looking into other options! Refinancing can give you the leverage to make your mortgage more affordable. Here are 5 tips to help you prepare for your first mortgage renewal and save thousands of dollars!   Plan in Advance 
Mortgage renewals are mailed out months before the renewal date. This gives you plenty of time to shop around for the best rate. Many mortgage professionals recommend a 4-6 month window to negotiate because that’s how long a lender may guarantee a discounted rate. By planning ahead you could find yourself a rate significantly lower with another lender or have a nicely discounted rate to fall back on.   Do Your Research 
Mortgage research isn’t a one-time process you perform when buying you first home, it’s a topic you should revisit each year. The reason for ongoing research relates to the changes that occur in the marketplace. It is important to keep up-to-date with mortgage trends so you don’t get swindled into a higher rate than you deserve. The key thing to avoid when shopping for a new rate is signing with a bank’s posted rate. These rates are usually the highest the bank charges and all that extra interest will accumulate quickly, adding thousands to your mortgage total. Take the time and know what trends are doing so you can recognize a good rate when it comes along.   Don’t Avoid the Switch   Some mortgagees are scared to switch lenders because of hidden fees and the paperwork that may be involved with the process. If you do your research and start early enough there is no reason to avoid switching your mortgage lender. When you make a switch at renewal time there is usually no monetary penalty. Switching allows you to take advantage of lower rates and save you money, so take the plunge if you find a better deal with a different lender!   Negotiate on Everything 
Most people only negotiate the interest rate when they’re applying for or renewing a mortgage, but all variables are open to discussion! Make sure you know the importance of the amortization period, fixed versus variable rates, and payment schedule flexibility so your negotiation power is up to its full potential. All these variables can help reduce your payments, interest rate, and overall payment period.   Work with a Professional 
Some mortgagees find all this information rather overwhelming and some simply don’t have the time to do the necessary research. If you find yourself fitting into one of these two categories then consider hiring a mortgage professional. These brokers work for you and will handle all the shopping and negotiations required to make your mortgage more manageable.   Whether you decide to work with a professional or not make sure to do some research for yourself. It’s always a good idea to have the basic knowledge fully understood before jumping into one of the biggest purchases of your life. If you are ever unsure of any specifics, call your mortgage broker or professional to clarify. We are always happy to help guide you through the process!

Question 8

RRSP Home Buyers Plan

Accepted Answer

Buying a Home with Your RRSPs

The Home Buyers’ Plan (HBP) allows first-time home buyers to withdraw amounts from a Registered Retirement Savings Plan (RRSP) to purchase or build a home without having to pay tax on the withdrawal. Budget 2009 increased the HBP withdrawal limit to $25,000 from $20,000.

For HBP purposes, an individual is generally considered to be a first-time home buyer if neither the individual nor the individual’s spouse or common-law partner owned and lived in another home in the calendar year in which the HBP withdrawal is made or in any of the four preceding calendar years.

Special rules apply to facilitate the acquisition of a home that is more accessible or better suited for the personal needs and care of an individual who is eligible for the disability tax credit, even if the first-time home-buyer requirement is not met. These rules have also been modified to provide the same $25,000 withdrawal limit.

Notes on the Program   Withdrawn funds must generally be used to acquire a home before October of the year following the year of withdrawal. Amounts withdrawn under the HBP are repayable in instalments over a period not to exceed 15 years. To the extent that a scheduled repayment for a year is not made, it is added to the participant’s income for the year. A special rule denies an RRSP deduction for contributions withdrawn under the HBP within 90 days of being contributed.

Question 9

What Documents Will I Need to Bring?

Accepted Answer

First Time Home Buyer:   Most recent pay stub Letter of Employment – on company letterhead, detailing length of tenure, job title, rate of pay, guaranteed number of hours Last two years T4s Last two years Notices of Assessment from the Canada Revenue Agency – with the most recent year showing no taxes outstanding Bank Statements – 90 days’ worth of statements from each account that down payment funds will be drawn from – please ensure that all accounts show your name and account number clearly at the top and that they are unaltered If down payment is to be gifted, please send in a statement showing the account number, name and corresponding deposit, to line up with the amount on the gift letter. Letter will be forwarded to you once a lender has been chosen, as each lender has a specific letter.   Self-Employed: Articles of Incorporation Last two years of accountant prepared company financials Last two years Notice of Assessment – with the most recent year showing no taxes outstanding Last two years complete T1 Generals Most recent Mortgage Statement from current home Property Tax Assessment from current home Most recent Mortgage Statement from current home Property Tax Assessment from current home Rental agreements from all rental properties Bank Statements – 90 days’ worth of statements from each account that down payment funds will be drawn from, if not all down payment will be coveted from the sale of your current home – please ensure that all accounts show your name and account number clearly at the top and that they are unaltered If a portion of the down payment is coming from a gift, please provide a bank statement with the gift amount being deposited, to correspond with the gift letter. Gift letter will be forwarded to you once a lender has been chosen, as each lender has a specific letter required   If You’re Selling and Buying a New Home:   Most recent Pay Stub(s) Letter of Employment(s) – on company letterhead, detailing length of tenure, job title, rate of pay, guaranteed number of hours Last two years’ Notice of Assessment – with the most recent year showing no taxes outstanding Most recent Mortgage Statement from current home Property Tax Bill from current home Most recent Mortgage Statement from all rental properties Property Tax Bill from all rental properties Rental agreements from all rental properties Bank statements – 90 days’ worth of statements from each account that down payment funds will be drawn from, if not all down payment will be covered from the sale of your current home – please ensure that all accounts show your name and account number clearly at the top and that they are unaltered If down payment is to be gifted, please send in a statement showing the account number, name and corresponding deposit, to line up with the amount on the gift letter. Letter will be forwarded to you once a lender has been chosen, as each lender has a specific letter If you are self-employed please also provide last 2 year’s full T1 Generals and Financial Statements   If You’re Switching to a New Lender: Most recent pay stub(s) Letter of Employment(s) – on company letterhead, detailing length of tenure, job title, rate of pay, guaranteed number of hours Last two years’ Notice of Assessment – with the most recent year showing no taxes outstanding Most recent Mortgage Statement from current home Property Tax Bill from current home Most recent Mortgage Statement from all rental properties Property Tax Bill from all rental properties Rental agreements from all rental properties Home Insurance policy   On Top of the Above, You May Be Asked for Additional Items Such As: Complete Divorce or Separation Agreement Proof of collections paid Void cheque for the mortgage payments

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