Vacant Possession

DISCLAIMER: This post is written for buyers, in other words people who do not currently own a tenanted property.
This post is not suggesting in any way that the rights of an existing tenant be infringed upon

Purchasing a residential property?

Two words that matter this Spring; Vacant Possession

Your contract had best contain a ‘Vacant Possession’ clause.

Why?

Mortgage lenders will not concern themselves with your best intentions; it is not about what will be – it is purely about what is.

And if the property is tenanted at the time of possession, then you are effectively applying for a rental mortgage. This means a minimum 20% down payment, higher interest rates, and far more stringent qualifying criteria.

‘But wait, we only have 5% down and we plan to give notice and move in 60 days after we take possession’

There is virtually no lender that will approve this under any circumstances, and this has to do with the recent changes made by our federal government. The lenders want to trust you, the lender wants to help you, the lender wants to approve you, but the new government guidelines eliminate lenders’ ability to be flexible. Lenders must answer to Big Brother, and Big Brother is very rigid.

Vacant Possession – demand it.

‘But wait, we’re buying the property as a rental anyways, so it’s a good thing that it already has a tenant… right?’

No, an existing tenant is rarely a good thing.

How is their lease written?
Does it protect you?
Are rents reflective of current market rents?
Is there a provision for annual rent increases?
Your costs will be increasing every year, cover yourself.
What is your duty for notice to evict the tenant?
Why is the seller refusing to give simple notice?

Don’t risk inheriting the seller’s errors and/or headaches.

Whether your new purchase is meant to be owner occupied, or an investment property, demand vacant possession or walk away.

If you have any questions, contact your local Dominion Lending Centres mortgage professional.

– by Dustan Woodhouse

The Mortgage Insurance Market & Wholesale Lenders

The Canadian mortgage market used to be very simple. We had the big banks, credit unions, and trust companies.

However, almost 20 years ago, the Canadian government made three major changes to the Canadian mortgage industry. First, the government and CMHC put their weight behind Canadian mortgages by guaranteeing an insurance payout to lenders in the event that a borrower does not pay. Yes, the Canadian taxpayers are on the hook if CMHC goes under.

Second, Canada also began to allow lenders to pay for mortgage insurance for their borrowers, even though the insurance was not required. Borrowers would not know that their mortgage is insured, rather the lender would pay for, and insure the mortgage on the “back end” in order to make the mortgage less risky. I.E: if the borrower did not pay, the insurer would pay the lender (just as they would pay if the borrower had less than 20% down payment and was charged for insurance themselves).

And third, Canada allowed its lenders to bundle up their mortgages and sell them to investors. The securitization of mortgages (the process of taking the mortgages and transforming them into a sellable asset) allowed investors to purchase many mortgages at once, knowing there would be a specific return. The return here would be just less than the interest rate on the various mortgages (less because the lender has to make a little bit of money for creating the mortgage bundle or security).

Now, mortgage investors are looking at two things: investment return and mortgage risk. The lower the risk of an investment, the lower the return an investor may be willing to see. Because Canadian lenders can insure their mortgages against default (non-payment), investors are very keen on purchasing these mortgages. Thus, investors provide lenders with a lot of inexpensive money to lend out, which in turn, provided for better interest rates for borrowers.

As an aside, an example of investors may be one of Canada’s large banks, an American bank, pension funds, and/or other financial institutions.

The result was the emergence and major growth of mortgage finance companies, called wholesale lenders or monoline lenders.

Monoline lenders, encouraged by access to cheap capital, set up efficient mortgage underwriting (approval) operations and were able to provide flexible mortgage products and better-than-the-banks interest rates for their clients.

The overwhelming majority of wholesale lender mortgages are back-end insured by the lender, packaged up, and sold to investors.

What is interesting here is that wholesale lenders will insure mortgages transferred from one institution to another – something that banks do not do. This allows for better interest rates when renewing with a wholesale lender than if renewing with your current bank lender.

If you have any questions related to mortgages, contact your Dominion Lending Centres mortgage professional today.

– by Eitan Pinsky

Setting Up Your HELOC

A HELOC, or, Home Equity Line of Credit, can be one of the greatest gifts you give yourself. Borrowing money against your home as you accumulate equity through a shrinking mortgage or an increasing property value- something almost many people in the Vancouver and Toronto markets can relate to.

With all this increasing value and home appreciation, people are looking to cash in and utilize this new-found money. Unfortunately, one of the first things people think to do is sell! This can be counter-intuitive because you may of just sold your house for $150,000 more than what you bought it for last year, but you are now stuck buying a house that has gone up $100,000, $150,000, possibly $200,000 in the same amount of time.

So what can you do?

Open up a HELOC. You can do this separately through a second lender, move your mortgage over to one of the big banks like Scotia and enter a STEP, or utilize Manulife’s new Manulife One mortgage product. As you pay down your mortgage and accumulate equity in your home, you unlock the ability to spend money on a line of credit that is secured against that same equity you have built up in your home.

Let’s say you bought a pre-sale condo for $225,000. Two-years later it is worth $375,000. If you have that mortgage set-up with a HELOC component, you could potentially have $100,000 available to you on a line of credit if you qualify. What could you do with $100,000 where you are making interest only payments? Buy a rental property that breaks even or better yet has positive cash flow. You can build equity in a second home while someone else pays the mortgage through rent.

Don’t want to buy an investment property? Maybe you want to invest in stocks or funds where the expected return is more than the interest you are paying? Maybe you need to do renovations? Planning a wedding? Travelling? The list goes on.

Setting up a HELOC for yourself can open up many doors, all without having to give up your property and pigeon hole yourself into over-paying for someone else’s! Call a Dominion Lending Centres Mortgage Professional today to see if you qualify for a Home Equity Line of Credit.

– by Ryan Oake

Top 5 Things To Consider When Building Your New Home

Building a new home – It’s something that many couples dream of. It can be an exciting, stressful, joyful, crazy time period that many walk away from saying “never again” or “bring on the next one!” We scoured the internet and sorted through our own experiences to bring you the Top 5 things to consider when you are building a new home.

1) It’s All In The Numbers

Just like house-shopping, building a home from the ground up requires you to know what you can afford. Most house plans offer a cost to build tool (usually for a nominal fee) to give you an accurate estimate of construction costs based on where you’re building. The numbers include the costs of construction, tax benefits, funds for the down payment and slush account, and other related calculations.

Once you have determined what you can and are willing to spend, meet with a Dominion Lending Centres mortgage broker to discuss how much you wish to borrow for your home.

Renovations and the actual building portion aside, we often are asked on what a mortgage looks like for an unbuilt home. This is where a “construction” mortgage comes into play. The budget you give your broker should include your hard and soft costs as well as the reserve of money you plan to have set aside in case you run into unexpected events.

It’s this initial budget that a lender will determine how much you qualify for.

For example, based on the lender loaning up to 75% of the total cost (with 25% down):

Land purchase price (as is) Total soft and hard costs Total Cost (as complete)

$200,000

$400,000

$600,000 x 75% = $450,000 available to loan

Keep in mind, the lender will also consider the appraised value of the finished product. In this example, the completed appraised value of the home would have to be at least $600,000 to qualify for the amount available to loan. The appraised value is determined before the project begins.

As well, the client will have to come up with the initial $150,000 to be able to finance the total cost of $600,000. A down payment of $150,000 plus the loan amount of $450,000 = the total cost of $600,000.

2) Choose a Reputable Builder

Builders are a dime a dozen, but not all of them are qualified or will be the right one for your project. Careful research is needed when determining who will be the head contractor of your home-building project. Alternatively, one of the best ways to find your perfect contractor is by asking friends and family who have gone through the process. Another great source is your mortgage broker! They often have many industry connections to some of the most qualified contractors and builders. Ask them if they know of anyone—we can almost guarantee they can will have at least one or more referrals for you.

3) Build a Home for Tomorrow

It can be tempting to personalize your home to the tenth degree—after all you are building it to meet your unique, customized wants and needs. However, keep resale value and practicality at the back of your mind at all times. Life can often throw a few curve balls that lead to you-for one reason or another-having to place the home for sale. If that time should ever come, you want to be able to appeal to all buyers easily and not have to hold the house longer than necessary. Ask yourself if the features you are putting into your home will appeal to others and if the features suit the neighborhood you are building in as well.

4) Go Green!

Now more than ever before energy efficient upgrades are easy to add to your home. When you are in the design stages, selecting energy efficient appliances, windows, HVAC systems, and more can save you money in the long run and may also make you eligible for certain grants and discounts. For example, the CMHC green building program rewards those who select energy efficient and environment friendly options.

5) Understand the Loan

As a final note, once construction is done it’s crucial to understand how a Construction Mortgage Loan repayment works. To make it easier, we have a list of points that you should know:

• Construction loans are usually fully opened and can be repaid at any time.
• Interest is charged only on amounts drawn. There are no “unused funds.”
• Once construction is complete and project completion has been verified by the lender, the construction mortgage is “moved over” to a normal mortgage.

A lender will always take into consideration the marketability of a property. They will look at
not only the location based on demographic but also the location based on geography. For instance, a lot that is in a secluded area where no sales of lots have occurred in the last five years and mostly consisting of rock face may not be a property that they are willing to lend on.

• Depending on the lender, you may have a time frame within which you need to complete construction (typically between 6 and 12 months).

There are a lot of things to consider when you build a home but a few things that can keep you on track and on budget are to have a solid plan in place, work with a builder you trust, build a strong team around you that can be there from start to finish, and to do your research. Once you have decided to build, call your DLC agent—they can help you get the ball rolling and can guide you to the first step of breaking ground on your new home.

– by Geoff Lee

Unique Homes Have Special Problems

Recently one of the former members of the boy band New Kids on the Block expressed an interest in buying this lighthouse off the coast of Virginia in the U.S. Unique homes can be a lot of fun to own and to live in. However, there are some things you should be aware of before you make an offer on a unique property. He probably paid cash for this property because unique properties can be difficult to find financing for.

While we don’t have lighthouses in Western Canada, another type of property does come onto the market from time to time; church conversions.
I had a client last year who owned a church conversion in a small town in Saskatchewan. The building was great. It had lots of room, and it was on a large lot.

The problem was trying to find a lender who would lend on a church conversion. I found out that the big banks would lend but only in larger cities and towns. They would lend on homes in small towns in Saskatchewan and Alberta but not both. The only solution was to go to a local credit union that knew the property and the town.

Why won’t big banks do unique homes like this in smaller centres? Marketability – if the borrower doesn’t keep up their payments it would take months to find a buyer who wanted something like this and it would cost the bank a lot to keep the property until a buyer could be found.
Another lesson to be learned – before you make an offer on a unique property always check with your Dominion Lending Centres mortgage professoinal to see if you can get financing on your special home.

– by David Cooke

Which Realtor Should You Use?

Finding the best realtor for you involves doing some leg work. It can be overwhelming, kind of like choosing which ice cream you want to try! You go to the ice cream store and they have over 50 flavours and after you have contemplated, you opt for vanilla, just because it was easy.

Finding the best realtor for you is not “vanilla.”

Here are five questions you should always ask your potential real estate agent:

1. How does your experience benefit my real estate transaction? Where the agent just completed a course on negotiation skills or sold a home in your neighbourhood, they should be able to bring a unique edge to the table.

2. If you were buying or selling your home, what would you look for in an agent?
This question is a great way of getting the inside scoop on the industry. What do industry professionals see as an essential asset? How does each agent vary in those priorities?

3. Tell me about a recent work success. Give the agent a chance to discuss their latest win, and you’ll learn what they’re passionate about and how they’ll turn your home search or sell into their newest achievement.

4. What are your most effective approaches to marketing a home? Rather than the standard ‘how will you market my home,’ ask which methods are delivering results. If your agent is particularly successful with new school social media or tired and true networking, you’ll have expectations on how they’ll tackle selling your home.

5. Give the rundown of the conditions, commission fees and agreements. These basics will play a major role in how you choose your real estate agent. Ask for the specifics at each interview, and you can see how each partnership measure up.

And if you have any questions, contact your local Dominion Lending Centres mortgage professional.

– by Karen Penner

3 Mortgage Terms You Need to Know

Prepayment, Portability and Assumability

Prepayments

One of the most common questions we get is about mortgage prepayments. The conditions vary from lender to lender but the nice thing about prepayments is that you can pay a little more every year if you want to pay off your mortage faster. A great way to do this is through prepayments.

They’re always something to ask your broker about because each lender is very different. You can always do an increase on your payments and that means that you pay a little bit more each week or each month when you make your mortgage payment. You can also make a lump sum payment. Perhaps you get a bonus every year or you get a lot of Christmas money. You can just throw that on your mortgage. It goes right on the principle so you’re not paying interest on those extra funds. Paying a big chunk at once also means that a higher percentage of future payments will also go towards the principle.

Portability

Portability means that if you sell your house and you want to take your current mortgage and move it to your new house you can. The one thing about portability that we always have to keep in mind is that we can’t decrease the mortgage amount but we can do a little bit of an increase often through a second mortgage or an increase we call a blend and extend. It just gives you the flexibility of moving the mortgage from one property to the next property. It also gives you the flexibility of being in control of where you mortgage is going and not having to break your mortgage every time you decide to move.

Moving a mortgage to a new property avoids things like discharge fees, the legal cost of registering a new mortgage and the possibly of a higher interest rate. It’s great to be able to keep that rate for the full term rather than having to break and pay those penalties half way through.

Assumability

Assuming a mortgage comes into play more often where there are family ties. Say your parents have a mortgage and you move into that house. Rather than you going out and getting a new mortgage and your parents having to pay those discharge fees, you have the ability to assume their existing mortgage at that current rate. All you have to do is apply and make sure you can actually afford the mortgage at what they’re paying. You have to be able to be approved on the remaining balance on the mortgage just like you would on any other mortgage. Just because your parents have an eight hundred thousand dollar mortgage doesn’t mean you’ll be able to take that over.

If you have any questions, contact a Dominion Lending Centres mortgage specialist for help.

– by Tracy Valko