Mortgage Stress Test – Not the Bad Guy

General Beata Gratton 15 Mar

Mortgage Stress Test – Not the Bad Guy

Ever since the federal government regulator, The Office of the Superintendent of Financial Institutions (or OSFI) brought in the Mortgage Stress Test, there has plenty of blame heaped upon it for slowing home sales and new home starts. Even though it has slightly reduced how much of a mortgage I can approve my clients for, the initial logic is sound. The stress test attempts to protect Canadians from taking on more mortgage debt than they will be able to afford when their mortgage renews down the road.

What it doesn’t do is curb additional debt and other financial factors after the mortgage starts. Many clients do not consider long-term changes like, child care expenses, new vehicle loans, ongoing credit card and line of credit debt payments.

I work with many first and second-time homebuyers with wide-ranging financial details. The stress test is a limiting factor, but in no way is it the largest culprit in preventing my clients from getting mortgage they are requesting. credit cards, lines of credit and vehicle loans have a much larger impact on reducing the mortgage borrowing ability for most of my clients.

Here are some real-world numbers on two hypothetical first-time homebuyer scenarios that help to illustrate what consumer debts can have on a mortgage application.

1. Individual or couple – scenario 1
Buyer(s) with household gross income of $80,000 that have $17,000 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300 biweekly.
This application would be approved for the purchase of a $250,000 detached home.
An additional monthly credit or loan payment of only $300 per month will prevent mortgage approval for this application.

2. Individual or couple – scenario 2
Buyer(s) with household gross income of $125,000 that have $33,000 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300 biweekly.
This application would be approved for the purchase of a $500,000 detached home.
An additional monthly credit or loan payment of only $500 per month will prevent mortgage approval for this application.

Credit cards, lines of credit and vehicle loans are exceedingly easy to obtain but could stand in your way when you are looking to buy your first or next home. Please consider carefully before financing anything. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

– by Kevin Carlson

February Home Sales Weaken Sharply–Was It Weather or Stress Tests?

General Beata Gratton 15 Mar

February Home Sales Weaken Sharply–Was It Weather or Stress Tests?

 

Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales dropped sharply from January to February, plummeting 9.1% to its lowest level since November 2012. The month-over-month decline was the biggest since the B-20 stress test was introduced in January of last year.

The number of existing home sales was down in three-quarters of all local markets, including all major cities. Actual (not seasonally adjusted) sales activity was down 4.4% to reach the lowest level for the month of February since 2009. It was also almost 12% below the 10-year February average. In British Columbia, Alberta as well as Newfoundland and Labrador, sales were more than 20% below their 10-year average for the month.

 

New Listings
The number of newly listed homes declined by 3.2% in February, led by GTA regional municipalities that surround the City of Toronto, in addition to Hamilton-Burlington, Calgary, Edmonton and Winnipeg.

With sales down by more than new listings in February, the national sales-to-new listings ratio eased to 54.1% compared to 57.6% in January. Looking beyond its monthly volatility, this measure of market balance has remained close to the long-term average of 53.5% since early 2018.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about 70% of all local markets were in balanced-market territory in February 2019.

There were 5.7 months of inventory on a national basis at the end of February 2019, a three-and-a-half-year high and above its long-term average of 5.3 months. That said, there are significant regional differences. The number of months of inventory has swollen far above its long-term average in Prairie provinces and Newfoundland & Labrador; as a result, homebuyers there have an ample choice of listings available for purchase. By contrast, the measure remains well below its long-term average in Ontario and the Maritimes.

Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) was little changed (-0.1%) y/y in February 2019. That said, it still marked the first decline in almost a decade.

Condo apartment units recorded a y/y price increase of 2.4% in February, while townhouse/row unit prices were up 1%. By comparison, one and two-storey single-family home prices were down 1.7% and 1% y/y in February.

Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y/y basis in Greater Vancouver (-6.1%) and the Fraser Valley (-2.8%). By contrast, prices posted a y/y increase of 3% in Victoria and were up 7.7% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+6.8%), the Niagara Region (+6.5%), Hamilton-Burlington (+5%) and the GTA (+2.3%). By contrast, home prices were little changed (+0.2%) on a y/y basis in Oakville-Milton, while in Barrie and District prices remain below year-ago levels (-4.3%).

Across the Prairies, supply is historically elevated relative to sales, and home prices are down from year-ago levels. Benchmark prices were down by 4.4% in Calgary, 4.5% in Edmonton, 5.1% in Regina and 3% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply come back into better balance.

Home prices rose 7.4% y/y in Ottawa (led by a 10.8% increase in townhouse/row unit prices), 6.2% in Greater Montreal (led by a 7.8% increase in apartment unit prices) and 1.6% in Greater Moncton (led by a 7.9% increase in townhouse/row unit prices).(see Table 1 below).

Bottom Line

It appears that the housing slowdown is deepening, adding to the weakness in the overall economy. Some of the softening in February might have been weather-related, but tighter mortgage credit availability was no doubt an issue as well. Many are now calling for an easing in the stress test qualification rate from the posted five-year fixed rate, currently at 5.34%, to closer to the actual conventional rate, about 200 basis points lower.

Finance Minister Bill Morneau, who is set to deliver his pre-election budget next week, is also being pressured to extend mortgage terms from 25 years to 30 years to help ease the situation.

“For aspiring homebuyers being kept on the sidelines by the mortgage stress-test, it’s a bitter pill to swallow when policymakers say the policy is working as intended,” said Barb Sukkau, CREA’s president. “Fewer qualified buyers means sellers are affected too.”

Today’s housing release comes one day after Statistics Canada announced that Canadian home values fell last year for the first time in 30 years amid falling prices in the Vancouver region–the priciest in the country–even as household debt burdens hit another record high. The 0.6% decline in house prices is the first decrease in countrywide home values in data going back to 1990.

Households meanwhile experienced a rise in debt burdens at the end of last year, with the debt to disposable income ratio hitting a record 174% in the fourth quarter. The deterioration reflects a sharp slowdown in income growth at the end of 2018.

Canadians are also spending a larger proportion of their income on servicing the debt. The debt service ratio rose to 14.9%, the highest level since the fourth quarter of 2007.

In a separate report, the agency said new home prices fell 0.1% in January from a year earlier — the first decline since 2009. While the index doesn’t include condominiums, the weakness was driven by declines in the Toronto and Vancouver regions, which fell 1.5% and 0.3% respectively.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

3 “Rules of Lending” – What Banks look at when you apply for a Mortgage

General Beata Gratton 14 Mar

3 “Rules of Lending” – What Banks look at when you apply for a Mortgage

Buying a home is usually the biggest purchase most people make and there are a lot of factors to consider. Our job is to provide you with a much information (as you can handle!!) so you make the best decision based your particular situation.

The 3 “rules of lending” focus on determining the maximum size of mortgage that can be supported by your provable (what you paid taxes on) income.

You need to consider two affordability ratios:

Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 36-39% of your gross monthly income. Housing costs include – your monthly mortgage payment, property taxes and heating. If you are buying a condo/townhouse, the GDS will also include ½ of your strata fees. The total of these monthly payments divided by your “provable” gross monthly income will give you your Gross Debt Service.
Mortgage payments + Property taxes + Heating Costs + 50% of condo fees / Annual Income

Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 42-44% of your gross monthly income This includes your housing costs (GDS above) PLUS all other monthly payments (car payments, credit cards, Line of Credit, additional financing, etc.). The total of all your monthly debts divided by your “provable” gross monthly income will give you your Total Debt Service.
Housing expenses (see GDS) + Credit card interest + Car payments + Loan expenses / Annual Income

What about the other 56% of your income?? This is considered to be used up by ‘normal’ monthly expenses including: taxes, food, medical, transportation, entertainment etc.)

Rule #3 – CREDIT RATING Everyone who will be on title to the property will need to have their credit run. Your credit bureau is important because it shows the lenders how well (or not) you have handled credit in the past. This gives them an indication of how you will handle credit in the future, and will you be a good risk and make your mortgage payments as promised. If you handle credit well, you will have a high Credit Score and get the best interest rates from the banks/lenders. If you have not handled credit well, and have a poor credit score, you will either be charged a higher interest rate or your application will be declined.

If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

– by Kelly Hudson

Why I chose a Mortgage Broker?

General Beata Gratton 13 Mar

Why I chose a Mortgage Broker? Our House Magazine – Winter

Amanda Moss and her husband Robert have had a mortgage on various properties for almost 10 years. The Chilliwack B.C. couple was a few years into their mortgage term, but looking to pay off some extra bills and clear up some financing. They hadn’t considered the option of refinancing until Amanda got some advice of a friend. The friend recommended a mortgage broker to help them through the refinancing process. The couple is now back on sold financial footing thanks to the help of their Dominion Lending Centres mortgage broker.

Why did you choose a mortgage broker?

I happened to be on a girl’s trip to Seattle and I mentioned to a friend, because my husband and I both make decent income, we wanted to refinance. She said she had the perfect broker for me. When I got back to Seattle I called him right away.

How was your experience working with a mortgage broker?

I had a really great experience with Dominion Lending Centres and with my mortgage broker. He was very professional and went out of his way to reassure us through the process. Refinancing can be stressful, with so much paperwork and questions along the way, but our broker was always willing to provide advice and even dropped by our house to pick up documents. Overall it was a great experience!

What advice would you give someone in your situation?

Managing your finances can be very stressful. Our mortgage broker was able to lower our monthly payments which has allowed us to focus on our family and worry less about money. My husband and I found that dealing with a mortgage broker was easy, and also and provided us with multiple lending options, so that we could get the best rate possible. This was a nice change from just dealing with one bank. My advice to you is to be open to using a mortgage broker as they fight for you and your best interest.

– by Jeremy Deutsch

What is an Uninsurable Mortgage?

General Beata Gratton 13 Mar

What is an Uninsurable Mortgage?

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 categories:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market.
Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.

If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

While there are rumours that the Government may start to allow refinances and 30-year amortizations to be insured again, no formal announcements are expected in the next few months.
In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering, it’s wise to have a free analysis of your mortgage done so you can make an informed decision. If you have any questions, contact a Dominion Lending Centres broker near you.

– by Kristin Woolard

Would a Co-Signer Enable You to Qualify for a Mortgage?

General Beata Gratton 11 Mar

Would a Co-Signer Enable You to Qualify for a Mortgage?

There seems to be some confusion about what it actually means to co-sign on a mortgage… and any time there is there is confusion about mortgages, it’s time to chat with your trusted Dominion Lending Centres mortgage professional!

Let’s take a look at why you would want to have someone co-sign your mortgage and what you need to know before, during and after the co-signing process.

Qualifying for a mortgage is getting tougher, especially with the 2017 government regulations. If you have poor credit or don’t earn enough money to meet the banks requirements to get a mortgage, then getting someone to co-sign your mortgage may be your only option.

The ‘stress test’ rate is especially “stressful” for borrowers. As of Jan. 1, 2018 all homebuyers with over 20% down payment will need to qualify at the rate negotiated for their mortgage contract PLUS 2% OR 5.34% which ever is higher. If you have less than 20% down payment, you must purchase Mortgage Default Insurance and qualify at 5.34%. The stress test has decreased affordability, and most borrowers now qualify for 20% less home.

In the wise words of Mom’s & Dad’s of Canada… “if you can’t afford to buy a home now, then WAIT until you can!!” BUT… in some housing markets (Toronto & Vancouver), waiting it out could mean missing out, depending on how quickly property values are appreciating in the area.

If you don’t want to wait to buy a home, but don’t meet the guidelines set out by lenders and/or mortgage default insurers, then you’re going to have to start looking for alternatives to conventional mortgages, and co-signing could be the solution you are looking for.

In order to give borrowers, the best mortgage rates, Lenders want the best borrowers!! They want someone who will pay their mortgage on time as promised with no hassles.

If you can’t qualify for a mortgage with your current provable income (supported by 2 years of tax returns and a letter of employment) along with solid credit, your lender’s going to ask for a co-signer.

Ways to co-sign a mortgage

The first is for someone to co-sign your mortgage and become a co-borrower, the same as a spouse or anyone else who you are actually buying the home with. It’s basically adding the support of another person’s credit history and income to those initially on the application. The co-signer will be put on the title of the home and lenders will consider them equally responsible for the debt should the mortgage go into default.
Another way that co-signing can happen is by way of a guarantor. If a co-signer decides to become a guarantor, then they’re backing the loan and essentially vouching for the person getting the loan that they’re going to be good for it. The guarantor is going to be responsible for the loan should the borrower go into default.
Most lenders prefer a co-signer going on title, it’s easier for them to take action if there are problems.

More than one person can co-sign a mortgage and anyone can do so, although it’s typically it’s the parent(s) or a close relative of a borrower who steps up and is willing to put their neck, income and credit bureau on the line.

Ultimately, as long as the lender is satisfied that all parties meet the qualification requirements and can lessen the risk of their investment, they’re likely to approve it.

Before signing on the dotted line

Anyone that is willing to co-sign a mortgage must be fully vetted, just like the primary applicant. They will have to provide all the same documentation as the primary applicant. Being a co-signer makes you legally responsible for the mortgage, exactly the same as the primary applicant. Co-signers need to know that being on someone else’s mortgage will impact their borrowing capacity while they are on title for that mortgage. They’re allowing their name and all their information to be used in the process of a mortgage, which is going to affect their ability to borrow anything in the future.

If someone is a guarantor, then things can become even trickier the guarantor isn’t on title to the home. That means that even though they’re on the mortgage, they have no legal right to the home itself. If anything happens to the original borrower, where they die, or something happens, they’re not really on the title of that property but they’ve signed up for the loan. So they don’t have a lot of control which can be a scary thing.

In my opinion, it’s much better for a co-signer to be a co-borrower on the property, where you can actually be on title to the property and enjoy all of the legal rights afforded to you.

The Responsibilities of Being a Co-signer

Co-signing can really help someone out, but it’s also a big responsibility. When you co-sign for someone, you’re putting your name and credit on the line as security for the loan/mortgage.

If the person you co-sign for misses a payment, the lender or other creditor can come to you to get the money. The late payment would also show up on your credit report.

Because co-signing a loan has the potential to affect both your credit and finances, it’s extremely important to make sure you’re comfortable with the person you’re co-signing for. You both need to know what you’re getting into. I recommend looking into Independent Legal Advice between all co-borrowers.

Co-signing is NOT a life sentence Just because you need a co-signer to get a mortgage doesn’t mean that you will always need a co-signer.

In fact, as soon as you feel that you’re strong enough to qualify without your co-signer – you can ask your lender to reconsider your application and remove the co-signer from the title. It is a legal process so there will be a small cost associated with the process, but doing so will remove the co-signer from your loan (once you are able to qualify on your own), and release them from the responsibility of the mortgage.

Removing a co-signer technically counts as changing the mortgage, so you need to check with your mortgage broker and lender to ensure that the lender you choose doesn’t count removing a co-signer as breaking your mortgage, because there could be large penalties associated with doing so.

Co-signing is an option that could help a lot of people buy a home, especially first time home buyers who are typically starting their career and building their credit bureau.

A final mortgage tip: a couple of alternatives to co-signing that could help someone out:

  • providing gift funds for a down payment
  • paying off someone else’s debt, giving them more funds to pay the mortgage

– by Kelly Hudson

February Canadian Jobs Report Remains Strong, But Slump Continues

General Beata Gratton 8 Mar

February Canadian Jobs Report Remains Strong, But Slump Continues

 

The employment report is the lone bright spot in an economy that has slumped across the board. According to today’s jobs report from Statistics Canada, the economy added 55,900 net new jobs last month, all of them full-time positions. This is the second consecutive monthly job surge for an economy that has barely grown in the past five months (see chart below). The two-month accretion is the best start to a year since 1981. Canada’s economy has added 290,000 jobs since August, the most substantial six-month rise since the early 2000s. Moreover, there are still a half-million job vacancies which continue to attract foreign workers.

The Canadian dollar shot up on the news, bouncing back from its plunge on Wednesday when the Bank of Canada signalled that the widespread weakness would keep the Bank on the sidelines for longer than expected.

In a speech yesterday, Deputy Governor Lynn Patterson said policymakers spent “a lot of time” in policy deliberations discussing four-quarter output data that she said were weak in certain areas — citing business investment, housing and consumption. The soft data mean the economy will probably be weaker in the first half of this year than the Bank of Canada had been anticipating as recently as January, Patterson said. She characterized the data picture as “mixed” and said the economy is likely to rebound later in 2019, boosted by the robust labour market. In January, the Bank of Canada forecasts a rebound in the second quarter of this year.

The employment gains in recent months come amid an otherwise dismal performance for the economy amid stresses in the oil sector, weakening housing markets, diminishing trade prospects, volatility in global financial markets and waning consumer and business confidence. Economists were forecasting an employment gain of just 1,200 in February.

 

The unemployment rate in February was unchanged at 5.8% as the number of people searching for work held steady. The strength, however, was not widespread across the country. Ontario was the sole province with a notable employment rise last month while the jobless rate was unchanged as more people were looking for work. Net new jobs declined in Manitoba and were little changed in the remaining provinces.

Even the wage picture is improving. Annual average hourly wage gains accelerated to 2.3% last month from 2% in January, with pay for permanent employees up 2.2% compared to 1.8% previously.

Bottom Line: The Bank of Canada will remain on hold until the strength in the labour market filters into consumer and business spending. The headwinds of global uncertainty, energy market weakness and the housing slowdown contribute to the Bank’s cautious stance. The Canadian trade gap hit a record high in December, reported earlier this week, almost entirely due to the collapse in crude oil prices. It was a fifth straight monthly decline in Canadian exports. Also, the US tariffs on steel and aluminum exports continue to weigh on the economy. It appears there is little prospect that the renegotiated Canada-Mexico-US trade deal will be confirmed by the US Congress this year, adding to the uncertainty.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

Bank of Canada Reduces Prospects of a Rate Hike

General Beata Gratton 7 Mar

Bank of Canada Reduces Prospects of a Rate Hike

 

In a very dovish statement, the Bank of Canada acknowledged this morning that the slowdown in the Canadian economy has been deeper and more broadly based than it had expected earlier this year. The Bank had forecast weak exports and investment in the energy sector and a decline in consumer spending in the oil-producing provinces in the January Monetary Policy Report. However, as indicated by the mere 0.1% quarterly growth in GDP in the fourth quarter, the deceleration in activity was far more troubling. Consumer spending, especially for durable goods, and the housing market were soft despite strong jobs growth. Both exports and business investment were also disappointing. Today’s Bank of Canada statement said, “after growing at a pace of 1.8 per cent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January.”

As was unanimously expected, the Bank maintained its target for the overnight rate at 1-3/4% for the third consecutive time and dropped its earlier reference for the need to raise the overnight rate in the future to a neutral level, estimated at roughly 2-1/2%. The Bank also added an assertion that borrowing costs will remain below neutral for now and “given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook. With increased uncertainty about the timing of future rate increases, the Governing Council will be watching closely developments in household spending, oil markets, and global trade policy.”

At the same time, Governor Poloz seems reluctant to abandon entirely the idea that the next step is likely higher — making him a bit of an outlier among industrialized economy central bankers.

We are left with the view that the Bank is unlikely to hike interest rates again this year. The global economy has slowed more than expected and central banks in many countries, including the U.S., have moved to the sidelines. Market interest rates have already dropped reflecting this reality.

According to Bloomberg News, “swaps trading suggests investors are giving zero probability that the Bank of Canada will budge rates, either higher or lower, from here. The Canadian dollar extended declines after the decision, falling 0.7 percent to C$1.3438 against the U.S. currency at 10:04 a.m. Yields on government 2-year bond dropped 6 basis points to 1.68 percent.”

February Cold Chills Toronto and Vancouver Housing Markets While Montreal Continues Strong

In separate news, local realtor boards reported this week that recent housing market patterns continued in February. Resale housing activity fell last month to its lowest level for a February since 2009 in both Vancouver and Toronto, while home sales ramped up in Montreal, marking four years of continuous growth.

The month-over-month declines in Vancouver and Toronto were substantial. Home resales dropped by nearly 8% (on a preliminary seasonally-adjusted basis) in Toronto and by more than 7% in Vancouver. Soft demand in Vancouver kept prices under downward pressure in what has been a buyers’ market. Vancouver’s composite MLS House Price Index (HPI) is now down 8% from its June 2018 peak. And the correction probably isn’t over.

In Toronto, the MLS HPI in February was still 2.3% above its level a year ago, though it has decelerated in the past couple of months from 3.0% in December.

Blasts of bad weather can easily exaggerate demand weakness in winter when markets are at their seasonal low point. However, Montrealers certainly seemed impervious to the weather.

Quebec’s real estate broker association reported home sales in metropolitan Montreal rose 8% in February compared with the same month last year. As well, average residential prices increased 4.9% in metro Montreal and 6.1% on the island of Montreal.

More complete housing data will be available mid-month when the Canadian Real Estate Board releases its February report.

– by Dr. Sherry Cooper

Buyers are winning now, but for how long?

General Beata Gratton 7 Mar

Buyers are winning now, but for how long?

Homebuyers are starting to see relief and the pendulum swing their way for the first time in years.
It’s no surprise, as we’ve have had a collision of circumstances that have both slowed the local real estate market and dropped prices down as much as 30 per cent.
We have the stress test forcing borrowers to qualify at two per cent higher, a speculation tax in B.C. and raised interest rates from record lows.
We had a seller’s market with less than four months of supply on the market, then four to six months of a balanced market and now a buyer’s market, where we have over nine months of product on the market.
With all of the supply available, sellers are having to set their price below the last sale if they are serious about selling.
Buyers are winning now, but for how long?
On March 20, we will see if there will be any changes in the federal budget. There have been rumours of a modification to the stress test by a percentage point and perhaps a 30-year mortgage option back for insured mortgages. Now with spring here and bank profits down from the normal increases due to less lending, we’ve seen a decrease in both the fixed and variable rates.
Watch the numbers once the housing supply drops to four months, and remember every neighbourhood is different.
If you have any questions, contact your local Dominion Lending Centres mortgage professional today.

– by Angela Calla

Zero Down Payment Mortgage–Does it Exist?

General Beata Gratton 7 Mar

Zero Down Payment Mortgage–Does it Exist?

Did you know that you can buy a home with ZERO down payment?? If a home purchase is your goal this year but you aren’t able to save up enough of a down payment, you may qualify for a low or zero down payment mortgage. One of our Lenders is offering a great zero down program.

What is a Flex-Down Mortgage?
A Flex-Down Mortgage is a mortgage product that has a flexible down payment amount. There is still a down-payment required, but it will vary based on the property value.

  • For a property valued under than or equal to $500,000, 5% down payment is required (sources available below)
  • For a property valued at greater than $500,000 and less than $1 million –5% down payment is required up to $500,000 with an additional 10% down payment on the portion of the home value above $500,000.

Flex-down mortgages can only be on first mortgages, not second or third or used in refinance situations. As noted above, the total property value has to be less than $1 million. This type of mortgage will also have insurance included with it—the premium will be lesser of the premium as a % of the total new loan amount or the premium as a % of the top-up portion additional loan based on the rates at that time.

Those that choose to go with this type of mortgage product will have to meet requirements, just like any other mortgage. There are a few specifications with this product:

  • You must show that you have standard income and employment verification papers
  • A credit score of 650 or higher is highly recommended
  • You must have no previous bankruptcies
  • Some lenders may still require you to have some of the down payment from your own resources

Those considering this type of mortgage are recommended to have very little debt and be able to accommodate the additional cost of higher mortgage insurance (due to the higher risk to the lender on this type of mortgage). Typically, the insurance premium would be 0.2% higher on a flex down mortgage.

How it Works
You can borrow your 5% payment from a Line of Credit or even a credit card. This can then be used for your down payment. You have to disclose this to the Insurer and it will be on the application that goes to the Lender.

This is perfect for someone just getting into a new high paying job or for someone who is renting and can afford higher monthly payments but would take forever to save up the 5% down payment. This type of mortgage product can be an excellent option if you don’t quite have enough for the down payment. Are you interested in learning more about this mortgage product? Contact a Dominion Lending Centres mortgage professional who can show you how a Flex mortgage can make the home of your dreams happen sooner than you think!

– by Geoff Lee