20 TERMS THAT HOMEBUYERS NEED TO KNOW

Buying a home is one of the most important financial decisions you will make.

It’s common for a first-time homebuyer to be overwhelmed when it comes to real estate industry jargon, so this BLOG is to help make some of the jargon understandable.

To help you understand the process and have confidence in your choices, check out the following common terms you will encounter during the homebuying process.

1. Amortization – “Life of the mortgage” The process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero. Typical amortizations are 25 years or if you have over 20% down payment – 30 years.
2. Appraisal – An estimate of the current market value of a home. A property is appraised to know the amount of money that a lender is willing to lend for a buyer to buy a particular property. If the appraised amount is less than the asking price for the property, then that piece of real estate might be overpriced. In this case, the lender will refuse to finance the purchase. Appraisals are designed to protect both the lender and buyer. The lender will not get stuck with a property that is less than the money lent, and the buyer will avoid paying too much for the property.
3. Closing Costs – Costs you need to have available in addition to the purchase price of your home. Closing costs can include: legal fees, taxes (GST, HST, Property Transfer Tax (PTT) etc.), transfer fees, disbursements and are payable on closing day. They can range from 1.5% to 4% of a home’s selling price.
4. Co-Signer – A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
5. Down Payment – The portion of the home price that is NOT financed by the mortgage loan. The buying typically pays the down payment from their own resources (or other eligible sources) to secure a mortgage.
6. Equity – The difference between the price a home could be sold for and the total debts registered against it (i.e. mortgage). Equity usually increases as the mortgage is reduced by regular payments. Rising home prices and home improvements may also increase the equity in the property.
7. Fixed Interest Rate – a fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
8. Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS)
   a) GDS – Typically mortgage lenders only want you spending a maximum 35-39% of your gross income on your mortgage (principle & interest), property taxes, heat and 50% of your strata fees.
   b) TDS – typically, lenders want you spending a maximum 39-44% of your gross income on your GDS – PLUS any other debt obligations you have (credit card debt, car payments, lines of credit & loans).
9. High-ratio mortgage / Conventional Mortgage – a high ratio mortgage is a mortgage loan higher than 80% of the lending value of the home. A conventional mortgage is when you have more than 20% down payment. In Canada, if you put less than 20% down payment, you must have Mortgage Default Insurance (see below) and your mortgage affordability (GDS & TDS) is “stress tested” with the Bank of Canada’s qualifying rate (currently 4.64%).
10. Interest Rate – This is the monthly principal and interest payment rate.
11. Mortgage – A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.
12. Mortgage Broker – A professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.
13. Mortgage Default Insurance – Is required for mortgage loans with less than a 20% down payment and is available from Canadian Mortgage & Housing Corp. (CMHC) or 2 other private companies. This insurance protects the lender in case you are unable to fulfill your financial obligations regarding the mortgage.
14. Open / Closed Mortgage
    a) An open mortgage is a flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term, because of the flexibility the interest rates are higher.
    b) Closed mortgages typically cannot be paid off in whole or in part before the end of its term. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment. If you try and “break your mortgage” or if any prepayments are made above the stipulated allowance the lender allows, a penalty will be charged.
15. Pre-Approval – A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
16. Refinance – Refinancing is the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.
17. Term (Mortgage) – Length of time that the contract with your mortgage including interest rate is fixed (typically 5 years).
18. Title – The documented evidence that a person or organization has legal ownership of real property.
19. Title Insurance – Insurance against losses or damages that could occur because of anything that affects the title to a property. Insurance Title insurance is issued by a Title Company to insure the borrower against errors in the title to your property.
20. Variable Rate Mortgage or Adjustable Rate Mortgage (ARM) – A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions, the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty.            –KELLY HUDSON

BANK OF CANADA MAINTAINS OVERNIGHT RATE AND RAISES 2019 FORECAST

The Bank of Canada held the target overnight rate at 1.75% for the sixth consecutive decision and showed little willingness to ease monetary policy, as stronger domestic growth offsets the risk of mounting global trade tensions. There has been ongoing speculation that the Bank of Canada would be pushed into cutting interest rates by the Fed. I do not believe the Bank will let the US dictate monetary policy when the Canadian economy is clearly on the mend. To be sure, trade tensions have slowed the global economic outlook, especially in curbing manufacturing activity, business investment, and lowering commodity prices. But the Bank as already incorporated these effects in previous Monetary Policy Reports (MPR) and today’s forecast has made further adjustments in light of weaker sentiment and activity in other major economies.

The Governing Council stated in today’s press release that central banks in the US and Europe have signalled their readiness to cut interest rates and further policy stimulus has been implemented in China. Thus, global financial conditions have eased substantially. The Bank now expects global GDP to grow by 3% in 2019 and to strengthen to 3.25% in 2020 and 2021, with the US slowing to a pace near its potential of around 2%. Escalation of trade tensions remains the most significant downside risk to the global and Canadian outlooks.

The Bank of Canada released the July MPR today, showing that following temporary weakness in late 2018 and early 2019, Canada’s economy is returning to growth around potential, as they have expected. Growth in the second quarter is stronger than earlier predicted, mostly due to some temporary factors, including the reversal of weather-related slowdowns in the first quarter and a surge in oil production. Consumption has strengthened, supported by a healthy labour market. At the national level, the housing market is stabilizing, although there remain significant adjustments underway in BC. A meaningful decline in longer-term mortgage rates is supporting housing activity. The Bank now expects real GDP growth to average 1.3% in 2019 and about 2% in 2020 and 2021.

Inflation remains at roughly the 2% target, with some upward pressure from higher food and auto prices. Core measures of inflation are also close to 2%. CPI inflation will likely dip this year because of the dynamics of gasoline prices and some other temporary factors. As slack in the economy is absorbed, and these temporary effects wane, inflation is expected to return sustainably to 2% by mid-2020.

Bottom Line: The Canadian economy is returning to potential growth. “As the Governing Council continues to monitor incoming data, it will pay particular attention to developments in the energy sector and the impact of trade conflicts on the prospects for Canadian growth and inflation.” With this statement, Governor Poloz puts Canadian rates firmly on hold as Fed Chair Jerome Powell signals openness to a rate cut as uncertainty dims the US outlook.

The Canadian central bank is in no hurry to move interest rates in either direction and has signalled it will remain on hold indefinitely, barring an unexpected exogenous shock.

–DR. SHERRY COOPER

FOLLOWING MONTHS OF BOOMING JOBS GROWTH, GAINS STALL IN JUNE

After a long stretch of stronger-than-expected Canadian jobs growth, it is not surprising that this notoriously volatile data series took a breather. There was little change in the number of employees in both the public and private sectors in June. The Canadian economy shed 2,200 jobs last month as self-employment fell 1.4% and other employment edged up only 0.2%. Despite this slowdown, the economy enjoyed the most robust first-half growth in jobs since 2002.

One positive note in the June report is that full-time jobs were up by 24,100, offsetting a decline in part-time work. Also, wage gains accelerated to the fastest pace in more than a year, with annual pay gains up 3.8% in June compared to 2.8% in May. Another good sign is that total hours worked accelerated to a 1.8% annual-rate gain, up from 1% in May.
The unemployment rate ticked up to a still-low 5.5%, after touching a forty-year low of 5.4% in May.

The recent pace of hiring was unsustainable, so a slowdown was in the cards. The June data, however, does not alter the picture of a red hot labour market driving Canada’s economic rebound. The Bank of Canada has significant reason to resist cutting interest rates when it meets again July 10 and September 4, even if the Federal Reserve decides to ease monetary policy. The Fed’s next decision date is July 30, and it is under continuing pressure from the White House to take rates down a notch.

The Bank will see the strength in wages and hours worked, along with the still low level of unemployment, as plenty of reason to remain on the sidelines. After the dreadful performance last winter, the Canadian economy has bounced back as the central bank predicted. A string of recent reports shows the expansion picked up at the fastest pace since 2017 in March and April. Business and consumer sentiment rose in May and housing activity is improving in most regions. Exports are recovering as trade tensions between Canada and China remain. It appears that the US trade war with China is on hold for now, as the two countries agreed to go back to the bargaining table forestalling a threatened rise in US tariffs on China.

Early Data for June  Housing Mixed

Local real estate boards report that GTA home sales jumped again in June, while home sales fell to a 19-year low in the GVA. This continues a well-established pattern.

GTA sales were up 10% year-over-year last month. New listings fell 0.4%. Buyers started moving off the sidelines in the spring, while new listings remained virtually unchanged, so market conditions have tightened, and price growth has picked up, especially for condos as more affordable housing has outperformed.

In direct contrast, sales in the GVA were down 14.4% year-over-year last month and are a whopping 34.7% below the 10-year average for June according to the Real Estate Board of Greater Vancouver–the slowest sales pace for June since 2000. Moreover, the residential benchmark price slipped to $998,700, down from a record high of $1.1 million in May 2018. The benchmark figure, an industry representation of the typical home sold in Greater Vancouver, has declined month-over-month for the 13th consecutive time.
The slowdown in the Greater Vancouver housing market is the result of intentional actions by regulators and government. Provincial actions compounded the January 2018 introduction of the B-20 stress-testing rules, which made it more challenging to qualify for a mortgage. Since February 2018, the provincial government has rolled out tax measures, including a ‘speculation and vacancy tax’ targeted primarily at out-of-province residents who don’t rent their homes. Also, there are new taxes on properties valued at more than $3-million, such as an extra land-transfer tax and an annual surtax. Last year, the province also raised the foreign-buyers tax to 20% from 15% in the Vancouver region while also expanding the tax to other urban BC markets.

Also, the province is about to publish a property ownership registry to reveal the actual owners of all properties to combat money laundering through real estate transactions. Formerly, many properties were registered in the name of numbered companies. As well, the Chinese government is now enforcing capital export limitations and penalizing those who broke these restrictions in the past. The new registry will make these activities far more transparent and could well contribute to the weakness in foreign transactions in BC, where foreigners accounted for a proportionately more significant share of the housing market than in other parts of Canada. The recent turmoil in Hong Kong might change these dynamics, but it is too soon to tell.

–DR. SHERRY COOPER

National Housing Affordability Improves (Minus Toronto and Vancouver)

While national housing affordability may be improving overall, the situation in the country’s most expensive housing markets remains “dreadful.”

That’s according to RBC’s latest housing affordability report. Despite continued unaffordability in Toronto, Vancouver and Victoria, the report showed an improvement nationally for the second straight quarter.

“Policy-engineered market downturns have succeeded at reversing some of the earlier massive affordability losses in Vancouver and stabilizing the situation in Toronto—though neither market is close to levels that ordinary Canadian households can afford,” said the report’s authors, Chief Economist Craig Wright and Senior Economist Robert Hogue.

“Affordability is still dreadful in Vancouver, Toronto and Victoria (and) minor signs of strain are apparent in Montreal and Ottawa.”

Overall, RBC’s aggregate affordability measure fell 0.3 percentage points to 51.4% in Q1. With further Bank of Canada interest rate hikes now off the table for the foreseeable future, the report’s authors expect overall affordability to continue to improve in the coming quarters.

Here’s a look at the situation in some of the key markets tracked in this report:

Toronto

While Toronto homebuyers had a bit of a break over the last couple of years thanks to slowing price gains, the report found just one in five families earn enough to afford a home in the city (one in seven if OSFI’s mortgage stress test is factored in).

Affordability is likely to erode further given the latest data from the Toronto Real Estate Board showing GTA home sales were up 10.4% in June while the average price rose 3% to $832,703.

“The bar to home ownership pretty much remains as high as ever,” the report reads. “And with prices back on a slight upward trajectory, it’s unlikely to come down much, or at all, in the near term.”

Vancouver

While Vancouver affordability is still at a crisis level, it did record an improvement in the quarter.

RBC’s aggregate measure for Vancouver eased 1.9 percentage points to 82% in Q1. That’s down 5.1 percentage points compared to last year. Still, just one in eight families earn an income needed to manage ownership costs in the Greater Vancouver Area (or one in 13 when the stress test is factored in).

“Affordability remains in crisis and this will continue to weigh heavily on homebuyer demand for the foreseeable future,” says RBC.

Homebuyers in Vancouver may see affordability continue to improve given the Real Estate Board of Greater Vancouver’s latest figures for June showing the city’s benchmark house price (which includes condos and detached homes) fell to $998,700. It’s the first time the price has been below the threshold of $1 million since 2017.

Detached home prices remain much higher at an average of $1.424 million.

Montreal

While Montreal remains much more affordable compared to Toronto and Vancouver, it did see home resales for 2019 year-to-date rise 7% compared to a year ago. This led to an increase in RBC’s aggregate affordability measure to 44.3%—its highest level in nearly a decade—and up from its long-run average of 38.6%.

“The housing market’s upswing is very much alive in Montreal despite ownership costs stretching the limits of many buyers,” reads the report. “A vibrant economy, strong labour market and increasing international interest continue to instill confidence in the market.”

Saint John

The story is very different in Saint John, NB, which continues to be the most affordable market of those tracked by RBC.

The situation improved further in the first quarter as the aggregate measure of affordability fell 0.4 percentage points to 25.9%. This means that more than half (56%) of Saint John families earn enough to manage ownership costs—the highest percentage in the country.

“While excellent affordability contributed significantly to an upswing in resale activity over the past four years, solid job creation and a near decade-low unemployment rate no doubt provided a bigger boost this year,” the authors wrote, noting home resales were up more than 9% in the first half of 2019. “If anything, demand-supply conditions are a bit tight, which should keep prices on a modestly upward track.”

–STEVE HUEBL

MILLIONAIRES AND REAL STATE

Andrew Carnagie was one of the richest men in America over 100 years ago. Today his wealth would be worth $4.6 billion dollars. He was a shrewd businessman. While he made most of his money in oil and iron, he understood the value and importance of real estate in building wealth.

Leveraging your money is the key. Leveraging is using someone else’s capital to make a larger purchase. Let’s say you have money to buy a house. You have 2 options:
1- You can use your $100,000 cash and buy a home for this amount free and clear.
2- You can use your $100,000 as a 20% down payment and borrow the rest and buy a $500,000 home.

A year later, if house values have gone up by 5%, a very reasonable amount for many Canadian cities and towns, what would you have?
If you took Option 1, you would have made $5,000 or a 5% return on your money. If you took Option 2 you would now have made $25,000 on your house purchase.
If you are like most Canadians, you don’t have $100,000. You can get into a home with only 5% down. Purchase a $300,000 home with a 5% down payment or $15,000. After a year, with property values going up by 5%, your house is now worth $315,000. You have made a 100% return on your money! Now you can see why people invest in real estate as soon as they can.

Are there any downsides to buying a home as an investment? Yes, if the main industry in your town is announcing layoffs, houses on the market could drop in price and wipe out your profit. But let’s face it, by buying a home you are making yourself your landlord. When you pay your mortgage balance down you are paying yourself. It’s like forced savings. You have to pay the mortgage, so you are forced to save for the future. If you were paying rent, you pay a similar amount of money what do you get in the end besides your damage deposit back? Nothing. We are not all going to become millionaires but we can become wealthier. It’s within the grasp of most Canadians to become homeowners.

If you are considering purchasing a home, be sure to speak to your favourite Dominion Lending Centres mortgage professional first to discuss what’s best for you.

–DAVID COOKE

TECHNOLOGY IN MORTGAGES AND REAL ESTATE

Technology is already playing a huge role in the mortgage industry. In the past, mortgage applications had to be physically taken by hand and faxed in (what’s fax anyways?!)… It may soon by possible, with technology’s help, for borrowers to be able to fill out their own application and send it, along with all supporting documentation, straight to lenders without a mortgage professional’s help – kind of scary.

On the Realtor side, there is DocuSign, Realtor.ca, Zillow, and a host of other technology driven solutions that help Realtors be more efficient in their business. However, just like in mortgages, it’s coming to a point where buyers and sellers may see value in going to discount brokerages such as Redfin.

Let’s first look at the mortgage side.

Quicken Loans’ Rocket Mortgage in the States started out as an online-only mortgage application tool. The promise is faster service, with little headache, and everything done “from the comfort of your own home.”

In Canada, Scotiabank just rolled out their eHOME Mortgage application. RBC has had a Pre-Qualification Application for a year and TD rolled out their Digital Mortgage Application in early 2019.

Our own parent mortgage company, Dominion Lending Centres, brought out their “My Mortgage Toolbox” application for Mortgage Brokers to use, and other Broker houses are fast on the trail. All lenders are trying to capitalize on a Millennial’s and Generation Z’s comfort level with providing their personal information to a computer system.

The promise with all of these digital tools is to make a borrower’s mortgage journey easier, and with how technology is progressing, this digital experience is going to keep getting better and better.

Unfortunately, as with any process change, problems arise…

The first and most glaring issue with the digital mortgage experience is that because mortgages are complex, with timelines to follow and anxiety to manage, borrowers are continually requesting human interaction to answer their questions. Rocket Mortgage’s own website now advertises being able to chat online with a specialist right up front.

Secondly, although digital applications promise speed and ease of use, all mortgage files still have to have “eyes” on an application. We’re not there yet (nor will we be for the foreseeable future) where humans do not have to touch mortgage applications for final approval. This human requirement means that a mortgage file must wait in queue to be approved.

Lastly, if any file has the slightest hiccough and doesn’t conform to exactly what the computer systems need to see, an expert will have to be called in during the process to troubleshoot. As an aside, the “experts” who look at these files are salaried individuals; more on that later.

All-in-all, technology alone is not changing the mortgage market.

On the Realtor side, the biggest issue with using Redfin, or relying too much on technology driven companies, is that the Realtors who work there are most likely going to be sub-par… Yeah, I said it… Just like 1% and 2% real estate companies, if someone is working for half the commission, they are, by nature, not going to be as good or competent as someone who prides themselves on working for their due. Don’t get me wrong, there is a time and a place for those 1% and 2% real estate companies (it’s obvious due to them being around) but I believe they are not the best choice for the vast majority of clientele

Additionally, I firmly believe that in life, we get what we pay for. The best advisers and salespeople will gravitate to where they are better compensated. Salaried individuals and discount mortgage and real estate professionals will invariably move to become independent if they are any good. If they are just so-so, bad at their jobs, or are just happy to provide the bare minimum in service, they stay and let someone else hunt for business.

Technology as a Benefit:
There are ways that technology is being used for the benefit of borrowers.

The first is that in our hyper connected world, a borrower’s credit, income, and down payment can all be verified at the touch of a button. Mortgage Brokers can already pull someone’s credit bureau in seconds, and there are also services to allow us to get 3-months of bank statements for down payment verification with a client’s permission. The last step is to have our systems validate income by way of a national employer registry or by other means. In the States, this is done through their IRS and the credit bureau companies and it will come to Canada in the future. All of this means that a borrower can get firm approvals more efficiently (not having to download bank statements, get employment letters, etc.) and it will allow the professionals more time to provide advice and cater to the client’s needs.

The second benefit to borrowers is that the new applications are now able to receive documentation, communicate on application status in real time, and much more, all in one easy-to-use platform. It’s incumbent on the professional to make sure that their technologies and systems are properly integrated to provide a seamless, but better, mortgage experience for their clients.

To recap, technology will be playing a larger and larger role in how mortgages are obtained in the years to come, and in order to thrive in the 2020s, Mortgage Brokers and Realtors are going to have to use technology to the best of their abilities. The marriage between human interaction (building rapport) and providing a seamless experience through leveraging technology should dominate our thinking!

–EITAN PINSKY

WE CAN FIX YOUR CREDIT PROBLEMS

Many people do not realize that Dominion Lending Centres mortgage professionals can help you with your credit and get you to a point where you will qualify for a mortgage. We have been doing this for years.

New to Canada or Just Graduated – both of these groups of people have the same problem. They have little or no established credit so lenders are hesitant to lend them hundreds of thousands of dollars to buy a home without a track record. Your DLC mortgage professional can get you a Dominion credit card. You should get a $1,500 limit as that’s the magic number with lenders. A car loan or a personal loan would be a good idea as well. Why? Lenders want to see that you can pay off a debt such as a loan and that you can budget for a revolving line of credit such as a credit card where the balance goes up and down monthly.

Previously Bankrupt or in Consumer Proposal – you had credit and something went wrong. Now you need to re-establish credit. We can help you obtain a secured credit card or help you with suggestions on how to re-build your credit. This can’t be done overnight, but if you are patient and work with us, the end result will be improved credit. Did you know that we have lenders who will pay out your consumer proposal as part of a mortgage refinance? It’s not well advertised but we can do it.

Bruised Credit – these are people who have had credit and then something goes wrong, but we can help. Usually it’s a result of a divorce, a long illness or a job loss. You can go see a credit counsellor for help in improving your credit which will cost you about $6-800 for a year of help, or come see us. We have a program set up by one of the credit reporting agencies that tells you exactly what to pay off first and how much to pay to get the maximum improvement in your credit score. This program costs $17 a month. Your Dominion Lending Centres mortgage professional can get you set up with this .
Instead of being denied a mortgage and told to come back when your credit is better, go directly to your DLC mortgage professional and get help. We’re in the business of helping people.

–DAVID COOKE

The Benefits and Risks of Co-Signing for a Mortgage

Thanks to tighter mortgage qualification rules and higher-priced real estate—particularly in the greater Vancouver and Toronto areas—it’s not always easy to qualify for a mortgage on your own merits.

You may very well have a great job, a decent income, a husky down payment and perfect credit, but that still may not be enough.

When a lender crunches the numbers, their calculations may indicate too much of your income is needed to service core homeownership expenses such as your mortgage payment, property taxes, heating and condo maintenance fees (if applicable).

In mortgage-speak, this means your debt service ratios are too high and you will need some extra help to qualify. But you do have options.

A co-signer can make all the difference

A mortgage co-signer can come in handy for many reasons, including when applicants have a soft or blemished credit history. But these days, it seems insufficient income supporting the mortgage application is the primary culprit.

We naturally tend to think of co-signers as parents. But there are also instances where children co-sign for their retired/unemployed parents. Siblings and spouses often help out too. It’s also possible for more than one person to co-sign a mortgage. A co-signer is likely to be approved when the lender is satisfied he/she will help lessen the risk associated with loan repayment.

Under the microscope

When you bring a co-signer into the picture, you are also taking their entire personal finances into consideration. It’s not just a simple matter of checking their credit.

Your mortgage lender is going to need a full application from them in order to grasp their financial picture, including information on all properties they own, any debts they are servicing and all of their own housing obligations. Your co-signer will go through the wringer much like you have.

What makes a strong co-signer?

The lender’s focus is mainly centred around a co-signer’s income coupled with a decent credit history. Some people think that if they have tons of equity in their home (high net worth) they will be great co-signers. But if they are primarily relying on CPP and OAS while living mortgage free, this is not going to help you qualify for a mortgage.

The best co-signer will offer strengths you currently lack when filling out a mortgage application on your own. For instance, if your income is preventing you from qualifying, find a co-signer with strong income. Or, if your issue is insufficient credit, bring a co-signer on board who has healthy credit.

Co-signer options

There are typically two different ways a co-signer can take shape:

1. The co-signer becomes a co-borrower. This is like having a partner or spouse buy the home alongside a primary applicant. This involves adding the support of another person’s credit history and income to the application. The co-signer is placed on the title of the home and the lender considers this person equally responsible for the debtif the mortgage goes into default.
2. The co-signer becomes a guarantor. In this scenario, he/she is backing the loan and vouching you’ll pay it back on time. The guarantor is responsible for the loan if it goes into default. Not many lenders process applications with guarantors, as they prefer all parties to share in the ownership. But some people want to avoid co-ownership for tax or estate planning purposes (more on this later).

Nine things to keep in mind as a co-signee

1. It is a rare privilege to find someone who is willing to co-sign for you. Make sure you are deserving of their trust and support.
2. It is NOT your responsibility to co-sign for anyone. Carefully think about the character and stability of the people asking for your help, and if there is any chance you may need your own financial flexibility down the road, think twice before possibly shooting yourself in the foot.
3. Ask for copies of all paperwork and be sure you fully understand the terms before signing.
4. If you co-sign or act as a guarantor, you are entrusting your personal credit history to the primary borrowers. Late payments hurt both of you, so I recommend you have full access to all mortgage and tax account information to spot signs of trouble the instant they occur.
5. Understand your legal, tax and even your estate’s position when considering becoming a co-signer. You are taking on a potentially large obligation that could cripple you financially if the borrower(s) cannot pay.
6. A prudent co-signer may insist the primary applicants have disability insurance protecting the mortgage payments in the event of an income disruption due to poor health. Some will also insist on life insurance.
7. Try to understand upfront how many years the co-borrower agreement will be in place, and whether you can change things mid-term if the borrower becomes able to assume the original mortgage on their own.
8. There can be implications with respect to your personal income taxes. You may accumulate an obligation to pay capital gains taxes down the road. This should be discussed this with your tax accountant.
9. Co-signing impacts Land Transfer Tax Rebates for first-time homebuyers. The rebate amount is reduced based on the percentage of ownership attributed to the co-signer.

Tips from a real estate lawyer

We spoke with Gord Mohan, an Ontario real estate lawyer, for unique insights based on his 22 years of experience.

“The cleanest way to deal with these situations is for the third party (which is typically a parent) to guarantee the main applicant’s mortgage debt obligation,” Mohan says. “This does not require the guarantor to appear on the title to the property, and so it prevents most later complications.”

Following are five key suggestions from Mohan:

• Co-signers should seek independent legal advice to ensure they fully understand their obligations and rights.
• All parties should have updated wills to address their intentions upon death and give their executor clear direction with respect to their ownership.
• Many co-signers try to minimize future tax impact by opting for 1% ownership and having a private agreement that the borrowers will indemnify them or make them full owners if there is a tax bite down the road.
• Some co-signers try to avoid future tax consequences completely by having their real estate lawyer draw up a “bare trust agreement”, which spells out that the co-signer has zero beneficial interest in the property.
• A bare trust agreement can come in handy for the Land Transfer Tax (LTT) rebate,enabling the co-signer to apply for a refund from the Ministry of Finance – LTT bulletin.

–ROSS TAYLOR

INCOME QUALIFIED

There are several different ways a borrower can qualify for a mortgage when it comes to their income. One of the most common ways is known as income qualified. All of the following methods of employment income are under the income qualified umbrella:

1. Annual salary income employees
2. Full time employees working guaranteed weekly hours
3. Part time employees working guaranteed weekly hours
4. Auxiliary/On-call employees with 2-yr history at same employer
5. Commission Sales who have 2-yr history in same job/industry
6. Employees earning gratuities who have claimed over 2-yr history
7. Contract employees with 2-yr history at job/industry

There are a couple more types of employment that may fall into this category, but for the most part, these are the types of borrowers whose mortgage application is going to be done using income qualifying.

When it comes to the first 3, a borrower’s income is paid by a business in which they generally do not have any interest/ownership in. This means, an human resources representative or a supervisor can write a letter of employment stating the weekly guaranteed hours, the guaranteed hourly pay rate, the start date, and the employee’s position. The lender will then use this letter, a most recent pay stub, as well as verbally confirm the letter with the employer to verify a borrower’s income. This is how a borrower who works guaranteed hours or salary has their income verified and qualified on a mortgage application.

For numbers 4 to 7, lenders and mortgage brokers will verify and qualify a borrowers income a little differently. Because an employer does not guarantee hours or income, we need to see that there has been at least a 2-year history making the same amount. This 2-year history will usually need to be with the same employer and will need to be documented on your personal income tax returns to the Canadian Revenue Agency. The income amount on your line 150 of your T1 General Tax Returns for the past 2 years are added together and then divided by 2. The amount you get is the income you are allowed to use on your mortgage application and this is then verified by a letter of employment stating you have in fact been an employee there for more than 2 years, your are currently working there, your position, as well as a pay stub showing year-to-date income that is comparable to your 2-year average given the month you are in.

The same process would be used for those who earn over time or bonuses, claim tips, or work part time with two jobs. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

–CHRIS CABEL

INCOME QUALIFIED

There are several different ways a borrower can qualify for a mortgage when it comes to their income. One of the most common ways is known as income qualified. All of the following methods of employment income are under the income qualified umbrella:

1. Annual salary income employees
2. Full time employees working guaranteed weekly hours
3. Part time employees working guaranteed weekly hours
4. Auxiliary/On-call employees with 2-yr history at same employer
5. Commission Sales who have 2-yr history in same job/industry
6. Employees earning gratuities who have claimed over 2-yr history
7. Contract employees with 2-yr history at job/industry

There are a couple more types of employment that may fall into this category, but for the most part, these are the types of borrowers whose mortgage application is going to be done using income qualifying.

When it comes to the first 3, a borrower’s income is paid by a business in which they generally do not have any interest/ownership in. This means, an human resources representative or a supervisor can write a letter of employment stating the weekly guaranteed hours, the guaranteed hourly pay rate, the start date, and the employee’s position. The lender will then use this letter, a most recent pay stub, as well as verbally confirm the letter with the employer to verify a borrower’s income. This is how a borrower who works guaranteed hours or salary has their income verified and qualified on a mortgage application.

For numbers 4 to 7, lenders and mortgage brokers will verify and qualify a borrowers income a little differently. Because an employer does not guarantee hours or income, we need to see that there has been at least a 2-year history making the same amount. This 2-year history will usually need to be with the same employer and will need to be documented on your personal income tax returns to the Canadian Revenue Agency. The income amount on your line 150 of your T1 General Tax Returns for the past 2 years are added together and then divided by 2. The amount you get is the income you are allowed to use on your mortgage application and this is then verified by a letter of employment stating you have in fact been an employee there for more than 2 years, your are currently working there, your position, as well as a pay stub showing year-to-date income that is comparable to your 2-year average given the month you are in.

The same process would be used for those who earn over time or bonuses, claim tips, or work part time with two jobs. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

–CHRIS CABEL