WHAT’S INCLUDED IN A HOME PURCHASE AGREEMENT

While a home purchase agreement may seem simple and straight forward, there are many differences that you can encounter that can be a big surprise to first-time homebuyers. While you expect the date of possession and the full purchase price to be outlined in the agreement, there are items that you may not be aware should be included.

New builds vs existing homes

If you are buying a newly constructed home, there are quite a few differences between what you get in an existing home.
Legal fees – often home builders will include the legal fees in the purchase price. You should be aware that the law firm that will provide the service is the builder’s lawyer. Should a legal dispute develop, they will take the side of the builder and you will have to find your own independent legal counsel. In fact, if you can afford it, you should consider getting your own lawyer. The $1,200 savings could end up costing you more in the long run.
You should be aware that the show home that you have visited usually has numerous upgrades. I know that when I purchased my first new home I assumed that the bathroom rough-ins in the basement were standard, only to find out later that this was an upgrade. Retro fitting plumbing pipes is a costly venture.
You should also be aware that landscaping, fences and window coverings are not usually not included in the purchase price. Double check to see if the triple-pane windows on the show home are standard or an upgrade. Hardwood floors and basement development are usually an upgrade as well.

Existing homes

When you are buying an existing home, you will find that the window coverings, fences and landscaping are included in most cases. The window coverings should be included in the offer to purchase contract.
Something that may look like it’s supposed to be there but the seller may want to take with them is the hot tub and storage shed. Don’t assume that these items are included. The legal fees are never covered in an existing home sale.

Finally, from a mortgage standpoint, you should be aware that if you are purchasing an acreage or a large property with several outbuildings, your mortgage lender will cover the cost of the home plus one out building and up to three acres of land. If there’s a garage , barn and workshop usually the garage will be included in what the mortgage company will cover but not the smaller out buildings. Check with your Dominion Lending Centres mortgage professional before you make an offer on a property like this.

– by David Cooke

5 REASONS WHY REALTORS WANT YOU TO HAVE A PRE-APPROVAL

You’ve decided that you want to buy a home and you call up a realtor to show you a listing and the first question they ask is “ How much are you pre-approved for?” Many realtors will refuse to book home viewings until they can confirm that you are pre-approved. Why?

1- It shows that you are seriously committed to a home purchase. I have been told stories by realtors of people booking a series of homes to see and then being dropped off at McDonald’s to be picked up by another realtor to see some more homes.

2.- People have an idea of how much home they can afford. Sometimes this amount is way off. Lines of credit, installment plans, alimony or child support payments or high condo fees can make the amount of house you can afford a lot less than you would expect.

3- Surprises on your credit report. Many times home buyers haven’t checked their credit report before house hunting. An unpaid bill or a dispute with a contractor may result in a lien or collection showing on your credit. There may even be something from a person with a similar name. It’s important to make sure your credit is clean and that it is yours and not someone else’s.

4 –Income issues. A lot of people run out to get a new home when they receive a promotion at work. If the promotion includes a pay hike, is it salary or are they relying on overtime? Mortgage rules demand a two-year history for commission income, overtime or self-employed income. This also can curtail how much you qualify for.

5A – Credibility of the realtor.  When a realtor makes an offer on a home for you, they are not only investing their time and the listing agent’s time but their reputation. Making offers that will not result in a firm sale hurts their reputation in the industry. Trustworthiness and reputation are very important to realtors as they are guiding you in the largest purchase you make in your lifetime.

5B- Negotiating Strength.  In a situation where there are competing offers on a property, the sellers agent will encourage the sells to take the offer that is backed by a pre-approval over another offer that does not have a pre-approval to support it. Your chances of getting your dream home are greatly increased with it.

My one recommendation is that you take the time to contact your favourite Dominion Lending Centres mortgage broker and get pre-approved. It will save everyone time and help avoid disappointment for everyone.

-By David Cooke

CONDO HOME INSURANCE

First thing I would like to say about home insurance- this is not what we specialize in. We are experts when it comes to brokering mortgages, not determining what type of home insurance would be best suited for you. That being said, there are 3 key topics we would like people to be aware of when it comes to home insurance on condos.

Building Coverage Versus Unit Coverage

First, the strata or condo insurance that your condo building has in place protects the building as a whole, not your individual unit. Any damage caused by your unit or a neighboring unit is most likely going to need to come through your own personal home insurance coverage and is not covered by the strata’s. Water leaks being a big one, as well as home damage by a guest or visitor, robbery or theft.

Deductibles

Second, your strata buildings insurance usually has a deductible. This deductible can sometimes be 10’s of thousands of dollars and you will need to pay that in order to have your portion of the strata insurance kick in. This usually happens when their is a catastrophic fire, earthquake, or massive damage to the strata building itself. Deductibles can be a big blow to any savings you may or may not have and a lot of personal home insurance polices will cover that entire deductible.

Injury and Renters

If you have tenants, frequent guest, or long term visitors, you need personal home insurance. If someone injures themselves inside of your condo unit and you are found to be negligent, they have the ability to sue you and the buildings strata insurance will not cover personal injury claims.

When we review documents with a client, we also recommend that our clients reach out to someone who can offer home insurance. It is a free conversation that helps clients fully understand any potential risks that may come from them owning their new home. Home insurance is an inexpensive way to help protect you and your home, to find out more information feel free to reach out to a Dominion Lending Centres mortgage professional near you.

– by Ryan Oake

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.

-By Ryan Oake

FEDS OFFER NEW INCENTIVES FOR NEW HOME BUYERS

In this year’s budget, the federal government announced a program for first-time homebuyers that would offer between 5% and 10% top up from the Canada Mortgage and Housing Corporation.

If you’re buying a brand new home, the CMHC will give you 10% of the total cost, and it will offer 5% if it’s an older construction.

The idea is to give people struggling to afford their first home a break on their monthly mortgage payments. Buyers would still need to put down at least a 5% down payment. Families will have to have a net income of less than $120,000 to qualify, according to news reports.

It’s not clear yet how the repayment process would work, whether you’d have to repay the money with interest when the house is resold, or by some other mechanism. But even if you do qualify for the new CMHC grant, you’ll still need to pass the mortgage stress test. That test measures whether you can handle not just the mortgage at the rate you’re signing for, but they also test when you can handle an additional two percentage points to that.

The Government of Canada has an online calculator where you can test whether you’ll qualify for a mortgage.

I’ve seen a lot of problems with the stress test, and think one thing the government can do is to re-introduce the longer 30-year amortization period. That’s going to allow people to be able to give them a little bit more latitude when they’re actually getting qualified for a mortgage.

It can have a big impact, and not just when you’re first buying the home.

I recently had a client who was a teacher earning about $78,000 a year. And just because they had a (new) car payment, all of a sudden because of the new stress test, they no longer qualified. This is someone with a good job, good income… everything is perfect.

If you have any questions about the new mortgage rules, incentive programs or refinancing, do not hesitate to contact a Dominion Lending Centres mortgage professional near you.

– by Terry Kilakos

A SHIFTING MARKET… AGAIN

The recent data sure has changed the tone of rates in the coming months.

The prime rate – what variable rates are based on, while a few short weeks ago was expected to rise three times in the next 18 months now with the data on the slowing of the market and uncertainty in projects moving forward as expected, there are signs increases could be delayed until next spring.

The bond market- what fixed rates are based on, has dropped, which means rates (after the banks have hung on as much as possible ) should come down slightly.

What does his mean for borrowers? Let’s break it down per segment

1- Homebuyers – more affordability due to the recent dip in prices – pending price category anywhere from 10-30%. Remember, working with an unbiased mortgage professional we do a full look back upon closing to ensure the lowest cost of borrowing.

2. Home sellers – price sharp if you want to sell or else no point in being on the market.
3. Renewals rejoice – payment shock shall be reduced upon renewal.
4. Those carrying debt outside of a mortgage ex: credit cards, car payments, lines of credit – now is your time to see how much money moving that debt into a new restructured mortgage will improve your cash flow. It’s the most effective strategy for protecting your credit.

The most constant theme in everything above: The market is always changing, yesterday’s news is exactly that. Aligning yourself with the frontline experts who will help you with clarity in the ever-changing market. This is why while experts can give you the data on the current market – it’s always subject to change. The decisions a borrower makes is their responsibility to adapt to. If you have any questions, contact your local Dominion Lending Centres mortgage professional.

SOURCE OF FUNDS

Over the past several years, investigators have been working on an ongoing investigation relating to criminal money laundering in Canada. Looking at B.C. alone, billions of dollars have been laundered through B.C. casinos by criminal organizations and parked in high end B.C. real estate over the past decade or more.

With government citing limited resources and a lack of funds available to conduct a proper investigation, criminals have been able to manipulate and take advantage of the Canadian and B.C. legal system for years and it is now finally coming to light the impact it has had on our economy, most notably our real estate market.

One of the measures the government implemented several years ago to help crack down on this was sourcing the funds people were using for the down payment on their home purchases. Lenders are required by the federal and provincial government to collect a minimum of 30 days of transaction history for every bank account where money comes from to help complete a purchase on real estate. Most lenders are still requiring 90 days and they are also required, by the government, to source any large deposits above $1,000 that are unrelated to employment income.

If you have e-transfers and transfers between your own accounts within the 90 day period, the lender will require a 90 day history of the account in which funds were deposited from. That means, if you have a savings account reserved just for a down payment, but you put $1,000 a month in there from your chequing account, brought in $5,000 from a TFSA, and put in $3,000 in cash all before you wrote an offer on a home, a lender is going to want to see 90 day history of your savings, your chequing, and your TFSA account as well as an explanation on where the $3,000 cash came from.

Most people find this frustrating and rightfully so, you are handing over personal information over a long period of time. However, due to the extreme affect money laundering has had on our economy, these rules are likely not going anywhere. When preparing your down payment, be prepared that the lender will be required to collect a 90 day history of every account you have where money is coming from to help cover your down payment. This is not because the lender feels like it, this is because the government regulators who review the loans the banks give out need to see that the lender verified the money was legitimate.

Also, with your T4’s and Notice of Assessments usually going into lenders, if you are just starting a new job and were making $20,000 a year while in school and now have $150,000 in savings for your down payment a year out of school, the lender is allowed to ask for a full year history because your income does not justify the savings you have.

Be prepared! Lenders are required to source down payment funds and with more and more news coming out every month on money laundering, the rules may only get more rigid. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

-Ryan Oake

If you are recovering from a bad credit event, such as a consumer proposal or personal bankruptcy, you should make every effort to restore some lustre to that damaged credit history.

A good way to get started would be by opening two new credit facilities and using them vigorously.

It’s not hard to spot a past bankruptcy with a casual glance at a client’s credit report. Many will have a low-limit Home Trust Secured Visa or Capital One Mastercard.

For a while, Peoples Trust offered its Affirm Mastercard, but now Refresh Financial and others are trying to fill the void left when they exited the space a couple of years back.

Can you ask your bank for a secured credit card?

Most bank staff do not promote secured credit cards, and in some cases aren’t even aware they can offer such a product. But they do, and it’s often there for the asking.

Typically, they use them for consumers with no previous credit history, although they can make an exception for others.

Be honest and explain how important your personal credit history is to you, and that you are embarking on a project to rebuild it and are willing to put up collateral to get their card.

If approved, your money will likely be invested in a term deposit or GIC.

Why is this a good idea?

Down the road as your credit bruises heal, you will be left with whatever credit facilities you put in place following the bad credit event.

Mortgage lenders and automobile finance companies will place more weight on a $2,000 visa card from a major chartered bank than they will from one of the lesser card issuers.

And after a couple of years, the banks return your security deposit and life carries on.

With other secured credit cards, it’s extremely unlikely that will happen until you actually close the card. But when you close the card you lose all the goodwill and history you worked so hard to develop.

I recall advising a client to take a $5,000 secured Visa from TD Bank four years after he completed his personal bankruptcy. Two years later, all mention of his bankruptcy had fallen off his credit report. He was in the branch one day and asked if they could return his security deposit. Not only did they return the deposit, they increased his limit that same day to $18,300!

Re-established credit size matters

We have all come across clients who proudly point to their $300 Capital One Mastercard as evidence they have re-established and rebuilt their personal credit history.

Occasionally, they don’t even use it and they think just having it is enough.

As a mortgage lender, how excited would you be to lend $400,000 to someone who brings a $300 credit card to the meeting? Not very.

How to Add ‘Oomph’ to Your Credit

Increase your limit whenever you can.

Some cards, such as the Home Trust Secured Visa, allow you to start with as little as $500. If money is tight, then do that, rather than wait till you have more money to cover a larger credit limit. It’s a dollar-for-dollar arrangement.

As time goes on, you can request a larger limit for the same card. You could go years with a $500 limit, and a month or two prior to applying for a high-ratio mortgage, contact your card issuer and say you need a larger spending limit. Offer up at least $2,000—the more the better.

You will have to put up more money on deposit, but when your personal credit is checked later, it can appear that you have had the larger limit card since the day you first got the $500 starter card.

Capital One’s Secured Mastercard operates differently. Most of the time, the security deposit is either $75 or $300, regardless of the actual limit you’re given.

I have helped hundreds of people apply for this card, and yet I still cannot predict the limit they might be approved for. Sometimes it is shockingly large, given the consumer’s appalling credit history. Other times, it is a puny $300 or so.

Tips to get your card issuer to love you and increase your limit:

• Use the card very frequently
• Never, ever go over the limit, no matter how small the limit
• Practise good credit hygiene and never, ever allow your statement balance to be higher than 20% to 30% of your limit. Ideally, your statement balance should be close to zero
• Get in the habit of making at least two, if not several, payments each month from your online banking. Suppose you want to use your $300 card for all your gasoline and grocery purchases. You might need to cycle through your card limit four or five times each month

The card issuer’s computer scoring algorithms will recognize your stellar use of their credit card, and in most cases, you will enjoy credit limit increase offers every year or two. These tips work well for pretty much any card issuer.

And don’t bother asking Capital One to increase your limit. They do it when they want to, not when you ask, unlike regular credit cards.

How much new credit do you need?

The more new credit the better, is my opinion. But emphasis is on the word new.

Some people hang onto a credit card or two, even while they file and pay off a consumer proposal. And many have a monthly car or student loan payment. Or even a mortgage and a cell phone bill.

Yes, these are all good for the overall health of your personal credit history, but will not carry much weight if you are looking to apply for a mortgage anytime soon.

Mortgage lenders love to see new credit. Credit that was taken on after the life-changing bad credit event you got hit with.

So, do your best to arrange two new facilities as soon as you can. Even if your bank says no to a secured credit card, Capital One will often be a great place to start.

Use the new card well for a few months, allow it to generate credit points for you, and then you can always look to Canadian Tire Mastercard for a second card, if nothing else comes up.

Some people are gun-shy and want no part of new credit cards. But you must see past that and recognize how hard it is to flourish in Canadian society without a decent credit history.

– by Ross Taylor

7 STEPS TO BUYING A HOME

It’s important to understand the home buying process, so here’s a 7-step checklist.

Step 1: Down Payment
The hardest part to buying a home is saving the down payment (a gift from the Bank of Mom & Dad also works).
• For purchases under $500,000 minimum down payment is 5%.
• Buying between $501-999,000 you need 5% on first $500,000-PLUS 10% down payment for anything over $500,000.
• Buying a home over $1 million you need 20% down payment.

For any home purchases with less than 20% down payment, you are also required to purchase Mortgage Default Insurance.

Step 2: Strategize, Define Your Budget and get Pre-Qualified
Unless you can afford to buy a home, cash in hand, you are going to need a mortgage.
You need to get pre-qualified, which should not be confused with the term pre-approved.
The big difference is that no approval is ever given by a lender until they have an opportunity to examine the property that you wish to purchase. The bank may love you… but they also must love the property you want to buy.
Pre-qualifying will focus on gathering documentation to prove the information on your mortgage application including credit, debt load, income/employment, down payment etc.

Mortgage brokers will make sure you get a great mortgage rate. Just as important as rates are the terms of your mortgage which should include:
• prepayment options (10-20%)
• penalties
• portability
We also discuss what type of mortgage fits your current situation
• fixed vs variable?
• life of the mortgage (amortization) 25 or 30 years etc.
• payments – monthly, semi monthly, accelerated bi-weekly

Step 3: Set Your Budget
Keep in mind that just because you’re pre-qualified for a certain amount of mortgage, doesn’t mean you can actually afford that amount. Prepare your own monthly budget to be sure.
Typically, your total home payments (including mortgage, property taxes, strata fees & heat) should not exceed 32-39% of your gross (pre-tax) income.

Step 4: Find the Right Property – Time to Engage a Realtor
Once you have been prequalified for a mortgage, based on your budget… you need to find a realtor.
Selecting the right real estate agent is a very important step in the home buying process. When you work with an agent, you can expect them to help you with many things, including:
· Finding a home
· Scheduling tours of homes
· Researching the market, neighbourhood and home itself
· Making and negotiating your offer to purchase, and counter-offers
· Providing expert advice on home buying
· Handling the offer, gathering documentation and closing paperwork
I recommend interviewing at least three realtors. You will quickly decide who has your best interests in mind. Do you want to deal directly with a realtor who’s going to work with directly when you go home hunting, or do you want to deal with a BIG name realtor, who has buyers & sellers realtors working under them? There are advantages to each – you need to decide what is the best fit for your situation.
Get referrals for realtors from friends and family… OR ask me, I have a group of realtors that I know and trust.

Step 5: Mortgage Approval
Once you have found the property you would like to call home, your mortgage broker will send your mortgage application and property information to the lender who is the best fit for your situation, based on your input.
If the lender likes your financial situation and the property, they will issue a “commitment” letter outlining the terms of the mortgage. The lender will send you a list of documents, so they can verify and validate all the information you told them on the mortgage application.

Step 6: Time for the Solicitor (Lawyer or Notary)
Once the lender has reviewed and approved all your mortgage documentation and the property documentation, your file will be sent to your solicitor (in B.C. you can use a lawyer or notary). They will process all the necessary title changes and set up a time for you to meet, review mortgage documents and sign.

Step 7: Get the Keys
On the closing day the documentation for your home purchase will be filed at the land titles office by your solicitor. Typically, the possession date is 1 or 2 days later, giving time for the money (down payment & mortgage) to get to the home seller. On possession day you set up a time to meet with your realtor to get the keys.
Congratulations you’re done – you now own your home!!

Mortgages are complicated, but they don’t have to be… speak to a Dominion Lending Centres mortgage broker!

-Kelly Hudson