The Real Estate Bug

The Real Estate Bug is something slowly starting to creep it’s way into the demographic of people in my social circle. Some, not all, are beginning to move on from their “Travel Bug” brought on from graduating high school or post-secondary and onto The Real Estate Bug.

The Real Estate Bug doesn’t mean you are out writing offers on homes, nor does it mean you are about to buy your 4th pre-sale. You might not even be able to buy for another two to three years. It is instead the simple feel of being excited about the idea of owning a home soon and preparing yourself to take that leap.

More and more, people are beginning to reach out to find out what they can afford. They may be three months into their job or five years into their job. Savings have just started, or they have enough to make a down payment in the next couple weeks. Whatever the situation, younger people are becoming more interested in real estate because they know their time to buy is fast approaching.

If you don’t believe me, have a look at the scenarios below. This will show you just how much income you’ll need to afford a typical 1-bedroom condo:

Scenario 1
$300,000 purchase price
$30,000 down payment
$278,370 mortgage

Income: $65,000/yr or $31.25/hr

Scenario 2
$385,000 purchase price
$38,500 down payment
$357,241.50 mortgage

Income: $80,000/yr or $38.46/hr

Scenario 3
$450,000 purchase price
$45,000 down payment
$417,555 mortgage

Income: $91,000/yr or $43.75/hr

Now some of you reading this might be shocked at some of the income numbers thinking “how the heck am I going to buy a place when I make half of what is required?” Let me ask you this… Are you renting with someone? What is their income? Are you in a relationship? Could two of you share a 1-bedroom? Could you afford a 2-bedroom and rent out a room to help with your mortgage? Are parents able to co-sign to supplement income?

Buying with someone else immediately drops those requirements by 50%… If you would like to have a conversation, contact a Dominion Lending Centres mortgage professional near you.

– by Ryan Oake

Last Minute Credit Check

As I’ve said many times, one of the single greatest determining factors in whether you can become qualified for a mortgage and the interest rate at which you do, is your credit history. Many people unfortunately don’t know this, and can be completely blind-sided when it comes time to qualifying.

However, the truly unsettling idea about credit scores and their relation to home financing is the fact that most people do not even know they are extremely important even after you have been approved…

Once your offer on a home is accepted and you remove financing conditions, it is your obligation to secure the money needed to close the sale. There are usually a list of conditions one must meet and satisfy in order to obtain the financing they need from a lender. Once that is done, the mortgage will be sent to a real estate lawyer where they will be instructed to finalize everything. This is where all closing costs will be paid and all corresponding money will be sent to the proper parties involved.

However, before any of this is done, one more thing must happen…

Your credit report can be reviewed once again in order to verify your credit history is the same as it was when you were first qualified for a mortgage, sometimes months earlier.

So what happens if you made an offer on a home, got approved for financing, lifted all conditions, and because you also met all the lenders conditions, went out and bought new furniture for your home on a credit card? Well, you may not be able to receive your loan anymore…

If you increase the amount of money you are borrowing through any credit card or bank, miss payments on existing debt, or for any reason alter your credit history from the day you are approved until the final closing day at the lawyer’s office, you run the risk of not being able to complete your purchase.

If you plan on spending any money that isn’t cash and isn’t in a separate account needed for your down payment or closing costs, you need to talk to your broker because it could end horribly for all parties involved and potentially result in legal disputes.

This is the most important purchase and decision you may ever make, why things like this have never been explained in schooling or anything like that is beyond me. That is why it is important to work with an experienced, knowledgeable Dominion Lending Centres mortgage broker and make sure you fully understand the process you are about to embark upon.

– by Ryan Oake

Subject Free Offers; Still Risky!

The majority of my clients have stellar qualifications: established careers and businesses, excellent credit ratings, solid down payment funds, etc. They are truly awesome individuals who will almost certainly receive mortgage financing without a hitch.

Almost certainly.

With multiple offers, bidding wars, and over-asking-price bids now common as far afield from Vancouver proper as Port Coquitlam and beyond, clients find themselves, in the heat of the experience, contemplating a subject-free offer.

But there’s often an unanticipated hitch: the property itself.

A client would be hard pressed to find a Realtor to write an offer without a ‘subject to inspection‘clause, and for good reason. Similarly, a client should be hard pressed to find a Mortgage Broker advising an offer without a ‘subject to financing‘ clause.

This is because no banker or Broker can give a client 100% assurance of financing without factoring in the actual specific property details. Until an appraisal is reviewed and approved, the application is not complete. And there are some properties that some lenders simply will not lend against.

There are the obvious examples that lenders tend to exclude;

• Properties containing Asbestos, Aluminium wiring, Underground Oil tanks
• Re-mediated former grow-ops
• Re-mediated drug labs.

There are also less obvious ones;

• live-work units
• row-homes (attached non-strata properties)
• properties smaller than 450 sq ft
• properties on lease land, Government, First Nations, or Private.

Regarding the appraisal process, there is more than simply the valuation question to be answered. In fact, valuation is rarely the challenge in our market, as many properties ‘auto-approve’ when the value is below $750,000. (This is not true of ALL properties below $750,000 by a long shot; many lenders condition all strata properties for instance for a full appraisal no matter the purchase price.)

What is being looked at other than value in the appraisal report?

A key complication is a little thing called ‘Remaining Economic Life or REL’ (as opposed to the ‘physical life’) of the home. This refers to how long this specific house is likely to remain standing on this property under the current care it is receiving.

Perhaps we have an otherwise perfectly habitable home for decades to come ─ lots of remaining ‘physical life’. The problem is that lenders are looking for remaining ECONOMIC life rather than the remaining physical life. The question is not “How long can that house be standing there?” it is “How long does it make economic sense for that house to be standing there given current market conditions?”

There may be a problem if it is located in a neighbourhood where many of the older homes are being purchased to be demolished and replaced with multimillion dollar homes. That leaves the purchase looking like a speculative land play or potential knock-down. As such, the remaining economic life is perhaps 15 years or less stated in the appraisal report.

Or maybe the property is a ramshackle house in a state of disrepair. It looks like the bargain of the age on paper, and perhaps the purchaser is a contractor planning to bring the home back into a wonderful state of repair. However the appraisal must view the current remaining economic life of the home ‘as-it-sits’ not ‘as-is-planned’. We have seen homes like this with REL as short as five years.

What is this ‘Remaining Economic Life’ exactly?

Economic life is the total period of time which the improvements (house/buildings) contribute to the overall property value. The total economic life of a typical Lower Mainland home is generally accepted to be 65 years. Economic life and physical life can differ widely and physical life usually exceeds economic life. Renovations and updates can increase a property’s physical and economic life, and poor maintenance can shorten it. Increases in land value can also have a negative impact on remaining economic life. As older homes are torn down to make way for new ones, it makes less economic sense to keep the older one standing.

REL is the estimated time period which the improvements continue to contribute to property value. An appraiser estimates REL in part by interpreting the economic conditions, attitudes and reactions of buyers in the market.

The REL is calculated by subtracting the Effective Age from the Total Economic Life.

Economic Life – Effective Age = Remaining Economic Life

For example:

A 40-year-old home that has had substantial renovations may have an effective age of 30 years.

65 years – 30 years = 35 years Remaining Economic Life (REL)

How lenders view Remaining Economic Life (REL)

Few lenders will lend on a home with a remaining REL of less than 15 years. Also, the effective amortization will be set at the REL minus five years, which drives payments sky high, and often leaves client unable to qualify for such large mortgage payments should they even want to sign on for them.

Clients can run the risk at this point of their own awesomeness being part of the undoing of the mortgage approval. Clients with significant liquid assets and strong incomes buying a smaller, older home on the street of newly built monoliths will be viewed as most likely planning to knock the home down and build a new one.

The immediate thought: ‘But the land value alone… ’

Lenders are not in the business of writing conventional AAA-rate mortgages on properties that will be torn down. Instead this is viewed as ‘speculative’ or ‘investment/business’ lending with which come undeniably greater risks. Wherever one finds greater profits there are greater risks. Lenders price accordingly, which is why land/construction financing carries higher rates and additional fees.

A property with a habitable home standing on it is unquestionably easier to market and sell ─ and thus recover the loan balance from ─ should the lender have to step in and take over. And foreclosure is the last thing any Canadian lender wants to contemplate.

It will take on average 18 months of no payments before a lender has gained control of and sold a property through the foreclosure process. And at the end of it said lender must seek out the defaulting client and write them a cheque for the remaining equity that was in the property, all the while honouring the original interest rate in most cases.

It is nothing like the US system at all. (which is a wonderful thing for us)

So lenders avoid any whisp of risk, preferring security. Ideally in the form of a habitable home on a lot that is going to look decades from now much as it does today.

Clients would be wise to also minimize risk, by either writing offers that contain a ‘subject to inspection’ and a ‘subject to financing’ clause, or by having a detailed conversation with a skilled Broker well in advance of writing a subject-free offer.

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

– by Dustan Woodhouse

4 Mortgage Steps to Overcoming High Consumer Debt

Client success stories are what make our job WORTH IT (We think most mortgage brokers would agree). So, with this in mind, we are sharing a recent client’s story that allowed them to not only purchase the home they wanted, but also pay down their own debt.

Mortgage Problem:

We had a young couple with two young children come to us looking to buy a detached home with a rental suite. They had several thousand dollars of consumer debt they had yet to pay off, and very little funding for the down payment. The husband was employed, and his wife ran a small business from their home. Their combined income was average, but with their significant amount of debt they weren’t sure they would be able to buy their dream home.

A close friend recommended that they visit a mortgage broker, and instantly we were able to see how we could help them not only find the down payment funding, but also help them pay down their debt.

Mortgage Solution:

Step 1: By the numbers.
First up, we looked at the numbers we would be working with to make this happen.

Purchase price of dream home: $600,000
Requested Mortgage Amount: $570,000
Loan to Value: 95%
Credit Score: 699 and 768

Step 2: Collect documentation.
For this particular mortgage we collected:
● Lease agreements for two suites (loft and basement)
● Notice of assessment and T1 generals from the last two years
● Standard income documentation for full-time employment
● Confirmation of self-employment for the last two years

Step 3: Calculate the total debt services ratio.
We took the above numbers and worked with them to present a debt service ratio that started out as 47.74% and brought it down to 42.5%

Step 4: Share the mortgage solution!
The down payment was provided by the parents and the rental income from the subject property was used. All their remaining debts were paid with $25,000 cash back from the lender who also provided an interest only payment Line of Credit to cover both the mortgage and consumer debt.

Our clients were thrilled to be able to purchase their dream home and to have their consumer debt under control. We are proud to be able to help couples like this to make their dreams become a reality, and really, all it took was 4 simple steps to get them into their home! If you have any questions, contact a Dominion Lending Centres Mortgage Professional near you.

– by Geoff Lee

Bridge Loans

If you have ever sold your home in order to help with the purchase of your next home, chances are you have heard of bridge financing. Bridge financing is an option available to homeowners if they find themselves in a little bit of a pinch when it comes to two different completion dates.

A situation where a bridge loan or where bridge financing can be useful, is when you put an offer on a home you plan on buying with a completion date for the first of the month. However, in order to purchase this new home you need the money you’ll receive from the sale of your current home. What do you do if it closes at the end of the month, 30 days after you are supposed to pay someone for their home with these proceeds?

A lender can offer you bridge financing, where they will advance you your down payment as a separate loan for up to 30 days, some 90 days or more on exception. This allows you to close on the new property, pay the seller, and keep the contract to sell your place 30 days later where the proceeds from your sale will pay out the bridge loan instead of being used to pay the seller directly.

You will need to have accepted offers on both the property you plan on buying as well as the one you are selling with financing conditions removed as well as enough funds to cover the deposit. In some circumstances, you may be able to borrow the deposit from another source if that was also supposed to come from the proceeds of the sale of your current home. If you have any questions, contact a Dominion Lending Centres mortgage professional today.

– by Ryan Oake

Reverse Mortgage – Common Uses

Here is the final blog in the REVERSE MORTGAGE series. If you missed the first two, you read them here and here:

Eliminate mortgage payment – Retired, or wanting to retire, but still have a mortgage and mortgage payment to make? Use a reverse mortgage to pay off the traditional mortgage, getting rid of that monthly payment.

Unexpected expenses – Home repairs, helping children, vehicle repairs, health care/home care, etc. A reverse mortgage gives you access to your tax-free equity whenever you need it. The equity can be used to pay for those expenses without the burden of adding a new monthly payment into your life.

Helping family – Home values have risen, and often the plan is to leave the house to children or grandchildren as an inheritance. A reverse mortgage is a way to access some of that inheritance money today, gift the money now and enjoy it with them as the family benefit much earlier in life.

Purchasing a new home – Some clients are moving to that just right, final home, but finding they cost more than anticipated. A reverse mortgage can be used to buy a new home, allowing clients to afford a much higher priced home, or keep more cash on hand.

Aging parents needing home care – As we age, sometimes a little additional help is needed to stay in the home. Instead of selling and moving to a care home or assisted living, some clients prefer to stay in the house and have in home care. A reverse mortgage is a terrific way to access the equity in the home, month by month, to pay for those care costs.

Tax free retirement funding – By using the home as part of the financial plan, clients can preserve investments, pay less tax, and often have a greater net worth in the end.

If you or a family member would like to learn more about reverse mortgages, contact a Dominion Lending Centres mortgage professional near you.

– by Michael Hallett

Your mortgage broker is here to help

For many people in Canada, they are first-time home buyers. Or if they are new to Canada, it’s their first home purchase in a new country. They may not be aware of the rules and guidelines. It’s the job of your mortgage broker to make you aware of what is expected from you to avoid disappointment.

Mortgage Documentation
90-day bank statements – It’s important to make your clients aware that they need 90 days of bank statements to show they have saved the funds needed for the down payment and closing costs. Closing costs vary by province, so it’s important to let out-of-province buyers know exactly what the costs are in their new home. I like to explain that the 90-day statements is meant to prevent money laundering. A few years before this law was enacted, gangs would find an elderly couple and offer them the down payment funds asking only to be allowed to grow a few plants in the basement.

Some people are very private and don’t want you to know how much they spend on lottery tickets. They will blank out everything on the statement except for the down payment funds entering the account. This will not be accepted by lenders and is a big red flag for them.
Another problem that can arise with statements is if the clients print them online. As a security precaution, many banks allow printouts but they remove the name and/or account number from the statements. The easiest thing to do is to have them go into a branch and ask for a printout and have it stamped by a teller.

Employment Letters- Many small employers will give a hand written employment letter. This is acceptable but a letter written on company letterhead is better. The letter should state the name of the employee, their job title when they started with the firm, if they are full or part time and what their gross annual income is. If there’s an overtime or bonus component to their pay, this should be clearly explained and how much of their gross is straight salary.

After the Mortgage is approved
It is important for home buyers to know that while the mortgage has been approved they need to avoid doing anything to change their financial situation before possession day. That means they should not quit their job, buy lots of new furniture or a car. Lenders will often check the credit bureau a few days before possession day to see if there’s been any changes. If the debt ratios are out, the mortgage could go sideways. Taking a few minutes to explain this is prudent but it also shows you care. Dominion Lending Centres mortgage brokers are not big banks, we are people who live in the community and we want to see our clients in homes and living happy lives. It matters to us.

– by David Cooke

Is easy money coming to an end?

In a previous post, I discussed interest rates and their effect on real estate values. I argued that they did indeed alter buyer perceptions, and consequently value and price. But what about absolute interest rate levels? Is easy money coming to an end?

Many lack any experience of high interest rates
In a June 5, 2017 Globe and Mail article entitled Remember When: What have we learned from the 1980’s and that 21% interest rate?, author Richard Blackwell quotes CIBC World Markets deputy chief economist Benjamin Tal “We have a generation of Canadians who have never experienced high, or even rising, interest rates,”. He goes on to say “For them, those extremely low interest rates are a given.” Are interest rates likely to test those levels in the future? Likely not, for a host of reasons. First, inflationary pressures seem not to be as prevalent. Yes, you could argue there is price volatility, and a quick trip to the local gas station will confirm that opinion. However globalization seems to have had a positive impact over the past several years. The article states that “Low-priced imports from developing countries have helped keep domestic prices down, and that situation is not likely to change significantly in the next while.” Second is the shifting demographics in Canada, baby-boomers are aging and downsizing and exiting the housing markets. Demand for funds, while still robust, is tapering off.

Is easy money coming to an end?
If inflationary pressures are generally in check, and aging baby boomers are inevitably curtailing spending, are we in for an extended period of low interest rates? Not so fast. In a recent Reuters article entitled Tide about to turn for markets as easy-money decade comes to an end, authors Sujata Rao and Dhara Ranasinghe suggest that “While markets reached dizzying heights during the easy-money era, that flood will dry up the the end of the year. For the first time since 2011, the central banks are expected to suck out more cash in 2019 than they pump in.”

Implications for Property owners
If the era of low interest rates is ending, what will rising rates mean for for commercial real estate buyers? One of the most important considerations in real estate acquisition is cash flow, both current, and anticipated. The absolute level of interest rates, and consequently mortgage rates, speak directly to the performance of commercial real estate. Why? Because of the direct impact on the present value of future cash flows. Your cash flow after debt repayment is eroded by increasing interest rates, and strangled by absolute high interest rate levels. High interest rates lessen future cash flows, which lowers the value of the asset.

Historically inflation rate increases often happen in tandem with interest rate increases. Inflationary pressures seem not to be in evidence, at least not to the degree as we’ve seen previously. One interesting byproduct however, is that while property owner cash flow may erode, inflationary pressures often do increase the value of hard assets. So while increasing interest rates and inflationary pressures erode cash flows, savvy investors often turn to real estate as it has an uncanny ability to whether the storm of inflation.

– by Allan Jensen 

What happens when your credit card account is closed

I have been working in the mortgage industry since 2005. I have had all sorts of clients over the years. Every once in a while I get someone who has a car loan , a couple of credit cards but there’s a collection from a credit card, a dentist or some other creditor. When I ask why this has not been paid, I am told that they had a dispute with this firm and they are not going to be pushed around. The client doesn’t care if the account is sent to collection, they won’t pay it just on principle.

While I admire people who stick to their guns, they are on a slippery slope and things will not work out well for them. Sometimes they think that because the account is closed they don’t have to pay anymore. This is totally wrong.

CREDIT SCORES WILL DROP
As the creditor has reported your late or missing payment, your score goes down with the credit reporting agencies every month until you get to 120 days late or the creditor closes the account. However, they may send your account to a collection agency who will add their fees to the account and threaten or harass you. While you may not owe the money to your original creditor, they have sold the debt to someone else. You still owe your original amount and probably more with interest accruing every month.

Something that most people do not realize is that this refusal to pay an account means that you won’t get a mortgage or any new credit lines until the problem is resolved. The longer you hold out, the more likely that you will need to use a B lender for your next mortgage and car loan. I have seen car loans with 26% interest and mortgage with 16% interest over the years.
My advice is don’t ignore the problem. Get it resolved as soon as possible. I know that you want to stick to your guns but it’s going to end up costing you a lot of money. If you have any questions, contact a Dominion Lending Centres mortgage broker near you.

– by David Cooke

Reverse Mortgage – Need to Know

HomeEquity Bank is the only bank in Canada that currently offers the CHIP Reverse Mortgage as well as a secondary product, Income Advantage. These two products are options for homeowners unlike anything else out there. Instead of borrowing money to purchase a house, they will lend you money if you already have purchased one (as long as you qualify).

Recently I finished a half-day seminar where I was educated on the different HomeEquity Bank offers through the CHIP Reverse mortgage and their Income Advantage products. Below I would like to share with you some of the key benefits and summarize the different ways you can potentially use these products.

CHIP Reverse Mortgage

• Loan-to-Value:

  • 55% maximum (dependent on property and applicant age)

• Mortgage Amount:

  • Min. $25,000 initial advance

  • Min. $10,000 for subsequent advance

• Terms:

  • 6 month fixed, 1-yr fixed, 3-yr fixed, 5-yr fixed

  • 5-yr variable rate

• Amortization:

  • None

• Payments:

  • No regular monthly payments required

• Debt Servicing:

  • None required (Just max. 55% LTV)

• Credit Bureau:

  • None

Now obviously there are other items such as appraisals, property taxes that need to be paid regularly, document requirements, and prepayment privileges as well as fess. However, the information listed shows you the vast differences between a traditional mortgage and a CHIP reverse mortgages.

If an applicant is over the age of 55, lives in their own home as well as owns it (at least the majority), and their property meets all the age and locations requirements, they can apply to have access to this product. Refinance, home improvements, in home medical care, gifting money to child or grand-child, supplemental income, all of these things can be achieved with a CHIP Reverse Mortgage.

Income Advantage

• Loan-to-Value:

  • 40% maximum (dependent on property and applicant age)

• Mortgage Amount:

  • Planned advances from $500/month or $1,500 a quarter

  • Min. $10,000 for subsequent advance

• Terms:

  • Planned advance: 5-yr variable rate

  • Lump-sum: 5-yr fixed, 3-yr fixed, 1-yr fixed, variable rate

• Amortization:

  • None

• Payments:

  • No regular monthly payments required

• Debt Servicing:

  • None required (Just max. 55% LTV)

• Credit Bureau:

  • None

The Income Advantage program is a lot like the CHIP Reverse Mortgage program, however, the Income Advantage is geared more towards people who want a stream of income they can rely upon every month. You can still do lump-sum advances but the main difference is it allows you to set-up planned advances.

Using HomeEquity bank can be extremely advantageous for a lot of people in Metro Vancouver. It allows people to access the cash in their home without being burdened by any lack of financial income and it can allow people to help their children or grandchildren by advancing the money and gifting it to them for their own home purchase.

When it comes down to it all, there are really two main things these two products do. One, is it allows for an income stream based on the home you live in and age, regardless of employment or credit history. Two, it allows parents or guardians to provide money from the equity in their home now, to the beneficiaries who would one day in the future be recipients if included in an estate will- an advance on an inheritance.

There are many things to consider with HomeEquity’s CHIP Reverse Mortgage and Income Advantage Program, if you or someone you know may benefit from secondary or primary income, support for medical expenses, home renovations, travel, or wanting to help family members with their financial needs, please do not hesitate to contact a Dominion Lending Centres Mortgage Broker.

– by Ryan Oake