How To Not Qualify For A Mortgage

If you have no desire at all to qualify for a mortgage, here are some great ways to make sure you don’t accidentally end up buying a house and taking out a mortgage to do so.

One of the best ways to ensure you won’t qualify for a mortgage is to be unemployed. Yep, banks hate lending money to unemployed people! Okay, so you have a job. Well, that’s okay, you can always unexpectedly quit your job just as you are trying to arrange financing! Even if you are making a lateral move, or taking a better job than the one you have now, that’s cool… any change in employment status while you are looking to get a mortgage will most likely wreck your chances of getting a mortgage for a while. This is because lenders want to see stability; they want to know that you have been in your current position for some time, that you are past probation, and that everything is working out well. By changing jobs right when you are looking to buy a property, you won’t instil the lender with confidence, and they probably won’t give you a mortgage. Mission accomplished.

Don’t wanna buy a house? Well, then it’s best you don’t save any money. Better yet, you should probably borrow as much money on credit as you can. One of the main qualification points on a mortgage is called your debt-service ratio. Simply put, the more money you owe in consumer debt, the less money you will qualify to borrow on a mortgage, because your ratio of income compared to your debt is higher when you owe more money. Consider this permission to go and finance a Harley-Davidson. Do it, right now. Not a big fan of motorcycles? That’s cool; a Ford 150 should do the trick nicely. The key here is to make sure you add as much monthly payment as you can. The bigger the payment, the better.

But let’s say that unfortunately your debt-service ratios are in line, you have been able to save up the necessary 5% down payment, and you are on your way to buying a house. What do you do? Ugly documentation! A great way to make sure your lender feels uncomfortable is to have really terrible bank statements. Typically when proving your down payment, the lender will require 90 days’ history of your account(s), with your name on the statement, showing that you have accumulated the down payment over time. Want to really mess things up? Make sure there are lots of deposits over $1000 that can’t be substantiated. This will look like money laundering. If that doesn’t work, you can always black out your “personal information.” Just use a black Sharpie and make your bank statements look like a classified FBI document. Lenders hate that!

So you’ve got a great job and lots of money… don’t panic, you can still absolutely wreck your chances of qualifying for a mortgage. Just don’t pay any of your bills on time. Seriously, borrow lots of money, and then stop paying! Boom. Why would any lender want to lend you money when you have a great track record of not paying back any of the money you borrow? Now, if this feels morally wrong, okay, here is an ethical way to wreck your credit. Don’t pay that cell phone bill out of principle. We’ve all been there — roaming charges, extra data charges that the cell company added on your bill… choose not to pay this on principle. This is a great way to sink your chances of getting a mortgage, I mean, how are you supposed to know that some collections (like cell phones) will show up on your credit report?

Last, if you want to make sure you never get financing, insist on buying the worst house in a bad neighbourhood. You see, the property you are looking to buy is very important to the lender. If they lend you the money to buy it and you stop making the payments, they will be forced to repossess and sell it. They are going to make sure they can recoup their initial investment. So, a “handyman special, fixer upper, with lots of potential” is a great option. As everyone knows, those words are code for “a giant dump.” Bonus points if you get those terms written in the MLS listing. Yep, insist on buying something that is falling apart and stick to it; don’t ever consider buying a solid home in a good neighbourhood.

So there you have it, if you don’t want a mortgage, no problem. Quit your job, borrow lots of money, wreck your credit, and insist on buying a dump.

However, on the off chance you feel homeownership is right for you, contact a Dominion Lending Centres mortgage professional. We can help you put a plan in place to avoid these (and many more) mortgage qualification pitfalls.

By: Michael Hallett

RRSP Contributions: To Preserve or Not To Preserve? That is the question…

A recent BMO study shows that the number of Canadians withdrawing money from their RRSP increased to 38% from 34% last year, and on average these Canadians are taking out larger sums of money.

The government requires RRSPs to be converted to a RRIF when a Canadian turns 71. After 71, withdrawals begin and they are taxed as income. Annual minimum withdrawal begins at 7.48% for those aged 71 and rise annually to a maximum of 20% for Canadians 94 and older.

Retirees often resort to tapping into RRIFs to access large sums. For some, RRIFS are viewed as their savings and emergency fund. For others, a RRIF withdrawal is their preferred solution over borrowing money, so that they can avoid monthly loan payments.

A RRIF withdrawal is a common solution, and the financial implications can be severe for seniors.

Let’s look at an example

Background: A retired widow living in B.C. has a modest pension income and only a little over $100,000 in her RRIF.

Goal: Financially help a family member by withdrawing $40,000 out of her RRIF.

Reality: Client discovers at her bank that she has an immediate withholding tax that she must pay because she is withdrawing from a registered investment. Because of this, she must take out an additional $12,000 to cover the withholding tax, which is considerably more than planned. In April, income taxes are due and the full amount of her RRIF withdrawal is added to her income, which increases her income considerably and moves her up a tax bracket. As we know, more income = more taxes. And now she owes an additional $18,000 in income taxes. Where would she find the money to pay her income taxes?

In addition, the savings she intended to use to support herself through retirement decreased substantially and won’t go as far for her as planned. Also, because of her decision to draw the excess amount from her RRIF, she experiences government clawbacks on her income pensions such as, Old Age Security (OAS), Guaranteed Income Supplement (GIS) and other benefits and she now has an increase in her quarterly tax installments. To make matters worse, she is no longer eligible for her provincial health care assistance, and is responsible for the full monthly premium payments herself.

Alternate solution:

By using her home equity with a reverse mortgage, her retirement savings could have been fully preserved. Income could have remained the same because funds from a reverse mortgage are tax-free and do not get added to her income. Best of all, there would have been no tax implications and she could have prevented her pension and her provincial health care assistance from being affected.

This is a true story.

We met this client when her $18,000 income tax bill was due. She was able to use her home and a reverse mortgage to help her in this situation.

Dominion Lending Centres mortgage brokers and advisors see it all the time.

Life events happen. If you know a retiree looking for a financial solution to help a family member or to cover sudden life expenses, recommend they take the time to consider the tax implications that an extra RRIF withdrawal may have on their financial situation.

Then the question really becomes: Which asset should I use? My RRIF or my home?

A reverse mortgage provides a tax-efficient solution, helps clients keep their savings to support retirement and requires no monthly payments (including interest payments).

If this client had a conversation with her DLC mortgage broker to consider all options, she would have been left in a much better financial position for years to come.

By: Simone McMillan

4 Critical Questions You Must Ask Your Mortgage Broker

We have often talked about understanding the personalities of your mortgage on our blog, but another part of that is working with your Dominion Lending Centres mortgage broker to ensure that you are getting the best product and sharpest rate possible. Asking critical questions will help you to not only understand your mortgage, but to also understand the benefit of working with a broker vs. the bank. It will also allow you to rest assured that you have flexibility and security in the mortgage that is selected for you. Here are our 4 critical questions to ask any mortgage broker you work with:

Question 1: What is the sharpest rate you can get me?

Keep in mind, that if you are shopping for your own mortgage, you do not have access to the same resources that a mortgage broker does. A broker can do mortgage comparison to show you what you qualify for. In addition, a good broker can help you compare apples to apples and shops your deal to more lenders.

Question 2: What payout options are available with each loan?

Different lenders offer different payout options varying between 0-20% lump sum payments each year. Some institutions allow you to double your payments monthly and/or once a year. Others will allow you to increase your payments by 20% once per year. There are many varieties of prepayment options, so you really need a broker to seek out the best prepayment options for you.

Question 3: What are the penalties for paying out a mortgage early?

Penalties are three months of interest, or the interest rate differential (whichever happens to be greater) and pending on the type of mortgage you are in (fixed or variable). In another case, a lender may calculate your penalty based on the Bank of Canada’s 5 year posted rate as the penalty payout and not the discounted rate you are in. Unfortunately, since no one can predict the future, you can enter into a 5 year term, and you don’t know what may happen in 2-3 years. If there is a reason you need to get out of a mortgage, you must know your payout penalties.

Question 4: What about amortization?

Your amortization period is the number of years it will take you to become mortgage free. The more that you pay on a payment, the lower your amortization will be. A typical mortgage amortization is 25 years although some opt for 15-20 but others may need an extended amortization up to 35 years. There needs to be flexibility in amortization.

Note: Different lenders, especially working with people with bruised credit don’t always allow the extended 35 years.

Asking these 4 questions will help you to make critical decisions about your mortgage, and can give you peace of mind regarding your mortgage broker’s ability to get you the sharpest rate. Don’t be afraid to ask questions, and if you don’t understand something always ask for a more in depth explanation. Your home may be the biggest purchase you make in your lifetime, understanding the terms and working with a skilled DLC mortgage broker is worth an investment of your time.

By: Geoff Lee

Inside and Outside the Box Mortgages in Today’s Market

As we truck along in 2017, Mortgage Brokers and Lenders are adjusting to the new risk based mortgage rate pricing that came into play after the Finance Minister changed Government backed mortgage default insurance regulations in late 2016.

Lenders often choose to pay for mortgage default insurance on mortgages where the borrower was not required to pay it themselves. This method protects a lenders book of business against credit loss, helps them package more secured mortgages together to sell to investors and reduces the amount of capital they are required to maintain. This method in the mortgage industry is called back-end insuring.

The changes have limited the mortgage profiles that lenders are allowed to insure using Government backed insurers. Essentially the Government is intentionally passing on the risk to Lenders by implementing stricter insurance qualifying guidelines and limiting mortgages that can be insured to what they consider lower risk “inside the box” mortgages.

The onus is now on the lender to absorb more costs if a borrower defaults. In the end costs are passed on to borrowers by lenders applying higher rates to less secured mortgages.

If you’re looking for a mortgage in today’s market your circumstances may not fit “inside the Box” and be an insurable mortgage profile and your mortgage rate may be higher. The following is a short list of what insurers have limited their guidelines to:

• 25 year maximum amortizations
• Must qualify by using a rate stress test
• Maximum Gross Debt Service Ratio (GDS) of 39% (shelter expenses)
• Maximum Total Debt Service Ratio (TDS )of 44% (all liabilities)
• No refinances
• No single unit rentals
• Purchase price must be less than $1 Million

As you can see the insurer’s list is limited making Dominion Lending Centre’s lender connections and mortgage solutions more important than ever! Our Mortgage Brokers have a vast amount of mortgage options available to cover “outside the box” uninsurable mortgage profiles. Whether your refinancing, you need an amortization over 25 years, want to buy a single-unit rental or more we have a mortgage for that!

Contact a DLC Mortgage Broker to get started on your mortgage approval today!

By: Kathleen Dediluke

Prepare, Prepare, Prepare

Every year since October 2008 it’s become more and more difficult to obtain a mortgage. The government claims to be casting a safety net over the Canadian housing industry via stiffer mortgage regulations. What do you need to know to help prepare yourself for a home purchase, refinance, debt consolidation, or even a simple renewal? Well the biggest item I cover on a daily basis is preparation.

It can take a client weeks or months to find the confidence to connect with a Mortgage Professional once they feel confident that they ready to obtain that next mortgage. Any Mortgage Professional worth their salt will be able to guide their clientele to prepare them properly for the mortgage.

Typically most people think they need to prepare themselves most for their first purchase, however preparing for each mortgage these days is more critical today than ever before. When Canadians finally make that call, they want a step by step process to solve their solutions in an easy manner, but are seldom prepared to proceed.

During my regular daily routine, I follow up with my clients with gentle reminders to send me the requested documentation list. Having done this for ten years, the process is quite similar for almost each individual even though the main list of documentation remains the same.

We all want to take short cuts to get to the finished product, but in the end, the banks and lenders have become governed so much so that the short cuts are almost non-existent therefore, preparing the proper document package is essential to an essential mortgage. As Arnold Schwarzenegger said recently in an interview I watched on Facebook, we need to stop taking and thinking about short cuts. There aren’t any to success.

What I’m getting at here is that when your Dominion Lending Centres Mortgage Professional provides you with a mortgage document checklist, please don’t take it for granted, please follow each and every step carefully.

In general, the most common documents required are dependent on what you do for work. So if you are an employee, then the most recent paystub, and an updated employment letter along with the most recent two years of T-Slips (whether they are T4’s from employer’s, T5’s and pension slips), T1 Generals -the entire document (the documents your accountant prepares to submit to Canada Revenue Agency), Notice of Assessments (the form you receive back from CRA after your file is completed). Then there will be the verification of down payment via 90 days of bank statements, any mortgage statements, property tax assessments and the list can go one. The most common mistake is providing a mix and match of the above documents to try and piece together your income story. Depending on how your income is structured, we may be able to provide you with a near pre-qualification but lenders are being more adamant of having the documentation upfront, so that they are using their time, along with the mortgage insurer’s time. As a rule of thumb, the cleaner the file, the easier it is to underwrite and make a proper decision.

Common mistakes include, missing pages from tax documents, poorly written, unsigned, undated, missing info on employment letters (handwritten ones draw huge red flags), cut off pages from documents, out dated items(paystubs and employment letters over 30-60 days is pretty much null and void these days).

You may not know how to prepare yourself, but that’s also what we are for. We are essentially mortgage guidance counsellors to help prepare you for mortgage success, but if we are trying to obtain a mortgage via shortcuts, you’ll be upset with how the process goes.

We all used to have more leeway with mortgage documentation, but it’s clear the government is having banks and lenders scrutinize every mortgage more carefully now than ever before. And the banks and lenders have to oblige as they will be audited, if they don’t pass audits, then they lose out. And if they lose out, we lose competition. Yes this is the new normal, yes it’s tiring, no we don’t like it either, but it’s our new reality. And realistically, is gathering a few extra documents really that bad? Mortgages are not a given right and earned more so than ever before in our recent history.

Our job is to help you prepare for the mortgage, sometimes it will take one meeting, sometimes it’ll take weeks or months, even years depending on your own personal financial situation. But we can provide the recipe to help you prepare, but it’s up to you to do the cooking.

By: Jean-Guy Turcotte

What Happens When a Home Sale Falls Through?

Every homebuyer eagerly anticipates closing day. With the home purchase process completed, ownership of the property transfers from the seller to the buyer – you!

Closing date is negotiated as a condition of sale. You’ll typically have several weeks between the date that your agreement to purchase (sales contract) is signed and your closing date.

During that time, you and your real estate team will work to ensure that all the conditions of the sale are met so you can take possession on the agreed-upon date.

But what happens if a home sale falls through and you are unable to close?

Reasons why a home sale could fall through

It’s worth noting that the vast majority of purchase agreements close as expected. But the most common reasons why a sale may fall through are the following:

• The homebuyer fails to qualify for a mortgage.
• The homebuyer makes an offer to purchase a home based on the condition that they can sell their existing property first – and fails to do so.
• The homebuyer’s lender appraises the property at a value significantly lower than the agreed-upon purchase price. If the buyer can’t make up the shortfall from savings or the seller won’t lower the price, the buyer can no longer afford the property.
• There are title insurance or home inspection surprises. If a title report shows claims against the property or if a home inspection reveals serious flaws, it will jeopardize the sale.
• The homebuyer gets cold feet, changing his or her mind for any reason.

TIP: The best way to reduce the odds of failing to close on a home you want is to get mortgage pre-approval from the mortgage professionals at Dominion Lending Centres before you start house hunting.

Avoid making an offer on a potential money pit by scheduling a pre-sale inspection.

Your home sale falls through. Now what?

If you ever experience a sobering “it’s just not gonna happen” moment, contact your REALTOR® immediately.

If appropriate, they will send the seller’s agent a mutual release form, which releases both parties from the purchase agreement. As the buyer, you will endeavor to get your sales deposit back, and the seller is free to sell the home to someone else.

Problems arise if the seller refuses to sign the mutual release form.

Who gets the deposit?

If the seller refuses to sign the mutual release form, your deposit, which is held in a trust account, remains in trust until it is released by court order.

A disgruntled seller may decide to sue for damages that result from the failed purchase agreement. For example, they may end up selling the property to another buyer for less, resulting in a financial loss.

Or let’s say they purchased a home conditional on the sale of their existing home, and because you backed out, they either fail to close on that home or they must take out bridge financing to save the sale. They’ll probably want compensation for the extra costs and hassle.

While failure to close is an uncommon occurrence, it causes headaches for both buyers and sellers. Try avoiding it by getting mortgage pre-approval before you start house hunting, and by booking a pre-sale home inspection.

Most important, hire a real estate team. These experts can use their experience and professionalism to guide you through your sale, managing any bumps along the way.

By: Marc Shendale

Buying Your First Home in 2017? – 7 Steps to Maximize Your RRSP Down Payment

Are you thinking of buying your first home in 2017? If yes, contributing to your RRSP before the March 1 contribution deadline can help you increase your funds available for your purchase. Follow the 7 steps below so you can maximize your available funds to purchase your first home.

Step 1: Check to see if you fit all the Home Buyers’ Plan (HBP) requirements at www.cra-arc.gc.ca/hbp/. If you do continue to the next step.

Step 2: Consult with your Dominion Lending Centres Mortgage Broker to review your credit and plan ahead so you are mortgage ready. Your broker will help you figure out what you qualify for as well as help you navigate all the first-time home buyer programs such as the new BC Home Owners Mortgage and Equity Program.

Step 3: Contribute to your RRSP to top it up to $25,000 (check your contribution room to confirm the maximum you can contribute) for each buyer. Contribute to the highest income earners RRSP first to maximize your tax refund. If you don’t have the cash to contribute, then it may be beneficial to borrow funds to contribute to your RRSP but talk to your mortgage broker first to ensure your credit is in line to do so.

Step 4: Do your taxes as soon as possible so you can get your tax refund in your bank account.

Step 5: If you didn’t maximize your RRSP to $25,000 put your tax refund into your RRSP (highest income earner first) to help reduce your taxes next year.

Step 6: Now that your funds are in your accounts review your options with your mortgage broker and let your RRSP contributions stay in your account for 90 days for the withdrawal to qualify under the HBP.

Step 7: Begin searching for your first home. Be sure to plan the closing date to be after the minimum 90 days required for the funds to be in your RRSP and allow time for funds to transfer out of your account.

Important 2017 Dates:

March 1 – the 2016 RRSP Contribution Deadline

February 20 – the first day you can file your 2016 income taxes

May 1 – the deadline to file your taxes if you are not self-employed

April 30 – all income taxes must be paid to CRA by all tax payers

June 15 – the deadline to file if you are self-employed

Good to Knows about the Home Buyers’ Plan:

• Funds withdrawn from your RRSP before they have been in your account for 90 days are not eligible under the HBP and income tax will be withheld from the withdrawal
• You can use your RRSP withdrawal for anything from you down payment, paying off debts, moving costs and more as long as you’re in a contract to purchase your first home
• You must repay the withdrawal amount over 15 years starting the year following your withdrawal or pay tax on 1/15th of the amount withdrawn in tax years you do not pay it back.

Your Dominion Lending Centres Mortgage Professional will help you plan to buy your first home. It’s never too early to start your mortgage application. Contact us today to get started!

By: Kathleen Dediluke

35% Down… The New Conventional Mortgage?

If you’re looking to buy a new home, one of the most difficult things can be putting together a down payment for the mortgage. So how much do you really need to put together before you can get into the home of your dreams? Let’s take a look at some of the different options, with their various pros and cons.

0% Down – A Thing of the Past?

If you’ve been in the housing market before, you might remember a time when banks offered extremely inexpensive mortgage options, including the “zero down payment” mortgage. Although these types of mortgages were extremely attractive for obvious reasons, you may remember a something called the Great Recession of 2008. The unfortunate downside to these mortgages was that far too many unqualified buyers were opting into mortgages they could not realistically afford. When these people defaulted en masse, it led, in part, to the collapse of the housing market. As a result, Canadian legislators moved to implement safety measures preventing such high-risk mortgages from being so freely available.

As a result, if you’re looking to buy a home through a federally-regulated lender, you will be required to make a minimum 5% down payment. On the other hand, most major credit unions do still offer zero down mortgages, primarily aimed at lower income families getting into the housing market for the first time. The benefits of this are obvious, requiring less money up front, but what are the downsides? The biggest drawback to this kind of mortgage is the high interest rate. Most of these plans carry an interest rate up to 150% higher than mortgages with 20% or more down. This interest can add up very quickly, in addition to mandatory insurance required for any mortgage with below 20% down. The cost over time of both these high interest rates and insurance can become daunting expenditures, dramatically reducing the attractiveness of these mortgages.

Mid-Range Down Payments – 20% Down

In the Canadian housing market, 20% down is a bit of a milestone. If you put together less than 20% for a down payment, you will be required to also purchase default insurance, a pricey addition your regular mortgage payments. However, if you have 20% or more, you will be exempt from this burden. Common wisdom dictates that, in the long run, you will save a substantial sum of money if you can put together at least 20% for a down payment, as it will reduce your monthly payments substantially.

If you fall somewhere between 0% and 20% in terms of your ability to put together a down payment, you might want to look into the climate of your housing market. For example, when moving into a very popular housing market, where prices are increasing at a fast pace, it could be more expensive to wait until you have a larger down payment, as the prices will increase at a rate which negates the benefits you’d receive by not having to pay insurance. In a mellower housing market, you may be better off saving up and avoiding the higher interest and insurance premiums of a lower down payment mortgage, since the cost of housing will not be likely to climb so quickly.

Whatever your specific situation, it helps to have professionals look into it with you and crunch the numbers to make sure that you’re making the best decision for you!

35% Down Payment – The Ideal Mortgage?

Further conventional wisdom dictates that if a 20% down payment is good, 35% must be even better. The importance of 20% is, of course, that the CMHC insurance is no longer required, but what if you’re situated so that you can afford an even larger down payment? Simply put, the more money you’re able to commit up front to a home, the less expensive it will be in the long run. Not only will you have less to pay off, but you will qualify for even more appealing interest rates. With lower interest rates and no insurance to worry about, the overall cost of your home will be substantially lower and you will be finished paying off your home far more quickly than if you were to put down the minimum.

Of course, not everyone is so situated that they can afford to put down 20-35% on a home. It’s important to note that, although there are benefits, a princely down payment is not required to get into the housing market. If you are a first-time buyer or belong to the low-to-mid income class, there are options available for you as well.

What’s truly important is to be able to take a frank, honest look at your finances, be clear about what you can and can’t afford, get professional assistance when needed, and do the math on what you’re getting yourself into. Buying a home should be an exciting experience, and it can be, provided you put in the necessary footwork! The mortgage professionals at Dominion Lending Centres are happy to help.

By: Tracey Valko

So You Want To Port Your Mortgage?

Recently a video appeared on Linkedin and a few other places singing the praises of porting your mortgage and making it seem like a walk in the park. If you have ever done one, then you would know that it is anything but that scenario.

Porting is not much different than qualifying for a new mortgage, the video talks about the client moving to a new town and just porting their mortgage along with them. Truth is if that you are moving to a new town and a new job you may be on probation and not qualify for the mortgage. The lenders also have to approve the new property as well so a lot more factors that need to be considered.

If you are porting the mortgage and don’t need any more money as in the new house is the same value, then there isn’t much issue. What if the new home is more money and you need to increase the mortgage then the lender has an opportunity to blend the two rates and your mortgage payment could go up. If you need to reduce the mortgage amount, then you may also face a penalty on the amount reduced.

Another factor not talked about is that you still need a down payment for the new home it’s not just going to be a simple move over and continue on with your mortgage. The other thing that happens is that your lender will usually take the full penalty out of the sales proceeds and refund it to you after the sale has completed. In some cases, this process could take up to a month meaning you need to cover the short fall at closing and wait for it to come back to you.

And last but not least how long of a period do you have to port your mortgage, did you know they range from 1 day to 120 day’s maximums? In the case of one day that mean the lawyer has to close both sales in that time frame.

Overall its prudent to get professional advice from your Dominion Lending Centres mortgage professional.

By: Len Lane

Getting Strict On Documentation

With an increase in concern about fraud, lending institutions are getting strict on documentation for mortgage approval.

As part of the mortgage approval process, your mortgage broker will ask for documents to show proof of your income, down payment and possibly other items such as proof of permanent residency and other identification. Since most of that paperwork is in your home in hard copy many people simply take a photo on their phone and send it over by email. As lenders are getting strict on documentation they are not accepting photograph copies and some lenders are not accepting a JPEG file or other formats. They will want a PDF copy of the document.

So I suggest to clients –keep it simple—and make a digital file of all of your important documents stored in a safe — place such as an external hard drive or offsite server location.

1. Your passport or other important forms of identification

2. PDF copies of your T1 General tax returns and Notice of Assessment from CRA.

3. If you need to make a copy of a bank statement get it scanned and copied to a PDF

DO NOT take a photo of your documents and keep them on your phone OR consider those as good forms for lender financing purposes.

When in doubt ask your Dominion Lending Centres mortgage professional.

Remember – these extra steps may be frustrating but this level of security are in place to protect all of us from fraudulent practices by criminals.

By: Pauline Tonkin