5 Things to know before buying a Rural Property

General DAZADA DIAMOND 31 Jul

5 Things to know before buying a Rural Property

After several years as a home owner, my friend was set to buy the home of his dreams. He always wanted to own an acreage outside of town. He had visions of having a few animals, a small tractor and lots of space.
As a person with experience buying homes, he felt that he was ready and that he knew what he was getting into. Wrong. As soon as you consider buying a home outside of a municipality there are a number of things to consider, not the least being how different it is to get a mortgage.

Zoning – is the property zoned “residential”, “agricultural” or perhaps “country residential”?

Some lenders will not mortgage properties that are zoned agricultural. They may even dislike country residential properties. Why? If you default on your mortgage the process of foreclosing on an agricultural property is very different and difficult for lenders. Taking a farm away from a farmer means taking their livelihood away so there are many obstacles to this.
If you are buying a hobby farm, some lenders will object to you having more than two horses or even making money selling hay.

Water and Sewerage – if you are far from a city your water may come from a well and your sewerage may be in a septic tank. A good country realtor will recommend an inspection of the septic tank as a condition on the purchase offer. Be prepared for the inspection to cost more than it cost you in the city. Many lenders will also ask for a potability and flow test for the well. A house without water is very hard to sell.

Land – most lenders will mortgage a house, one outbuilding and up to 10 acres of land. Anything above this amount and it will not be considered in the mortgage. In other words, besides paying a minimum of 5% down payment you could end up having to pay out more cash to cover the second out building and the extra land being sold .

Appraisal – your appraisal will cost you more as the appraiser needs to travel farther to see the property. It may also come in low as rural properties do not turn over as quickly as city properties. Be prepared to have to come up with the difference between the selling price and the appraised value of the property.

Fire Insurance – living in the country can be nice but you are also far from fire hydrants and fire stations. Expect to pay more for home insurance.

Finally, if you are thinking about purchasing a home in a rural area, be sure to speak to a Dominion Lending Centres mortgage broker before you do anything. They can often recommend a realtor who specializes in rural properties and knows the areas better than the #1 top producer in your city or town.

  • https://dominionlending.ca/news/5-things-to-know-before-buying-a-rural-property/

Reverse Mortgage – the pros and cons

General DAZADA DIAMOND 30 Jul

Reverse Mortgage – the pros and cons

You may be seeing and hearing a lot more regarding the Reverse Mortgage in today’s marketplace. I have taken the time to get familiar with the program here in Canada and have been quite surprised by how it’s changed and how different it is to its counterpart in the U.S. and how relevant it has become given our aging population in Canada.

Who are they best suited for? People age 55+ that own a house, townhouse, or condo and want to either increase their cash flow, or access equity without making a monthly payment. The older the client, the higher the approved limit.

Here is a list of PROS and CONS of the Reverse Mortgage.

Pros

  • Funds can be advanced as needed such as a line of credit with interest only accruing on the money advanced.
  • No income debt servicing like other ‘standard’ mortgages. Retirees with fixed incomes can qualify for much more money as our approvals are based on age and property.
  • No payments required. Borrower can retain more of their income and never worry about default or foreclosure.
  • Changes in interest rates don’t affect the client’s monthly cash flow since there no payment required.
  • Clients can pay up to 10% towards the loan if they choose each year, but there is no obligation.
  • Prepayment penalties are waived upon death and reduced by 50% if the borrower(s) are moving into a care home.
  • Borrowers will never owe more than the fair market value of the home at the time it is sold
  • There are no changes to the mortgage amount and no payments required if one spouse passes or moves into a care home.
  • With conservative house appreciation of just 2.5% to 3% per year over time will typically make up for the accruing interest on the reverse mortgage leaving clients with plenty of equity in the end.

Cons

  • Client are choosing to have more income/cash flow TODAY, in return for having less savings in the home TOMORROW.
  • All clients are required to obtain independent legal advice, which is a good thing. But there is a small extra cost. Total one-time set up and legal fees run approximately $2,500.
  • Rates are approximately 1.5% to 2% higher than a best rate secured line of credit.
  • If the housing market never goes up, and the client lives in the home long enough, there is a chance the client could exhaust all the equity in the home to fund their retirement.

If you, a family member, or a contact of yours could benefit from a reverse mortgage or want to learn more, please contact a Dominion Lending Centres mortgage professional who can walk you through the entire process.

  • https://dominionlending.ca/news/reverse-mortgage-the-pros-and-cons/

Subject to Financing- A Must!

Mortgage Tips DAZADA DIAMOND 27 Jul

Subject to Financing- A Must!

With most people who are new to real estate and looking for their first home (or possibly second), one of the most significant times is when your offer to buy is accepted by a seller. Unfortunately, that moment is quickly followed by stress, as not many people know what comes next- securing financing. 99% of the time a realtor will ask you if you have been qualified by a bank or a mortgage broker before they write an offer on your behalf. What should be told to you, the client, by the realtor and your mortgage broker is that you need to have a subject to financing condition in your offer.

In order for someone to receive a mortgage from a lender, they need to meet the lender’s (and some times the insurer’s) conditions. Usually, these all revolve around a borrower’s down payment money, their income as well as employment, and the property they are making an offer on. If you make an offer on a home and it is accepted, but for example the lender doesn’t like the property because the strata board doesn’t have enough money in their contingency fund to fix the leaking roof in the next 12 months, they could turn down your application and not lend you money.

If you don’t have the money, you don’t get the home. That is why you have a subject to financing condition, so if for any reason, you can’t meet the lender’s requirements with your income, down payment, or if the property is unacceptable to them or the insurer, you can cancel your offer without any hassle or loss of deposit.

What happens if you make a subject free offer? If you make an offer on a home and it doesn’t have a subject to financing condition in it, that house is now yours once the offer is accepted. Your deposit is no longer yours, and you have to come up with the remaining money. If you cannot and are unable to complete the purchase, the seller may file a lawsuit against you for damages as they have now taken their home off the market potentially losing out on the ability to sell their home to someone else while they waited for you to get financing.

Always, always, always have a condition in your offer that states subject to financing and allow yourself 3 to 5 business days. If you go in without that fail safe and it turns out you really need it, you will potentially be on the hook and if the seller wishes, he or she can sue you for any potential losses. Subject to financing is a must! If you have any questions, contact a Dominion Lending Centres mortgage professional.

  • https://dominionlending.ca/news/subject-to-financing-a-must/

CMHC enhances qualification for self-employed borrowers

General DAZADA DIAMOND 24 Jul

CMHC enhances qualification for self-employed borrowers

CMHC enhances qualification for self-employed borrowersThe Canada Mortgage and Housing Corporation will enhance qualification criteria for self-employed borrowers beginning October 1 to give them much-needed relief.

Under current rules, self-employed borrowers who operate their business or have been in the same line of work for fewer than two years can qualify for a mortgage provided that a solid rationale is noted on the lender’s loan file.

But a few additions to the guidelines will reduce rigidity.

“Factors that could be used to support the lender’s decision will include acquiring an established business, having sufficient cash reserves, predictable earnings, previous training and education, and looking at borrowers’ demonstrated history of managing credit,” said Monica Guido, CMHC’s manager of client relations.

Newly self-employed borrowers are also getting a break. Documents showing previous employment are currently sufficient to support qualifying income, but, come October, previous documentation based on types of income will also be accepted, as will recent account statements, business documentation and signed contracts that are based on income types.

For self-employed borrowers using the “add back” to gross up their income, audited financial statements and financial statements accompanied by a Review Engagement Report signed by a practicing accountant are currently accepted.

“Our newest enhancement is in response to lender inquiries,” said Guido. “CMHC recognizes that unincorporated business owners may not typically have that documentation. The following documentation will be added: A Statement of Business or Professional Activities report, and use of Notice of Assessments to support income from the self-employed. The NOA should be accompanied by the T-1 General. This is new.

“The second new component it will add onto that is the use of Proof of Income statements, which isn’t applicable in our current guideline, but in our enhancement, in response to lender inquiries, the POI statement will be added to the guideline as an example of documentation to support that qualifying income, and to ensure that personal income taxes are up to date. So the POI statement can be used as an alternative to the NOA and T1 General.”

Daniel Johanis, a DLC Mortgage Centre broker, believes that the enhancements will help CMHC recover market share, but above all he welcomes them because they offer the broker channel more solutions.

“For the majority of my self-employed clients, I’m doing it through the alternative channel,” he said. “At alternative banks where you put at least 20% down, they have a little bit more flexibility with what they can use as far as income sources. You have the Canada Child Tax Benefit, you have Registered Business, whereas some other banks, if you’re doing high ratio, you always have to look at your Line 150, or whatever your net income is.

“Any time requirements are loosened on getting approved for a mortgage, it gives us more options.”

  • https://www.mortgagebrokernews.ca/news/cmhc-enhances-qualification-for-selfemployed-borrowers-245619.aspx

Refinances, Renewals & Transfers

General DAZADA DIAMOND 24 Jul

Refinances, Renewals & Transfers

After you have purchased your new home, closed on your new mortgage, and are all moved in, what comes next?

Well, when it comes to your mortgage, the next step is to either refinance, renew, or transfer your mortgage. This decision can be made one month into your new mortgage or one month before your new mortgage is set to mature. Below is a break-down on what a refinance, renewal, and transfer mean.

Refinance
Refinances are when you decide to access the equity in your home. When your home rises in value, say $400,000 in 2016 to $500,000 in 2021, you can request your current lender, or a new lender, to pay you a portion of that increase in cash and they will in turn add that same portion to your mortgage for you to pay back- with interest.

There are many reasons to refinance; for home repairs, purchasing second properties, financial assistance with other outstanding loans or to have access to cash for larger purchases. It is only a refinance when you change the amount of your mortgage and borrow against the equity you have in your home.

Renewal
Renewals are quite straight forward. At the end of your mortgage term, your lender will offer you a renewal letter stating the remaining balance on your mortgage, what the remaining amortization is, and what interest rate options they can offer you.

The term can be 5-years for example, but most mortgages are on what’s called a 25-year amortization- the length of time it takes to pay off the entire mortgage. The 5-year term is just a length of time you are guaranteed a certain rate before you need to renew it. Renewals generally do not require any re-approval, documents, or applications as no new money is being added, the property is the same, and so is the lender. It is straight forward and allows you to continue paying your mortgage, just on a different interest rate.

Transfers
Transfers are a lot like renewals, the one difference is you are switching lenders. You are not adding more money, selling or buying a new home, everything is remaining the same except who you are paying interest to. One reason someone may want to transfer their mortgage from one lender to another is bad customer experience. Another could be to take advantage of a lower interest rate. Another reason could also be to take advantage of a lender’s product like a Home Equity Line of Credit or high pre-payment privileges.

Transfers are becoming more and more common as lenders are constantly looking to add clients and customers to their brand, being able to take advantage of interest payments as well as offer other products.

If your mortgage is up for renewal or you have been thinking about what kind of options may be available to you with your current mortgage, please reach out to a Dominion Lending Centres mortgage professional to discuss the different choices you have.

  • https://dominionlending.ca/news/refinances-renewals-transfers/

CMHC wants more robust income verification

General DAZADA DIAMOND 23 Jul

CMHC wants more robust income verification

CMHC wants more robust income verificationThe CMHC wants the Canadian Revenue Agency to provide more robust verification of incomes stated on mortgage applications.

The call comes following an investigation by the CMHC into the correlation between incomes stated on mortgage applications and those reported to the CRA.

It now wants the tax agency to take a “more direct and formal role” in verifying incomes according to documents obtained by Reuters.

Some other countries including the US and UK have systems where the tax agency does provide lenders with verification of mortgage applicants’ incomes and the CMHC believes this would cut potential incidents of mortgage fraud, which can have a serious impact on the economy, especially if there is another financial crisis.

The CRA told Reuters that it is looking into ways that it can respond to CMHC’s concerns and provide lenders with income verification.

While the majority of Canadians are honest on their applications, a recent study by Equifax found that 13% think it’s ok to lie on a mortgage application and 16% believe mortgage fraud to be a “victimless crime”.

The study of mortgages originated between 2013 and 2016 found a 52% spike in suspicious mortgages, mostly in the highest priced housing markets.

  • https://www.mortgagebrokernews.ca/market-update/cmhc-wants-more-robust-income-verification-245594.aspx

5 Reasons why every realtor needs a mortgage broker at their open houses

General DAZADA DIAMOND 23 Jul

5 Reasons why every realtor needs a mortgage broker at their open houses

Realtor Safety – While we do not have the safety issues that realtors experience south of the border, there have been incidents involving female realtors being assaulted or feeling uncomfortable being alone with strangers walking around the house.

Property Safety – Did you know that when a realtor is holding an open house they are liable for any losses or damage to the property? It’s pretty easy to have one person distract the agent upstairs while their partner runs off with the flat screen TV or the silverware. Another person in the property discourages theft and can make the realtor feel safer.

Snagging new clients – sometimes people show up at open houses without any preparation. They may like a home but they have no idea whether they could afford it. Enter the mortgage broker- by being on the premises you can quickly pre-approve these prospective buyers giving the realtor an opportunity for a quick sale and to double end the deal.

Third Party Feedback – sometimes visitors are reluctant to say anything negative about a property to a realtor but are more open with their financial partner. The realtor can benefit from both the mortgage broker’s opinion and anything that they hear from visitors.

Programs that can help sell a home – some municipalities offer subsidized down payments for first time home buyers, others offer tax incentives . If a prospective buyer comments on the worn carpeting or the lack of a garage, it’s a good time for the mortgage broker to mention Purchase Plus Improvements programs available. The realtor may be aware of the programs but unaware of the program rules. The realtor will be really happy to have a mortgage broker find a solution to one sales objection and help them sell the house.

  • https://dominionlending.ca/news/5-reasons-why-every-realtor-needs-a-mortgage-broker-at-their-open-houses/

CMHC announces new help for self-employed homebuyers

Latest News & Economy DAZADA DIAMOND 20 Jul

CMHC announces new help for self-employed homebuyers

CMHC announces new help for self-employed homebuyersCanada Mortgage and Housing Corporation is to give lenders more guidance and flexibility to help self-employed homeowners.

As part of the National Housing Strategy, CMHC’s plan aims to support those whose income can be variable or less predictable and restrict their ability to obtain a mortgage.

This is a sizeable sector of the population (15%) and CMHC notes that they are key contributors to the economy and communities.

The changes being made are:

  • Providing examples of factors that can be used to support the lender’s decision to lend to self-employed borrowers who have been operating their business for less than 24 months, or in the same line of work for less than 24 months such as acquiring an established business, sufficient cash reserves, predictable earnings and previous training and education; and
  • Providing a broader range of documentation options to increase flexibility for satisfying income and employment requirements when qualifying self-employed borrowers such as the Notice of Assessment (NOA) accompanied by the T1 General, the CRA Proof of Income Statement and the Statement of Business or Professional Activities (T2125) to support an “add back” approach for grossing up income for sole proprietorship and partnerships.

“Self-employed Canadians represent a significant part of the Canadian workforce. These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates,” said Romy Bowers, CMHC chief commercial officer.

The changes come into effect from October 1, 2018.

  • https://www.mortgagebrokernews.ca/market-update/cmhc-announces-new-help-for-selfemployed-homebuyers-245523.aspx

Breaking a mortgage – can you do it?

General DAZADA DIAMOND 20 Jul

Breaking a mortgage – can you do it?

Do you have a mortgage? So do I! Looks like we have something in common. Did you know that 6 out of 10 consumers break their mortgage 38 months into a 5-year term? That means that 60% of consumers break a 5-year term mortgage well before it’s due…but do you also know what the implications are of this? Let’s take a look!

People need to break a mortgage for a variety of reasons. Some of the most common include:

· Sale and purchase of a new home *without a portable mortgage
· To take equity out/refinance
· Relationship changes (ex. Divorce)
· Health challenges or life circumstances are altered

And a whole other variety of reasons. So what happens if you have one of the above reasons, or one of your own occur and you have to break your mortgage? Here is an example of what would happen:

Jane and John Smith have lived in their home for 2 years now. When they bought the home, they recognized that it would need some major renovations down the road, but they loved the location and the layout of the home. They purchased it for $300,000 and have 3 years left but would like to access some of the equity in their home and refinance the mortgage to afford some of the bigger home renovations. This refinancing would be with 3 years left on their current mortgage. So, what are Jane and John looking at for cost? There are two methods that are used to calculate the penalty:

POSTED RATE METHOD (used by major banks and some credit unions)
With this method, the Bank of Canada 5 year posted rate is used to calculate the penalty for Jane and John. Under this method, let’s assume that they were given a 2% discount at their bank thus giving us these numbers:

Bank of Canada Posted Rate for 5-year term: 5.14%
Bank Discount given: 2% (estimated amount given*)
Contract Rate: 3.14%

Exiting at the 2-year mark leaves 3 years left. For a 3-year term, the lenders posted rate. 3 year posted rate=3.44% less your discount of 2% gives you 1.44% From there, the interest rate differential is calculated.

Contract Rate: 3.14%
LESS 3-year term rate MINUS discount given: 1.45%
IRD Difference = 1.7%
MULTIPLE that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.1%

For the Smith’s $300,000 mortgage, that gives them a penalty of $15,300. YIKES!

Now, Jane and John were smart though and used their Dominion Lending Centres broker to get their mortgage. Because of this, a different method is used.

PUBLISHED RATE METHOD (used by broker lenders and most credit unions)

This method uses the lender published rates, which are generally much more in tune with what you will see on lender websites (and are generally much more reasonable). Here is the breakdown using this method:

Rate when you initially signed: 3.24%
Published Rate: 3.54%
Time left on contract: 3 years

To calculate the IRD on the remaining term left in the mortgage, the broker would do as follows:

Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
=0.30% IRD
MULTIPLE that by 3 years (term remaining)
0.90% of your mortgage balance

That would mean that the Smith’s would have a penalty of $2,700 on their $300,000 mortgage

A much more favourable and workable outcome! Keep in mind that with the above example is one that works only if the borrower has:
· Good credit
· Documented income
· Normal residential type property
· Fixed rate mortgage

For Variable rates mortgages, generally the penalty will be 3 months interest (no IRD applies).

If you find yourself in one of the scenarios that we listed at the start of this blog, or if you just need to get out of your mortgage early, be smart like Jane and John—review your options with a DLC Broker! In the example above, it saved them $12,600 to work with a broker! It really does pay to have a Mortgage Broker working for you.

  • https://dominionlending.ca/news/breaking-a-mortgage-can-you-do-it/

Porting a Mortgage?

General DAZADA DIAMOND 19 Jul

Porting a Mortgage?

Porting a mortgage is something similar to transferring a mortgage. Transfers are when you move your current mortgage to a different lender in order to take advantage of different interest rates or mortgage products.

Porting a mortgage is when you keep your lender, but move your mortgage to a different property. Now, not every lender allows you to port a mortgage, and not every property can qualify for a port.

One of the other things to keep in mind with porting a mortgage, you are generally only porting the balance remaining on your mortgage. If you need more money, you will need to re-qualify to blend your mortgage. If you do not want to blend and extend your mortgage term, you will need to come up with the additional funds on your own.

The ability to port a mortgage is really important, especially if you are in a fixed mortgage with a big bank, as it can be used to avoid paying a pre-payment penalty to break your mortgage early.

If you are curious to hear more about portability options and whether or not you could qualify, please reach out to a Dominion Lending Centres mortgage professional today!

  • https://dominionlending.ca/news/porting-a-mortgage/
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