5 Approval Roadblocks.

When in the process of buying a home, there is nothing worse than having your mortgage broker or lawyer call and say “there is a problem”.

If you have found your dream home and negotiated a fair price, which was accepted, and you have supplied all the documentation to your broker, you probably assume everything is fine. The reality is that your financing approval is based on the information the lender was provided at the time of the application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval.

To ensure that you don’t encounter any last-minute issues on your home buying journey, there are five major approval roadblocks to be aware of and avoid for a smooth transaction:

EMPLOYMENT

When submitting a request for financing, whether a mortgage or car loan or to handle personal debt, one of the most important aspects the lender looks at is employment. If you were working at Company X for five years at $50,000 a year and – just before your deal is finalized – you change jobs, the lender will now require proof from the new job. This can include proof that probation for this new job is waived, or new job letters and pay stubs at the very least. If you change industries, they will want to see more proof that you are capable of keeping this job. For any employment involving overtime or bonuses, the lender often requests a two-year average, which you would not be able to provide at a new position. Another employment change that could hurt your financing approval would be if you decide to change from an employee to a self-employed contractor.

When it comes to financing, it is best to wait to make any major employment or life changes until after the deal has gone through.

DOWN PAYMENT SOURCE

As mortgage financing is based on the initial information provided, you will most likely need to do a final verification of the down payment source. If it is different than what the lender has approved, it could spell trouble for your financing approval. Even if you said that your down payment was coming from savings and, at the last minute, mom and dad offer  you the funds as a gift, it could affect your approval. This is an acceptable source of down payment, but only if the lender knows about it in advance and has included this in their risk assessment, but it can end a deal.

DEBT

A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Since mortgage approval is based on how much you owed on that particular date, it is important not to increase your debt before the deal is finalized. Buying a new car or items for the new home must be postponed until after possession; even if they are “do not pay for 12 months” campaigns because you will need to fulfil those payments, regardless of when they start.

BAD CREDIT

One of the biggest roadblocks to mortgage approvals is credit card payments. When you enter the financing process, it is important that your credit score remains positive. If your credit score falls due to late payments, this can cause major issues with your financing. Even if you have a high-ratio mortgage in place which requires CMHC insurance, a lower credit score could mean a withdrawal of the insurance and removal of any financing approval.

MISSING IDENTITY DOCUMENTS

Before a deal is finalized, the lawyer must verify your identity documents and see that they match the mortgage documents. You may not think it needs to be said, but it is important to use your legal name when you apply for a mortgage. Even if you go by your middle name or a nickname, all legal documents should match.

Keep in touch with your Dominion Lending Centres mortgage professional right up to possession day. Make this a happy experience rather than a heartbreaking one.

Ultimate Checklist for Selling Your Home.

by FCT

Selling your home can be an extremely stressful experience. Between thinking about moving logistics and financials, it’s easy to miss the small details in between the process.

With that in mind, we’ve built this checklist for selling your home to help you keep track of the things that will get a potential buyer interested. Turns out, it’s not as simple as just fluffing pillows or doing a light dusting. “Put your buyer’s hat on and walk through your home like it is the first time,” Marilou Young, an Accredited Staging Professional and an Associate Broker with Virtual Properties Realty in the metropolitan Atlanta area, told Forbes.

Below is the ultimate checklist for selling your home.

GET FAMILIAR WITH THE PAPERWORK

For home sellers interested in the history of the house, make sure you’ve got all the information handy; this can include paperwork on renovations, property tax receipts, deeds and transferable warranties.

GETTING THE PRICE RIGHT

According to HGTV, it can be helpful to do some market research on what homes in your area are selling for- then shave 15 to 20 percent off that. This way, you attract multiple buyers who can end up outbidding each other and bringing up the price. While that can seem like a risky move, it could work in the competitive markets of big Canadian cities.

DEPERSONALIZE AND DECLUTTER

You want potential buyers to see themselves in the space, which is hard to do if you have family photos on the wall or personal items around. This would be a good time to start putting items in storage or try to keep your personal items out of sight. At the same time, you’re also ensuring that you’re keeping your house tidy—a must if you want to make your home sellable. Check around the house for dirt, stains or small cracks you might be able to fix. And if you have pets, make sure their litter boxes and play areas are also clean and odour-free.

FIND A QUALIFIED REALTOR

Realtors can be helpful to take some of the processes off your plate, including marketing your home and arranging open houses. If you do go this route, none of this list will matter if you decide to work with a realtor that doesn’t know the market inside out. You can search their name on the Real Estate Institute of Canada to ensure that they’re qualified, and meet with them to see if you mesh and understand how they price your unit. At Proptalk, we also have this handy guide for more details.

DON’T SKIP THE HOME INSPECTION

While presenting an unconditional offer may win you the home of your dreams, it can also end up costing you more than you expected. If you’re mortgaged to the max, you can’t afford surprises like repairs or replacements that you haven’t already budgeted for. Consider a Home Protection Plan that includes an 18-month warranty and up to $20,000 in warranty coverage for major household features such as foundation, roof, heating and cooling.

HOW TO VERIFY YOUR DOWN PAYMENT WHEN BUYING A HOME

by Kelly Hudson

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, it’s all about what you can prove (hard to believe – but some people have lied in the past – horrors!).
Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which changes your lending ratios and potential your mortgage approval.

DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT

This is a government anti-money laundering requirement and protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax Free Savings Account (TFSA) or investment money.

• Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders don’t like to hear that you’ve just deposited $10,000 cash that has been sitting under your mattress. Your bank statements will need to clearly show your name and your account number.
• Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.

2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required.

• Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
• Be prepared to show the gifted funds have been deposited in your account 15 days prior to closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. Bank documents will need to show the account number and names for the giver and receiver of the funds. Contact me for a sample gift letter.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

• Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.
• If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
• You must repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
• Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your currently home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

• If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date.  Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal, appraisal, home inspection, taxes, etc.).

• Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment.
  Property Transfer Tax (PTT) cannot be financed into the mortgage

Buying a home for the first time can be stressful, therefore being prepared with the right documentation for your down payment and closing costs can make the process much easier.
Mortgages are complicated, but they don’t have to be. Contact a Dominion Lending Centres mortgage professional near you.

MORTGAGES 101 – WHAT YOU NEED TO KNOW ABOUT MORTGAGES

By Kelly Hudson

Mortgage [ˈmôrɡij] NOUN
With a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the home’s occupants and sell the house, using the income from the sale to clear the mortgage debt.

Mortgages in a Nutshell
Since homes are expensive, a mortgage is a lending system that allows you to pay a small portion of a home’s cost (called the down payment) upfront, while a bank/lender loans you the rest of the money. You arrange to pay back the money that you borrowed, plus interest, over a set period of time (known as amortization), which can be as long as 30 years.

When you get a mortgage loan, you are called the mortgagor. The lender is called the mortgagee.

How Do You Get a Mortgage?
The companies that supply you with the funds that you need to buy your home are referred to as “lenders” which can include banks, credit unions, trust companies etc.

Mortgage lenders don’t lend hundreds of thousands of dollars to just anyone, which is why it’s so important to maintain your credit score. Your credit score is a primary way that lenders evaluate you as a reliable borrower – that is, someone who’s likely to pay back the money in full WITHOUT a lot of hassle. A score of 680-720 or higher generally indicates a positive financial history; a score below 680 could be detrimental, making you a higher risk. Higher risk = higher rates!

How Mortgages Are Structured
Down payment: This is the money you must put down on a home to show a lender you have some stake in the home. Ideally you want to make a 20% down payment of the price of the home (e.g., $60,000 on a $300,000 home), because this will allow you to avoid the extra cost of Mortgage Default Insurance which is mandatory with all down payments of less than 20%.

Every mortgage has three components: the principal, the interest, and the amortization period.

Mortgages are typically paid back gradually in the form of a monthly mortgage payment, which will be a combination of your paying back your principal plus interest.

1. Principal: This is the amount of money that you are borrowing and must pay back. This is the price of the home minus your down payment
   taking the above example, purchase price $300,000 minus $60,000 down payment to get a mortgage (principal) of $240,000.
2. Interest rate: Lenders don’t just loan you the money because they’re nice guys. They want to make money off you, so you will be paying them back the original amount you borrowed (principal) plus interest—a percentage of the money you borrow.The interest rate you get from the lender will vary based on: property, lender, credit bureau, employment and your personal situation.
3. Amortization means life of the mortgage, or how long the mortgage needs to be, in order to pay off the complete loan (principal) plus interest. Mortgage loans have different “amortizations,” the two most common terms are 25 & 30 years.Within the life of the mortgage (amortization) you will have a Term. The length of time that the contract with your mortgage lender including interest rate is set up (typically 5 years). After your term completes, you can renew your mortgage with the same lender or move to a new lender.

WHEN TO GET A MORTGAGE

First Step: connect with a Mortgage Broker for a mortgage before you start hunting for a home. You need to know what you can afford – especially with all the new government regulations.

Ideally you need a mortgage pre-approval, which an in-depth process where a lender will check your credit report, credit score, debt-to-income ratio, loan-to-value ratio, and other aspects of your financial profile.

This serves two purposes:

1. It will let you know the maximum purchase price of a home you can afford.
2. A mortgage pre-approval shows home sellers and their realtors that you are serious about buying a home, which is particularly crucial in a hot housing market.

Types of Mortgages
How do you figure out which mortgage is right for you? Here are the 2 main types of home loans to consider:

1. Fixed-rate mortgage:This is the most popular payment setup for a mortgage. A fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
2. Variable rate mortgage aka Adjustable Rate Mortgages (ARM) A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions and the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the term. These types of mortgages usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

How to Shop for a Mortgage?
Use a mortgage broker, a professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.

Brokers specialize in Mortgage Intelligence, educating people about mortgages, how they work and what lenders are looking for. Everyone’s home purchasing situation is different, so working with us will give you a better sense of what mortgage options are available based on the 4 strategic priorities that every mortgage needs to balance:

• lowest cost
• lowest payment
• maximum flexibility
• lowest risk

Most Canadians are conditioned to think that the lowest interest rate means the best mortgage product. Although sometimes that is true, a mortgage is more than just an interest rate. You can save yourself a lot of money if you pay attention to the fine print, not just the rate.

Banks tend to concentrate on the 5 year fixed mortgage rate (since that’s the best option for them)… rates are important, however your Dominion Lending Centres mortgage professional will look at the total cost of the mortgage. Brokers will advise & explain mortgage options, help you understand the implications of your choice and help you avoid the pitfalls of choosing a mortgage based on rates alone.

6 THINGS ALL CO-SIGNORS SHOULD CONSIDER

by Geoff Lee

Co-signing on a loan may seem like an easy way to help a loved one (child, family member, friend, etc. ) live out their dream of owning a home. In today’s market conditions, a co-signor can offer a solution to overcome the high market prices and stress testing measure. For example, if you have a damaged credit score, not enough income, or another reason that a lender will not approve the mortgage loan, a co-signor addition on the loan can satisfy the lenders needs and lessen the risk associated with the loan. However, as a co-signor there are considerations.

1. If you act as a co-signor or guarantor, you are entrusting your entire credit history to the borrowers. What this mean is that late payments on the loan will not only hurt them, but it will also impact you.
2. Understand your current situations—taxes, legal, and estate. Co-signing is a large obligation that could harm you financially if the primary borrowers cannot pay.
3. Try to understand, upfront, how many years the co-borrower agreement will be in place and know if you can make changes to things mid-term if the borrower becomes able to assume the original mortgage on their own.
4. Consider the implications this will have regarding your personal income taxes. You may have an obligation to pay capital gains taxes and we would highly recommend talking to an accountant prior to signing off.
5. Co-signors should seek independent legal advice to ensure they fully understand their rights, obligations and the implications. A lawyer can lay it out clearly for you as well as help to point out any things you should take note of.
6. Carefully think about the character and stability of the people that you are being asked to co-sign for. Do you trust them? Are you aware of their financial situation to some degree? Are you willing to put yourself at risk potentially to take on this responsibility? Another consideration is to think about your finances down the road and determine how much flexibility will be needed for yourself and your family too! If you have plans of your own that will require a loan, refinancing your home, etc. being a co-signor can have an impact.

Co-signing for a loan is a large responsibility but when it is set-up correctly and all options are considered, it can be an excellent way to help a family member, child, or friend reach their dream of homeownership. If you are considering being a co-signor or wondering if you will require a co-signor on your mortgage, reach out to a Dominion Lending Centres mortgage professional. We are always happy to answer any questions and guide you through processes like this.

WE CAN FIX YOUR CREDIT PROBLEMS

by David Cooke

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

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

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

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

by Terry Kilakos

BROKERS MAKE A DIFFERENCE

While many people will go to their bank to obtain a mortgage or line of credit, they often feel betrayed by their favourite bank if their application is rejected. One big advantage that we have over banks is that we can send underwriter notes along with the application. Our questions and speaking at length with the borrower give us insight that the underwriter will never get from the facts and figures on the application.
A while ago, I had an application at a lender for a young man who wanted to buy his first home.

He worked in the construction trades and his income history was up and down over the past 3 years. He needed overtime to support his application and the two year average wasn’t there.

I went back with 3 years of Notices of Assessments, his recent pay stubs and pleaded the case for my client. The underwriter finally asked for an exception based on my confidence in the client. She trusted my judgement and the mortgage was approved.
This leads me to the idea that underwriter notes are very important and can mean the difference between an approval and a decline. If you have a chance, ask your underwriter how they like their notes; in point form or in paragraphs. Do they prefer emails or phone calls?

When a successful mortgage broker writes notes they start by stating what product they are asking for and giving their contact information. I put my contact info at the top of the notes and at the bottom so they don’t have to go searching for it if they have a question or need clarification. I then state what my client is trying to do; purchase their first home, refinance, a renewal or if it’s’ a switch, that they want to benefit from lower interest rates.
I then list the areas I want to highlight: Income, credit, property, down payment and start with their weakest link first and explain their situation. I had a client who had her down payment in a joint account with her father in Japan. I started with that knowing that a paper trail would be important. If the credit score is low, is it due to a past illness, divorce or job loss? I tell the underwriter right away. As a result, underwriters trust me and have given my clients a second look or asked for an exception. Finally, I finish up by summarizing the strong points in the file and thanking them for their consideration of my file.

I never yell or give my underwriters a blast if they decline a file. I will, however, ask why the file was declined so that I can better prepare my client for the disappointment and plan on how we can remedy the situation. Just as a FYI, a manager at a major bank told me that at one bank he worked for after hitting the send key he received a simple message back – either APPROVED or DECLINED with no explanation. Now who do you think mortgage clients should deal with? A bank or a broker?

By David Cooke

by Geoff Lee

MORTGAGE BROKERS HAVE SOLUTIONS

A lot of people are getting stressed out by Canada’s new mortgage stress test. In the past, if you had a good sized down payment (ie 20%) someone with a low income could purchase a home even if they did not meet the debt level guidelines for insured mortgages of 32/40 . Later this was changed to 35/44 which made life even easier but – no more.

What is a person with a low income, good credit and a good down payment supposed to do now?

Here’s a solution – get a roommate. If you purchase a home with a friend who is going to share the other bedroom of your condo or take over the basement, the rules do not allow you to include the rent. But there are plenty of homes out in the market with a legal basement suite, a duplex or perhaps a granny suite over the garage. As long as the income portion of your property is zoned for a rental portion, you can claim a portion of the rent as income and qualify for more house.

There are certain minimum guidelines for lenders  – they usually want a separate entrance, kitchen and washroom. They may ask for a separate hot water tank as well. Lenders will credit 50% -85% of the rent towards your annual income. Don’t worry , your Dominion Lending Centres mortgage broker knows the rules and can guide you through the process.  Calling us can get you into a home faster than you thought possible.

By David Cookie