Got construction financing?

Yes I know two blog entries this week. I was inspired this week to also speak a little about construction financing. 

Ever think of building your own property? Ever think of turning your duplex into fourplex or larger? Are you looking to build a new condo project? Lots of financing options exist. Your options and cost of borrowing depend on the overall project plan, risk and how much your willing to up down, i.e. cash into the mix.

Your lending options can vary from conventional banks, virtual lenders, pension or trust funds, and private lenders. The cost of borrowing or rate varies from approximately 3% to 15% depending on the overall project. 

Anyone that will finance your project will want to see project plan, architectural rendering, budget (land and construction costs), timeline, and market evaluation. Structuring and planning all this is critical and can be time or cost consuming if not planned out properly. I've seen a few projects that imploded because planning wasn't properly thought out in advance.

In one particular instance, a client met with me too late for me to help. The gentleman started building his home in a remote location without setting up mortgage financing in advance. When I met with him he reach past a point of no return with all banks and lenders. The house was 80% completed and he ran out of money. Furthermore, his credit was weak which didn't help matters.

On a larger scale, I worked with a client who wanted to build a condo project south of Montreal. He had bought the land, had a construction plan and budget, permits were on their way, he had 25% cash to work with and equity in other properties. Here I worked with a private lender to finance the construction and once the condos would be built and sold then the private loan would be repaid.

If you'd like to share your good and not so good mortgage or real estate moments let me know by phone or email. Have a good week everyone.

Should I renew my mortgage early? What's the deal?

Hope everyone is having a great last week of 2013. I recently met with a couple of clients that were looking into early mortgage renewals. I will be the first to admit if what you are being offered is a good deal or not. Canadians trust their banks way too much and it's good to be informed. I'd rather see a satisfied and informed consumer rather than just resigning blindly.

There's nothing wrong with being loyal to our banks but we assume that that after being years with them that they will always give us the best deal. Before I dive into the mortgage renewal world, here are a couple mortgage definitions to review...

A mortgage renewal is when your mortgage term comes to an end. Usually most mortgage terms can be 1-10 years. At the end of your term, you can decide to stay with your current lender or move to a new bank without penalty. Some banks will help cover the switching costs (only basic notary fees will be covered). A refinance only applies if you mortgage term expires and your looking to borrow more money, i.e. increase your original mortgage. Some people break their mortgage mid-term and incur a mortgage penalty. At your mortgage renewal typically you cannot borrow more money otherwise it's considered a refinance. Sounds silly but something people often forget.

Okay now down to the nitty gritty. A mortgage renewal can be a bit tricky. What you're being offered may not be the best deal. The banks try to re-sign their current clients as quickly as possible and they have a large customer service machine behind them doing this job. Some banks try to renew you 4 to 6 months in advance of the term ending. If you renew early either: (A) a small penalty is blended into the rate offered; or (B) the further out you renew before you term ends the higher the rate you receive. In other words the future out you reserve your renewal rate the higher it will be. The best rates in the mortgage market are typically 30-60 days out.

Here's a recent example. I met with a client who's term is ending in January 2014. I initially met with her in November 2013. What her bank was offering was not competitive. I managed to secure a mortgage for her where her evaluation and switching notary fees were covered by the lender. We often refer to such transactions as a mortgage switch.  The client tried to be proactive and inform herself what her options are. She had difficulty to surf through options and fine print. Together we dissected all her options and the mortgage is now complete and waiting for notary. The best tip I can give people is review the fine print of the mortgage offered. Also, the first offer might not be the best.

If anyone has any questions or would like to share a mortgage story feel free to email me.

Montreal real estate values and personal debt

Hey everyone. So I've disappeared from the mortgage blogging world the past few months but now I'm back. I enjoy blogging way too much and there's so much new mortgage info ideas that I've wanted to share with everyone.

I've noticed a couple things in the Montreal real estate and mortgage industry lately which is personal debt and market values. I don't have any concrete statistics yet but what I can say is that I'm seeing clients lately that bought the past few years are realizing they cannot afford both their homes and a growing debt load. For many it's becoming harder and harder to refinance one's home and pull some equity to pay off debt.

From time to time I read Garth Turner's blog. Garth spends a lot of time speaking out about Canadian real estate, the economy and debt. On 16 December 2013, Garth wrote in a recent blog entry entitled, "The Blame," where he states,

"Ultimately there’s nobody to blame but those who create the demand for over-valued assets. People keep buying houses regardless of the process, since they have an endless appetite for debt....Since we’ve achieved another all-time debt record, with $1.2 trillion in outstanding homeowner mortgages (doubled within the last decade) and unprecedented line of credit and credit card balances, the central bank is handcuffed. If rates rise to chill house horniness and temper our piggish appetite for even more debt, it’ll push the economy into true deflation and ugly employment numbers."

Market values, cheap debt and the economic growth are all tied together. The dilemma is cooling the market and trying to manage debt. On my end I'm seeing market values cooling in the greater Montreal area however because cheap debt is still available many are still taking advantage.

Municipal values of homes in the greater Montreal area have increased as much as 25% in some areas but property values have not followed suit. So what does all this mean for the average person? Good question. First, if you're feeling the debt pinch and don't see yourself paying off that debt quickly (i.e. work bonus, extra commission, extra over-time, an inheritance or willing the lotto) then perhaps it might be a good time to down size or refinance. Yes this can play with emotions and ego but could save you a lot of stress and frustration by simply maintaining the debt load.

I've recommended to some of my clients lately to sell their homes, pay off debt (including close certain trade lines or lower limits) and still put a good amount down towards a new home. What's important to keep in mind, is don't wait too long before you start becoming late or default on you debt obligations. I have many clients and individuals that I've met with that have waited too long and are now stuck with expensive short to medium term 2nd mortgages.

Looking to sell your existing home and upgrade?

Hey everyone, hope you are all eager for an early spring. I don't mind winter but this year I'm looking forward to a nice spring and with spring in the air many of you may be thinking about selling and perhaps upgrading to a larger home. Selling and buying is not too tricky but here are a couple quick tips to keep in mind:

1. Calculate how much money you will have net should you sell (at a responsible price), minus real estate broker fees (plus taxes), minus mortgage balance and bank penalty (assuming your mortgage is not portable or not worth porting).

2. Will the net proceeds all go towards the new down payment? Can I use some of that money to lower or pay off some debt?

3. Get pre-approved for the new purchase. You can get pre-approved without actually selling or listing. This not only helps set a budget for the new purchase, it also ensures that your credit, income, and incomes taxes are in order. It's not a bad idea to do all this before before listing your home.

4. Can I make a conditional offer on a new home pending the sale of mine? Yes you can however this type of offer is not the strongest because anyone else can walk-in and make an offer without that condition. In such cases, the vendor would give you 72 hours to sell your home otherwise you lose your offer. If your new purchase is really your dream home then sometimes it makes sense to first refinance your present home so you have the down payment. Thereafter you sell and port the new mortgage to the new home later.

5. What if the notary date for the sale of my home is scheduled after my new purchase? Not a problem. In such cases bridge loans are available through the banks.

Behind the scenes at CJAD 800AM

Morning Quebec. We have been wanting to create a behind the scenes video of our radio show for a while. Finally we've done it! Ever wonder how a radio show appears in action while on air? I think being on CJAD is my favorite part of what we do. You can say that I've taken a Q from Jian Ghomeshi. North East Mortgages on CJAD 800AM, behind the scenes video.

 

 

Dan Laxer and Terry Kilakos getting ready for the show. I'm behind the glass manning the phones

Yea I'm a little nerdy...I like talk radio

Mike Holmes' magazine on mortgages & the buying process

This past weekend I was reorganizing my chaotic office and came across an old issue of Mike Holmes' magazine. In it there was an interesting article about first time buyers called "The first time home buyer's guide" published in the May 2011 edition. In the article Nathalie Rodriquez outlines a step-by-step process to buying your first home. Some of the content jumps between content relevant to Ontario residents and US citizens hence I have translated the information into what is important in Quebec plus added my two cents.


Save cash to build a down payment nest egg. Clearly this shouldn't be a surprise to anyone. We've discussed this issue on several radio shows and I've blogged about it.

Get a pre-approval letter. I agree a pre-approval is critical as it is an initial review of your finances, credit and ideally creates proper budget for a buying that first property.

• (A) All banks and mortgage insurers in Canada base their income to debt ratio based on your "total debt service ratio" or TDS. The TDS accounts for your gross declared income and takes a walk into the future by accounting for annual future mortgage payments, property taxes, home heating, and all outstanding debts. In short, between 42-44% of your gross income can be diverted to managing these total debts. Clearly the TDS calculation does not account for all household debt and other personal obligations. I like how the article emphasizes other debts and obligations but also future anticipated debts. This is something I always try to explain and drive home to clients that are looking to buy. Buying has to make sense now but also in the future. 

• (B) Another great point the article mentions is that if you have a pre-approval with a bank you are not obligated to stick with them. The only time pre-approval becomes binding is when your mortgage actually becomes notarized. Something not mentioned is that even if you've signed for the mortgage in-branch it isn't binding yet either. I have a client that went to "mortgage signing" at a branch and was so badly taken care of that she walked out and we moved the mortgage to a virtual lender that same day. 

• (C) A pre-approval I will add also is very helpful in that any problem areas such as credit, income taxes owed and filing your taxes can be quickly identified and addressed. Nothing worse than being under a financing deadline for a purchase and losing that dream house because your paperwork wasn't in order.

Work with a realtor and start house hunting. Find the right realtor that genuinely works with you. Don't be shy and interview realtors if you must. Also, Buying your first time house is a contact sport. In other words, get out there and see what you like and don't like. I also like how the article mentions to shop smart.  Do your homework on the property and area, i.e. drive past it during the night, get a feel for the road traffic around, research the quality of schools in the area, check out neighborhood websites. If any major renovations have been completed why not research the permit history.

Order an inspection & make an offer. A proper inspection can take 3 to 4 hours and you should have a report in your hands within a few days. The report should outline any fixes, current problems or even potential future problems. Rodriquez is correct in that both lenders and insurer won't provide a mortgage on a property if there are major issues such as foundation concerns. Given my experience if your inspection report highlights major foundation issues and your go back to the vendor to adjust the price, the bank will probably see the price amendment and they could ask questions. Rodriquez is not a fan of offering more than asking price. I agree that this could go against your pre-approval and all prior budgeting. Second, don't feel pressured by anyone. Keep in mind that there are many other options out there on the market. More and more properties will be put on the market in the coming weeks.

If you've never put in an offer on a house your real estate broker hopefully will help you out. With your inspection completed you may also be able to renegotiate that offer price. Don't be afraid to request a final walk through before closing at notary. Ensure that the property is in the same condition that you saw when you made your initial offer.

Closing & occupancy (aka act of sale or notary). A week or two prior to the closing date on the property your notary will call you to book your appointment and give a check list of things to bring with you (photo ID, certificate of location and proof of property insurance). Some notaries host one meeting for the title and hyothecary loan, while most will split them up into two separate meetings.

Overall Nathalie Rodriquez's article is useful for first time buyers. Some of the article is confusing as she flips between US and Ontario-relevant content. Having said that I like that she distinguishes between going with a bank or mortgage broker. I disagree with her point that through a mortgage broker banks won't be as willing to overlook credit issues. Lastly, I completely disagree with her that through a mortgage broker mortgage terms can be "riskier." As a mortgage broker I look out for my client's interests now but also help them plan for the future. Your not gonna get that experience at the bank.

CJAD 800AM radio show

On Tuesday January 22nd, the North East Mortgage and Insurance team returned to the radio waves with our regular call-in radio show format on CJAD 800AM. This time the show was hosted by CJAD's Barry Morgan.

New CJAD banner, new studio

New "on air" neon sign

This time I sat with the producer and answered all the incoming callers. We received lots of great calls and text questions. Our shows don't follow a set format rather the themes are generally set by the callers' questions. This time we received lots of questions about mortgage insurance, capital gains but also about reverse mortgages.

New CJAD studio. Terry Kilakos (President of North East Mortgages) and Michael Zigari (President of North Insurance Inc.) respond to a caller's question.

Michael Zigari (President of North Insurance Inc.) responded to a couple questions about mortgage life insurance. Michael discussed the differences between a bank insurance product and term insurance product. The next area that received lots of questions was capital gains. One caller asked a valuable question about his particular circumstances. The caller was looking to buy a home with his girlfriend and later sell his home. Both Michael and Terry Kilakos (President of North East Mortgages) explained it was more advantageous to sell his home first before buying again. We all look forward to the next show in 3 short weeks. Stay tuned.

Habitat Montreal ReStore re-launched

Everyone has in some form or another heard of Habitat for Humanity but few in Quebec have heard of the ReStore. As their website states, "The Habitat for Humanity Montreal ReStore sells quality, new and gently used furniture, appliances, home décor items, building and renovation materials to the public at greatly reduced prices." All proceeds help cover the administrative costs including the construction of affordable homes for families in need in Quebec.

Check out this recent CTV News Montreal spotlight on Habitat for Humanity Montreal. Paul Karwatsky interviews Isabel Singh (President & CEO for Habitat for Humanity Montreal) and Kathy Raymond (Director of ReStores) about the organization and ReStores.
 
Last week, the Habitat Montreal ReStore re-launched their hardware trift store concept. Anyone looking to renovate their home or investment property should stop by the store. Under Kathy's leadership, I am really impressed with the changes, growth and new ideas.

Check out the Habitat Facebook page to learn more, see what new products are in-store this week or maybe even volunteer.

I'm thinking of buying. Where can down payment come from?

That's right! We're slowing headed into another buying season in Quebec. Many Quebecers and Canadians alike are contemplating the sale of their property or perhaps that first purchase. This blog entry will focus on the latter. First time home buyers are my favorite clients to work with. Maybe it's the former teacher within me that's speaking. There is so much information to share and discuss. I often read the Globe & Mail, and I think the timing of Robert McLister's article on down payments is important to review. 

If you're looking to buy a primary home, condo or duplex for yourself then you will still need a minimum of 5% down. So the question is where can down payment originate from? Here is a down payment quick snapshot:

1. Many people like to tap into their RRSPs with the Home Buyer's Plan (HBP). As a first time buyer you are permitted to use up to $25,000 per person. after buying you have a 2 year grace period upon which your 3rd year you will need to reimburse 1/15 of your amount borrowed. Rob is very correct in that bank's do not take into account that new future debt as part of their TDS calculation but also future debt planning. In other words think twice about using your RRSPs as some Canadians are having trouble repaying that loan.

2. Some folks with generous family members (parents, brother, sister, grandparents) provide a down payment gift. This remains fairly popular given the price of homes. Rob is right in that banks try to ensure that the cash is genuinely a gift rather than a personal loan. This is something that is challenging to monitor after the purchase.

3. In my opinion, building up your personal savings is still the best way to create down payment. Yes it is slow and old fashioned but less potential headaches later.

4. If you are pressed to buy and are low on down payment, in certain circumstances banks will permit you to dip into your credit cards and personal line(s) of credit for the missing down payment. The banks refer to this as alternative sources of down payment. Rob is correct to highlight that the borrower(s) must be well qualified, i.e. great credit, good job. Also, borrowing money towards your down payment has to make financial sense given the your overall indebtedness increases and that needs to be taken into account. In such circumstances approving such mortgages are case-by-case and not the norm.

Once upon a time prior to 2012 mortgage changes, many people took advantage of the "cash-back mortgage" programs. In such cases, the bank would give your 5% down in exchange for paying a much higher 5 year fixed rate. Usually the bank of Canada posted rate. In essence, you self-finance the cash back. However, the penalties for such mortgages should you sell or refinance are costly as you are expected to reimburse some or all of the original cash-back.  If you have such a mortgage, ride out your term before refinancing unless the penalties aren't an issue.

Stay on course with the right financial and mortgage plan

I agree with Rob's sentiment throughout his article in that buying a home without having  properly saved down payment and with having the right financial/mortgage plan is risky.

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McLister, Robert "Canadians can still buy a house without saving their pennie" Published Monday, Jan. 07 2013, The Globe & Mail.
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/canadians-can-still-buy-a-house-without-saving-their-pennies/article6970799/