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/