Harder to get a mortgage in 2015?

I wanted to wish everyone a happy 2015. I've been a bad boy as I need to get more consistent again with this blog. I must give credit to one client in particular that called me last week and mentioned that he reads my blog often. I was very touched by that comment. So this blog entry is dedicated to him. Thanks for the kick in the butt.

Okay now for the crux of this blog, is it harder to qualify for a mortgage in 2015? I am not trying to be evasive but I would say it depends:

1. If you are looking for a residential mortgage : it is not harder to qualify for a mortgage as the rules are generally the same. I would say that banks and virtual lenders are clamping down on poor credit and forcing self employed people to declare more money. The Federal Government is still closely monitoring the banks in this respect. We still have some wiggle room but this trend is forcing the  average consumer to "play more by the rules." I refer to this as common sense mortgage financing.

I find usually where the wheel fall off the wagon is due to personal issues such as divorce, illness, a death etc. I am optimistic for 2015. My two cents is stay proactive with your properties, credit, taxes, investments. Also, if a problem arises then deal with it immediately through a mortgage broker. Often times proper problem diagnosis, planning and execution is what is necessary. You need a power team consisting of the right: mortgage broker, financial planner, insurance broker, real estate broker, and accountant.

2. If you are looking for a commercial mortgage: I would say that commercial financing is more intricate. Each building is different and more and more banks are particular as to the type of properties they would like in their financing portfolio. Not everyone has a AAAA tenant from a large known franchise or brand. My two cents is just be sure you are approaching the right lender with your property or speak to a mortgage broker with commercial experience.

Also, often what slows financing or kills the deal with a lender is bad mortgage planning. Know your properties and know what your accountant enters into your T1 Generals. I worked on one commercial refinance where there were major dicrepencies on the rent roll and expenses. I try to pinpoint those issues before submitting to a lender but that is not always possible. For commercial mortgages, I am also very optimistic for 2015. I would say I have more commercial banks and lenders to work with than residential and these banks are hungry for business.

Priory School Heritage Fair

Today, I am going to focus my blog on a local community matter. Yes debt and mortgages are all important but sometimes it good to shift attention to things that build a sense of community and belonging. Often times building a sense of community is lost in today's hustle and bustle.

I can say with great pride that I am a Priory School Alum. Yes it was my primary and I attended there many many years ago but I have such vivid memories from the Priory. I remember the sense of belonging including attention and care given by faculty and staff.

Last week, for the second year in a row I was asked to be a judge in the Annual Heritage Fair. The Heritage Fair is the equivalent of a science fair. Every year Grades 4, 5 and 6 create individual or group projects. The children research their topics, type up a report and bibliography, and create a visual presentation to show off to the judges. The projects go up on display in the new Priory gym. Each judge is given 5-6 students to evaluate. Why I love the Heritage Fair is the amount of effort that the children give in creating their projects. Mom and Dad seem to stay away as much as possible from helping, haha. I am always shocked at the level of comprehension and depth shown by the students.

After all the projects are evaluated the excited kids quietly and anxiously await the results as they sit in front of the podium and panel of judges. Tim Peters, school Principal, announces one by one the names of the winners. What's great is that there are no first, second or third awards rather the children get a medal of recognition. I think in an age of competition this is a great approach.

The Priory students sitting patiently for the recognition awards ceremony
(picture posted on The Priory School website)

I am glad to see that the Priory School still shares and promotes a sense of  community and enrichment. I am so impressed by the teachers and staff. That is why I continue to give back to my primary school.

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.

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/