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.

The age of e-mortgages in Canada & a 2014 mortgage outlook

I hope everyone is having a good start to 2014. This week's blog entry has to do with market predictions for 2014. How does the real estate market look in 2014? Will 2014 bring us additional Federal mortgages changes? This time of year these are the "usual suspect" type questions. 

Often I listen to and read about speeches and articles that talk about the future of mortgages and the direction of real estate in Canada. I often follow Robert McLister, mortgage columnist for the Globe & Mail. On 30 December 2013, Robert wrote an article entitled "Five Canadian mortgage market predictions for 2014." This article outlines a couple areas such as:

1. The expectation that more mortgage tightening is on its way: I think that more change is definitely en route as the Feds try to further dampen market values. I can understand that controlling market values is paramount however I'd keep an eye on unsecured debt as well. Canadians tend to have equity which is great but I've seen more and more clients with more personal debt than equity in their property(ies).
2. Stronger online presence: More and more websites pop up that advertise mortgage rates. I agree with Rob that this trend will continue as more and more consumers look to the web to research mortgage information and options. People don't have the time to shop from bank to bank anymore. However, as we shift further into an indebted society and where mortgages are more challenging to qualify for, I still would argue that qualified mortgage brokers do serve a purpose. Here is where selling mortgages strictly based on rate can create a problem. For example, due to one's credit, income and equity circumstances you may not qualify for that posted online rate. As mortgage brokers we must do a better job at sharing and disseminating this information to the consumer. 
3. Credit unions will merge: I'd say this is more applicable in Western Canada and Ontario.
4. Hybrid mortgages will become more popular: A hybrid mortgage is a mortgage that is split into two segments. Typically one is fixed and the other portion could be on variable rate. Do these mortgages help save you money over time? I'd argue in most case probably not! Most banks that offer a hybrid mortgage would have each mortgage balance on a different term. In other words, if you need to sell or refinance then you could be faced with a larger penalty for no reason. If you are certain you won't touch your mortgage then this could be an option for you. Again, as mortgage brokers we must do a better job at explaining the in's and out's of such mortgages as they aren't designed for everyone. 
5. Consumer IQ will increase: In the age of open information the consumer has much more resources at their fingertips. I would argue the mortgage and other related information has been controlled. Given the role of the web, radio, and print I'd argue that it's important to share that information openly with the consumer. Yes the consumer is more informed but it's also important that we mortgage brokers continue to guide informed clients and gauge their expectations in a realistic manner. From there we can match the consumer’s needs and goals with the right mortgage.

I always welcome feedback and comments. Have a great week everyone.

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.

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.

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/

Habitat for Humanity Montreal needs our help

Hey Everyone, from time to time I help out at Habitat for Humanity Montreal. They do some amazing work here in Quebec by building home for those less fortunate. Habitat Quebec has a Montreal-based retail hardware store, called the ReStore where sales proceeds help fund their builds. The products that are sold in the store are donated by suppliers. I'm on the hunt to help find more suppliers that can donate overstock products or renovation materials. Also, on a weekly basis Habitat rents a truck to pick up donated products. The monthly rental costs are incredible. My second mission is to help find a 19 foot truck that can be donated or loaned on a "long-term" basis. If anyone can help me out that would be incredible and would make a huge impact for Habitat.

Thanks. Have a good rest of the week.