Commercial real estate in Montreal

Good afternoon Quebec mortgage and real estate world. This week, I had an informal chat over coffee with Ron Wiebe from Ron Wiebe Realities. Ron's real estate agency specializes in commercial real estate and commercial leasing. As many of you know, commercial is an area that I am always interested in. Often, I feel I juggle residential and commercial real estate as many of clients own both types of property.

Ron and I launched into our chat by talking about new and seasoned commercial properties owners. I am always interested in servicing both types of clients especially folks that have a decent portfolio of residential properties and are looking to dive into commercial or their business needs them to expand to a commercial property. Ron shared with me that most people starting out a new business will typically lease some space before buying. Once the business becomes stabilized then you may be interested in finding a mortgage with similar payments as your lease. Ron says that "your first commercial building is the trick." He suggests that you plan 6-12 months in advance of buying. The most common mistakes is that people undervalue property and most do not realize that you may need 25-40% down payment on a commercial building. The type of building and revenue versus expenses will typically dictate amount of down payment required. Each bank and lender is slightly different.

Ron's main theme to keep in mind whether new or a veteran to commercial real estate is to "be pragmatic" and listen to your commercial real estate broker. If you trust your broker then listen to their advice and you may need to adjust your expectations. I agree with Ron that times change, meaning property values change as do lending rules. What you paid for years ago by square footage has changed. It is most likely inevitable. Having said that, Ron suggests that commercial market value will always be there. If permitting you should will always be looking to invest or operate your company somewhere you can call your own.

For more questions or comments about commercial financing feel free to contact me. Also, if you think of someone that might need my services please help make that introduction and let's start that conversation.

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.

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.

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/

CAAMP Mortgage Conference Review

I just returned from spending a few days at the Mortgage Forum 2012 in Vancouver. The event is organized by the Canadian Association of Mortgage Professionals or CAAMP. Before I left for the conference I told all my clients and friends that my mom let's me go to CAAMP. Gotta love bad mortgage humor...

CAAMP stage for the marketing & customer service panel

This Forum is held annually and herds mortgage brokers, banks and other service providers all in the same conference center from across Canada. This year several panels were created that discussed the direction of the mortgage industry, the direction of the Canadian economy, mortgage client customer service and marketing. First and foremost the economist panel pretty much all agreed that they do not foresee rates going up anytime soon and if they do it would be a small increase. So everyone out there don't worry about rates going up especially if you are looking to buy for next summer or refinance.

In previous blog entries I raised concern about Canadian household debt. After his panel, I informally chatted with Carlos Leitao from Laurentian Bank, more about debt and income levels. Carlos mentioned that unsecured debt was not a problem in Canada yet he did not mention about secured debt. I also asked Carlos about Canadian wages which he agreed wages have not increased accordingly.

 

Bank economists discussing state of Canadian Economy (hosted by Amanda Land; economists: Warren Jestin from Scotiabank, Carlos Leitao from Laurentian Bank, & Stephane Marion from National Bank)

What was most remarkable about the conference was the panel on public perception and customer service quality. Based on stats presented by Rob Daniel from Maritz Canada, only about 44% of Canadians use a mortgage broker. This tells us that we as an industry are still not getting the word out about our role and the value we provide. Clients that do use a mortgage broker statistically appear to be pleased with our work but we need to continue to communicate with our clients after they have received their mortgage.

Host Amanda Land asking a question to Rob Daniel

The last part of the Forum focused on marketing, customer service and role of technology in business. David Usher launched the discussion speaking about creativity, virtually everything is learn-able and that in every business fear is what drives our personal limits.   

David Usher speaking and later singing

Randi Zuckerberg speaking about her experience building Facebook with her brother

Biz Stone sharing his experience building Twitter and role of philanthropy in marketing

The discussion was quarterbacked by Scott Stratten who spoke about social media being a conversation and communication vehicle.

Overall, the event was well worth attending but also eye opening. The experiences shared by Biz Stone, Randi Zuckerberg, David Usher, Mitch Joel and Scott Stratten have helped me realize a few things in terms how to cultivate better customer service and relationships.

Mortgage Summer Refresh & HELOC Changes

Yes I know I’ve been bad lately with blogging. Believe me I’m not saying that mortgage news has been slow rather the opposite. Lots on the go and there is talk of more Government changes related to mortgages and HELOCs (aka home lines of credit). Presently, if you wanted to buy or refinance your mortgage and home of credit can be combined up to 80% LTV (loan to value). In other words, you can receive a combination of mortgage and line of credit up to 80% of the market value of your home. Hence the majority of that 80% on a home mortgage could heavily consist of a home line of credit. In an effort to lower Canadian debt the Government is implementing new mortgage rules. It appears we will still be able to attain the 80% LTV financing, through max 65% heloc and 15% mortgage. Interest only payments and no amortization schedule will remain.

Frankly, I’ve never been a fan of helocs. Taking on a home line of credit needs to be calculated and the rationale needs to make sense (ideally short term). Helocs in my opinion are too easily accessible and once loaded they harm your credit score. It is unrealistic for most people to pay off a 100k loaded heloc unless you refinance your home, sell or win the lotto. So yes, I partially welcome new Government change. This change is supposed to take place later this year and we await the final Government guideline.

If you have any mortgage questions let me know.

How can I buy after bankruptcy?

A huge part of being a mortgage broker is being an advisor and mortgage educator to my clients. This is especially true with first time home buyers.  Buying your first home is an important decision and some careful planning should go into it. After all it may take a couple years to save up for the down payment or stabilize one’s career.

For example, I met with a couple last week whose goal was to buy in the Chateauguay area in the next 3-5 years. Both are hard working salaried people. The catch was that one had a bankruptcy and the other had a collection. First we had to tackle the bankruptcy, meaning the client was discharged from bankruptcy but had no new credit history. I advised that a secured credit card be opened to start building credit history. As mentioned in previous blogs, the goal here would be to establish two major trade lines, with limits of $1200 each and two years of positive history with no late payments. In terms of my other client with the collection, we had to ensure that the collection was paid off ASAP and that she continues to pay the rest of her cards on time. It would not take long for her credit score to bounce back. Ideally, once the collection is paid off the banks like to see stable and no lates for a good 1-2 years as well.

This is a good example of mortgage planning and something that I will monitor with these clients over the next several months. We need to ensure that the secured credit card is reporting properly on the credit report. It will take the clients’ at least two years to rebuild credit but fortunately they are not in a rush as they also need to save up their down payment.

I welcome any mortgage questions or comments. Have a great week everyone.

What’s my buying capacity? Maximum versus reasonable

Probably the number one question I get asked as a mortgage broker is “Hey Mark, what’s my buying capacity?” As a first time buyer or even a repeat buyer your buying capacity is mission critical. With my weekly column in the Hudson Gazette and my blog montrealmortgageblogger.com, I’ve received quite a few calls from home owners that are over their heads with mortgage and debt payments. It’s always good for the ego to see our maximum buying capacity, but does it make sense to stretch it that high? I will tell you from several horror stories that I’ve seen the past three weeks, clearer it’s not worth it.  

Your buying capacity is based on a couple mortgage calculations, one in particular referred at TDS or Total Debt Service ratio. Typically all Canadian banks use this calculation. This calculation takes a look at your annual expenses namely school and municipal taxes, home heating, and your personal debt load and is divided by your gross income (combined if you are a couple and a portion of your rental income, if any) multiplied by one hundred. On an insured purchase meaning your putting less than 20% down payment, your TDS can go up to 44%. Depending on the lender a refinance the TDS can range from 40-44% whether you are refinancing conventionally (up to 80% of market value of your home) or insured (85% of market value).

First and foremost if you are buying or refinancing mortgage planning is invaluable. You will not always get that detailed service at the branch-level at a bank. That statement is not intended knock the banks but one needs to be careful and budget conscious. A good mortgage broker can help you establish a plan and keep you on budget. What I mean by that is take a much closer look at that TDS calculation. TDS is a crude ratio and does not take into account a lot of your other annual expenses such as insurance, school tuition for the kids, food, gas, etc. With that in mind you can create a reasonable buying capacity. Lastly, when taking your income into account typically I look solely at base incomes and if appropriate exclude or take an average of your over time, bonuses and commission. I treat those as sugar because they can all disappear or fluctuate tremendously in this economy.

If you have any questions or would like to share a mortgage experience, I’d love to hear from you. Have a great week.

Choosing the right fixed mortgage

If you looking to buy or refinance in the near future then it's not a bad idea to take a closer look at what mortgage term your considering. The big banks have spent a lot of advertising dollars to attract us to sign on for shorter term mortgages (1, 2, 3 and even 4 years). I'd argue given current economic circumstances this may not be the ideal strategy.

Clearly no one knows where the economy and rates are headed but there is some consensus that recovery will arrive in the next two years or so. If you buy into a short term fixed rate then you may be re-signing as rates begin to rise again. That may not be ideal. Currently the seven and ten year fixed rates are very attractive and not much higher than the five year fixed rates. Clearly it’s important to think ahead whether you’re planning on hanging onto the house for the next five years or more.

More and more Canadian statistically break their mortgage before their mortgage term is up. Here are some penalty tips to keep in mind. If take a seven or ten year fixed and you sell or refinance your home five years into your term then penalty to break would only be three months interest penalty. This rule applies to all banks at its part of the Interest Act of Canada. If you think you will break your term before five years then it may be wise to take at least a five year term or less.

If you have a mortgage, debt-related questions or would like to share an experience, feel free to contact me.  Have a great week.

Quick mortgage and buying tips for first time buyers

Are you thinking of upgrading your home? Are you tired of renting? Wellit’s definitely not too late as the buying season is upon us. Here are couplequick tips to keep in mind:

Tip #1: Make a personal budget. If you’ve been renting all yourlife and now looking to buy then it’s not a bad idea to put pen to paper andget an idea your monthly expenses.

Tip #2: Get a mortgage pre-approval with a mortgage broker.  A mortgage pre-approval will give you a good ideaof your buying power. Look closely at your future mortgage payments, taxes,heating, and new home insurance costs. Ask yourself, does this make sense? Doesthis fit within your personal budget?

Tip #3:  Save for a downpayment. Try to save at least 5-10% of your purchase price. You also canconvert your RRSPs to help you with that down payment. Did you know you can useup to $25,000 per applicant? If you only have a little aside but not enough fora full 5% then consider a "cash back mortgage" but look at the fine print.

Tip #4:  Build good credit.Credit is very important. As a first time buyer it’s a good idea to have atleast two major trade lines for good two years. Hmm I think I've said this before...pay your credit cards on time. Watch your limits. And keep those creditinquiries in check. Too many can definitely effect your credit score.

If you have a mortgage, debt-related questions or would like to sharean experience feel free to contact me.  Havea great week.

What do I need to think about when selling my home and buying a new one?

The holiday season is fast upon us. Good luck to us last minute shoppers this week! Wow this year has totally flown by. I wanted to send my best wishes and happy holidays to all the vistors to the North East site and all our clients.

In true holiday spirit, we all will eat a lot, find great gifts for those we care about but also have dreams of Santa getting us that new home. Okay well maybe not Santa... If you’re thinking about putting your home on the market in January or February and in the hunt for a new home then take a minute to plan ahead a little. It’s not a bad idea to first figure out how much your home may realistically fetch and how much you will have net left in your pocket after repaying the mortgage, mortgage penalty (if any), real estate broker fees, lowering personal debts, etc.

With an idea of down payment in mind then it’s a good idea to get pre-approved for a mortgage. Make sure your mortgage pre-approval holds the rate into spring or early summer. Together this will give you good idea about budget and what’s reasonable to expect. What’s important is not be financially over-stretched. The step after that is the fun part, start the house hunting process with a good real estate broker.

If you have any questions or experiences you’d like to share please feel free to contact me even over the holidays.

What is a mortgage pre-approval?

Welcome to the calm before the upcoming buying storm. If youare thinking of buying between now and next summer then its good idea to getpre-approved by a bank. The mortgage pre-approval process is not that complexbut quite valuable. Think of it like a doctor’s check-up where your income,credit and downpayment are reviewed and “qualified.” All three factors areimportant considerations when a mortgage application is analyzed by not onlythe financial institution but also the mortgage insurer.

Some clients place ahead which is great but at times I havemet with clients after they have an accepted promise to purchase in play. Inmost cases that’s fine but I have seen more and more situations where the clientsrealize they are either over-budget, or don’t qualify due to other controllablefactors (that could have been fixed prior). It’s never fun to find out that inthe midst the financing deadline that you cannot qualify for a mortgage with anA-lender.  A pre-approval is also importantas it shows the real estate broker representing the vendor that you are aserious buyer.   

If you have any specific questions or good and bad experiencesyou’d like to share please feel free to contact me.