There have been a lot of changes in the mortgage market over the past few months so many Canadian’s plans regarding homeownership may have shifted quite a bit from last year.

First, new qualification rules came to pass in October where even though actual contract rates are sitting at about 2.79% all Canadians have to now qualify at the Bank of Canada Benchmark rate of 4.64% to prove payments can still be met when rates go up in the future. That has taken about 20% of people’s purchase power out of the equation.

The second round of rules were implemented at the end of November with the government requiring banks to carry more of the cost or lending having to do with how they utilize mortgage insurance and the level of capital they have to have on reserve. This means it is more costly for banks to lend so they are passing some of that cost to Canadians.

We now have a tiered rate pricing system based on whether you are “insurable” and meet new insurer requirement to qualify at 4.64% with a maximum 25-year amortization (CMHC, Genworth, Canada Guaranty are the 3 insurers in Canada) or are “uninsurable” where you may have more than 20% down but can’t qualify at the Benchmark rate or need an amortization longer than 25-years to qualify or are self-employed so can’t meet traditional income qualification requirements. Canadians who are uninsurable will be charged a premium to their rate of anywhere from 15-40bps. So your rate would go from 2.79% to 2.94% at the very least.

Then in BC there was the announcement of the BC HOME Partnership Program (BCHPP) in January. We have finally had some clarification on how this works but the benefits are not as grand as the BC Government would like them to appear.

The BCHPP is a tool to assist First Time Homebuyers supplement their down payment by the government matching what they have saved up to 5% of the purchase price. While this may help some clients bring more money to the table we have to factor a payment on that “loan” into the debt-servicing mix so they will actually qualify for less by way of a mortgage. They have more down payment but can not get as high a mortgage so it’s very close to a wash.

Lastly, as of mid January, CMHC announced they are increasing mortgage insurance premiums on March 17th. Genworth and Canada Guaranty are likely to follow. The insurance premiums are based on a percentage of the mortgage amount requested and how much you have to put down. For people with 5% down the premium will go from 3.60% to 4.00% and if you want to take advantage of the BCHPP program the premium will go from 3.85% up to 4.5%

What does this all mean? Overall it is more costly and more confusing to get a mortgage today than we have seen in many years. With the complexity of the new mortgage market, now more than ever buyers need someone with extensive knowledge to help them sort through their options – such as your local Dominion Lending Centres mortgage professional.

If we can be of assistance to you or someone you know, please do not hesitate to contact us.

Documents, documents and more documents. Yes that’s right you will need to provide your Dominion Lending Centres mortgage broker with as many documents that we request upfront as possible. Why? Because the more supporting documentation you have available will help us as brokers to find you your best mortgage options. If you don’t have everything on hand e-mail a PDF of what you have and start digging up the rest as soon as possible.

Why so many documents you ask? While the lending market isn’t what it used to be, it is now much more strict and complex then a few years ago. Lenders are asking for WAY more documentation before they will lend you money. Yes, there have been instances of mortgage fraud that likely led to more scrutinized lending and Government regulations that lenders have to abide by are always changing. Mortgage lenders need to protect their investors and help ensure our Canadian housing market remains strong.

It may seem like a pain but ask yourself this if you had a large amount of money would you lend it out to somebody without proof they have income stability and/or the means to pay it back? Pretty sure your answer is no (at least mine is).

Below is a list of typical documents lender and mortgage insurers request. If you would like a tailored list please contact your DLC Mortgage Professional to discuss your application.

Income – lenders are looking for proof of income stability.

Self-employed Income

* 2 years of Income Tax Returns, Business Financials, CRA Notice of Assessments. Often it’s best to have your accountant e-mail them to us so no pages are missing.

Rental income

* Lease agreements

* T1-General tax returns with the Statement of Real Estate Activities. If you don’t claim your rental income let us know as this may affect how your mortgage is approved.

* Proof of the rental income being deposit on a regular basis into your bank account.

Guaranteed Employment Income

* A couple of recent pay stubs

* A job letter confirming your position, guaranteed pay and hours, if you are seasonal, contract or any specific information that relates to your income stability. Lenders will call your employer to verify the letter and ask for more information as possible. (Sample Job Letter)

* 2 Years of CRA Notice of Assessments

* 2 Years T1-Generals

Commission, Overtime, Seasonal, Contact or Bonus Income.

* A couple of recent pay stubs

* Job letter

* 2 years of T1-General Income tax returns

* 2 years of CRA Notice of Assessments

Liabilities – We will see most of your consumer credit accounts on your credit report however we may require some additional paperwork

* Current mortgage statements

* Property tax statements and proof of payment

* Child Support Payments proof via court orders and bank statements

* Alimony via Separation Agreements

* Proof your income tax has been paid. This is the most important item to pay because the Government has more power than the lenders. If you are wanting to refinance your mortgage to pay CRA contact us to discuss your options.

* Proof debts have been paid. If a zero balance is require you must show the account at a zero balance or the current balance and the proof of payment

Down Payment & Closing Costs

* The last 90 days of savings history. Any larger deposits have to be sourced.

* Gift Letter (some lenders have prescribed forms)

* Statement showing gift deposited into your account

* Property sale contracts and mortgage statements

About Documentation from Financial Institute

* Must have account ownership proof. For example e-statements are the best as they typically have your name, account number and the providers details already on the statement

* Screenshots work if the providers logo/name are clearly shown on them as well as the account holders name. If the account number only shows then you will have to provide an additional document from the provider with both your account number and name.

* If you are having your account history printed at a Teller please have the Teller stamp the paperwork

Documentation varies by applicant and lender. Be prepared by contacting your mortgage professional today for your tailored documents list.

While it’s certainly easy to be intimidated by the prices that you might see as you browse MLS into the wee hours of the night, mortgage interest rates are still at a historical low.  If you’re looking at purchasing for the first time, you’re thinking, “What does that mean?!”

With rates as low as they are, the cost of borrowing associated with your mortgage is lower than ever before.  You also need to look at other fees that can be tied to different mortgage products.  For example, some mortgages don’t allow for additional or increased payments, while others allow you to pay down your principal mortgage amount by up to an additional 20% per year, saving you money over the lifetime of your mortgage. It’s important to recognize and understand these options and fees, and that is where a Dominion Lending Centres Mortgage Broker comes in.  Brokers and their agents are experts in the products that they offer and will work to save you the most money.

Don’t worry!  A Broker can also help you take advantage of low interest rates as a homeowner, too!  It could be the right time to look at your other financials and consider consolidating other outside debts to take advantage of the savings that could be available to you.  It isn’t hard to see the savings between a balance owed on a credit card at 19% or the balance owing on your car at 6.25% and consolidating one (or both!) with your mortgage balance at much lower interest rate.  A broker can look at your current mortgage terms and timelines and can help you save a considerable amount of money each year!

A Mortgage Broker’s service doesn’t stop there.  Since the demand for new homes is so high right now, a Mortgage Broker will also help both first-timers and home-owners peeking around the markets with a pre-approval before you start considering making an offer on a new home. This means that you can confidently make an offer on the home that you love without making a condition on financing.  In a busy market, where purchases often end in bidding wars, having your financing in line could make your offer stand out against the rest.

Since properties are being scooped up like hotcakes, homeowners can also take advantage of selling their homes to downsize and save for retirement, or vacations, or spoiling their grandkids!

Now if you’d rather “love it” than “list it”, you can benefit from today’s high demand, too!  If you have been thinking about adding that basement bathroom, or are in need of upgrading your furnace and air conditioning units, a Broker can help you take advantage of the equity that you have gained in your home since you bought it.  In the last year, the demand for homes has soared, which means that your home could be worth a good chunk more than you might think.  Regardless of if your mortgage is up for renewal or not, a Mortgage Broker can help you make sense of the mortgage that you’re in, and look at payout options that could work in your favour.  And a mortgage evaluation will always be free with a licensed Broker.

Today’s market has a lot of characteristics that can work in your favour, but can also throw a little wrench in your plans.  Always make sure to sit down with a licensed, local Dominion Lending Centres’ Broker to make sure you’re armed with the knowledge that you need to get the most for your money!

Avoid these 5 common mistakes, and you will have no problem getting your mortgage faster, more efficiently, and with a clear understanding of the process:

1. Thinking banks are the first and best place to go for a mortgage

Mortgage brokers can often beat the bank rates by using different lending institutions. The bank is limited to one lender, but if you use a mortgage broker, they have the option to shop for you with multiple lenders to find you the best product.

2. Not knowing your credit score

Your credit score is a HUGE factor in your mortgage application. The first thing lenders look at is your history and your score—then from there they build your file.

You should know where you stand because so much of your lending availability is tied to your credit score. In mere minutes, a mortgage broker can help you obtain a copy of your credit report, and go through it to ensure the information is correct.

3. Shopping with too many lenders

When you shop from institution to institution you will have your credit score pulled multiple times. Lenders typically frown upon this and it may interfere with your mortgage application. If you go to a mortgage broker though, your score is pulled ONE time only.

4. Not keeping your taxes up-to-date

Plain and simple: If you are self employed or the mortgage application is requiring a 2 year income average to qualify (utilizing overtime wages and/or bonuses) and you haven’t filed your taxes and kept them up to date, you cannot get a mortgage. Lenders will ask for your notice of assessment if your tax filings are not up to date, and you will not get your mortgage until they are filed properly and a Notice of Adjustment from the latest year it is received.

5. Not understanding that the real estate market you qualify in TODAY will adjust in the future.

Rates may be at an all time low right now, but new rules, government regulation, and changes when you are up for renewal can change the circumstances. You must be able to carry your mortgage payment at a higher rate or with new laws imposed.

Remember, securing a mortgage isn’t always about getting the best deal. It’s about getting a home you want and establishing yourself as a homeowner. That means not overextending yourself and taking your qualifying amount to the maximum. Leave some breathing room because no one knows what the future may hold!

But one thing’s for sure – you should contact a mortgage professional at Dominion Lending Centres!

Are you on the hunt for a new home but can’t find exactly what you are looking for? You’re not alone. House hunters experience this scenario every day. With real estate prices increasing you may not be able to buy your dream home the first go-round.

Think about buying a fixer-upper. There are many potential properties that you can put your own personal stamp on. Why not renovate something?

There is a mortgage product called Purchase Plus Improvements (PPI). With the PPI the lender is able to provide additional financing to improve the subject property. This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof,  basement finishing, and more.

There are parameters to the PPI mortgage program:

Apply for up to a maximum of 10% of the as-improved market value
Utilize as little as 5% towards the down payment
At the time the application is submitted for approval the lender requires a construction quote to verify the work that is planned for the subject property
Renovation to be completed within 120 days
A third party (appraiser) must verify completion
One advance of the funds once the project is complete
Once the renovation is complete the lawyer would release the funds
PPI Scenario

Listed or Purchase Price: $450,000

Value of the Renovation: $45,000

As-Improved Value: $495,000 (new Purchase Price)

Maximum Borrow: $49,500 (10%)

Purchase Price: $495,000

Down Payment: $24,750 (5%)

Mortgage Amount: $470,250

Mortgage Insurance: $16,929

Total Loan: $487,179

Monthly Mortgage Payment: $2,146.17

For many, it is a daunting task to seek a mortgage plus a second type of financing to complete renovations, so why not opt for the PPI option?

If you are considering another form of financing for the renovation, some borrowers look for a line of credit, but is it really saving money and time? An interest-only payment on $49,500 is another $309.38 (based on 7.50%) which saves you $114.28 overall.

With all the different types of mortgages out there, be sure to contact your local Dominion Lending Centres mortgage professional so we can explain how “we’ve got a mortgage for that”!

Your Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 Years.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

First Gross Debt Service Ratio (GDS) is the combined shelter expenses (heat, property tax, half of condo fees & mortgage payment) in relation to the borrowers gross income. And Total Debt Service Ratio (TDS) is the GDS plus all other monthly debt liabilities in relation to the borrowers gross income.

Jane has a Credit Score over 680

GDS allowed is 39%
TDS allowed is 44%
John has a Credit Score between 600-679

GDS allowed is 35%
TDS allowed is 42%
Each year Jane may allocate $19,500 towards GDS and $22,000 towards TDS.

And each year John may allocate $17,500 towards GDS and $21,000 towards TDS.

Lets assume heat and property tax combined are $300/month. This means that Jane with her excellent credit can allocate $1,325 towards her mortgage payment and John can allocate $1,158 toward his mortgage payment.

Using the current Benchmark Qualifying Rate of 4.64% to qualify Jane may qualify for a mortgage of $236,066 and John may qualify for a mortgage of $206,313, a difference of$29,735.

As you can see there is quite the difference in mortgage amounts allowed under each credit rating. If you’re thinking of buying it’s best to consult a Dominion Lending Centres mortgage broker who will check your credit, help you determine your maximum mortgage amounts and if necessary help you make credit decisions that may improve your credit score and buying power.

Q. Is today the right day to buy yourself a home or not?

A. Today is the right day assuming one has found a specific property that works for them on all levels.

This question arises on a near daily basis within our social circles and most of the chatter around the topic is largely noise. Noise that needs to be blocked out so that you can evaluate your own personal circumstances fairly.

If the conversation is about an owner occupied property which one plans to reside at for at least the next 7-10 years, then arguably yes the right time to buy is today.

Over a 7-10 year horizon the day to day, even the month to month gyrations of the market will tend to resemble those of a small yo-yo on a large escalator.  Some ups and downs although with the lows often not dropping below the second last high. This is true of nearly any major urban 25 year chart of Real Estate Values.

There are some key considerations that will dictate not only the continued value, but perhaps more importantly your own ability to stay put for that magic 7-10 year time frame.

Location
Layout
Age
Size
Recreational amenities
Schools
Distance from workplace
Potential basement suite revenue
the list goes on…
Getting all of these variables aligned is something that takes dedication on the part of the both the buyer and their Realtor.  The hunt itself can easily consume a few months or more, and for some may result in over 100 viewings.  This is more than enough to juggle without also trying to ‘time the market’ on that perfect home.

Speaking of timing; consider allowing for a small overlap during which you have access to both the current residence as well as the new one. Being able to install new flooring throughout, complete interior painting, or upgrade kitchens and bathrooms, without having to live in the middle of the disruption is well worth an extra month of rent or the marginal costs of bridge financing. The costs involved are surprisingly lower than most clients expect.

Keep in mind during your search that the MLS #’s are an imperfect indicator of what is happening today in the market, as in literally ‘today’, MLS data reflects purchase contracts that were negotiated 30, 60, 90 or even 120 days prior to the completion date which was itself in the previous months report.  In other words by the time the MLS data indicates a trend one way or another said trend has in fact been in motion for as long as 6 months and could be either reversing or ramping up further.

Where then to get the most accurate data?

Talk to front line folks, Realtors, Brokers, Appraisers, etc. for a better handle on up to the minute trends.  Ask an Industry Expert – like your local Dominion Lending Centres mortgage professional.

Short term fluctuations in values and/or interest rates are themselves not the key factors in many peoples decision to buy, instead it is finding that perfect combination of all the factors that create a home within a community and the realization that homeowners win in the long run by owning, not by sitting on the sidelines.

It is all about finding a place you can call home for the duration. To be able to plant roots and become a part of a community.  Home ownership will undeniably continue to be a part of living the Canadian dream.

Perhaps the (short term) timing will feel imperfect, as it did for presale buyers in 2007, whose completion dates were set for Spring 2009.  However 7-10 years later most will be glad that they bought when they did.  In fact many were smiling again as soon as the Spring of 2010.

Home ownership remains the one true forced savings plan, and one of the best investments we make socially as it provides an individual and/or a family with a certain sense of security, stability and community. Block out the noise and do what is right for you.

A recent BMO study shows that the number of Canadians withdrawing money from their RRSP increased to 38% from 34% last year, and on average these Canadians are taking out larger sums of money.

The government requires RRSPs to be converted to a RRIF when a Canadian turns 71. After 71, withdrawals begin and they are taxed as income. Annual minimum withdrawal begins at 7.48% for those aged 71 and rise annually to a maximum of 20% for Canadians 94 and older.

Retirees often resort to tapping into RRIFs to access large sums. For some, RRIFS are viewed as their savings and emergency fund. For others, a RRIF withdrawal is their preferred solution over borrowing money, so that they can avoid monthly loan payments.

A RRIF withdrawal is a common solution, and the financial implications can be severe for seniors.

Let’s look at an example

Background: A retired widow living in B.C. has a modest pension income and only a little over $100,000 in her RRIF.

Goal: Financially help a family member by withdrawing $40,000 out of her RRIF.

Reality: Client discovers at her bank that she has an immediate withholding tax that she must pay because she is withdrawing from a registered investment. Because of this, she must take out an additional $12,000 to cover the withholding tax, which is considerably more than planned. In April, income taxes are due and the full amount of her RRIF withdrawal is added to her income, which increases her income considerably and moves her up a tax bracket. As we know, more income = more taxes. And now she owes an additional $18,000 in income taxes. Where would she find the money to pay her income taxes?

In addition, the savings she intended to use to support herself through retirement decreased substantially and won’t go as far for her as planned. Also, because of her decision to draw the excess amount from her RRIF, she experiences government clawbacks on her income pensions such as, Old Age Security (OAS), Guaranteed Income Supplement (GIS) and other benefits and she now has an increase in her quarterly tax installments. To make matters worse, she is no longer eligible for her provincial health care assistance, and is responsible for the full monthly premium payments herself.

Alternate solution:

By using her home equity with a reverse mortgage, her retirement savings could have been fully preserved. Income could have remained the same because funds from a reverse mortgage are tax-free and do not get added to her income. Best of all, there would have been no tax implications and she could have prevented her pension and her provincial health care assistance from being affected.

This is a true story.

We met this client when her $18,000 income tax bill was due. She was able to use her home and a reverse mortgage to help her in this situation.

Dominion Lending Centres mortgage brokers and advisors see it all the time.

Life events happen. If you know a retiree looking for a financial solution to help a family member or to cover sudden life expenses, recommend they take the time to consider the tax implications that an extra RRIF withdrawal may have on their financial situation.

Then the question really becomes: Which asset should I use? My RRIF or my home?

A reverse mortgage provides a tax-efficient solution, helps clients keep their savings to support retirement and requires no monthly payments (including interest payments).

If this client had a conversation with her DLC mortgage broker to consider all options, she would have been left in a much better financial position for years to come.

If you have no desire at all to qualify for a mortgage, here are some great ways to make sure you don’t accidentally end up buying a house and taking out a mortgage to do so.

One of the best ways to ensure you won’t qualify for a mortgage is to be unemployed. Yep, banks hate lending money to unemployed people! Okay, so you have a job. Well, that’s okay, you can always unexpectedly quit your job just as you are trying to arrange financing! Even if you are making a lateral move, or taking a better job than the one you have now, that’s cool… any change in employment status while you are looking to get a mortgage will most likely wreck your chances of getting a mortgage for a while. This is because lenders want to see stability; they want to know that you have been in your current position for some time, that you are past probation, and that everything is working out well. By changing jobs right when you are looking to buy a property, you won’t instil the lender with confidence, and they probably won’t give you a mortgage. Mission accomplished.

Don’t wanna buy a house? Well, then it’s best you don’t save any money. Better yet, you should probably borrow as much money on credit as you can. One of the main qualification points on a mortgage is called your debt-service ratio. Simply put, the more money you owe in consumer debt, the less money you will qualify to borrow on a mortgage, because your ratio of income compared to your debt is higher when you owe more money. Consider this permission to go and finance a Harley-Davidson. Do it, right now. Not a big fan of motorcycles? That’s cool; a Ford 150 should do the trick nicely. The key here is to make sure you add as much monthly payment as you can. The bigger the payment, the better.

But let’s say that unfortunately your debt-service ratios are in line, you have been able to save up the necessary 5% down payment, and you are on your way to buying a house. What do you do? Ugly documentation! A great way to make sure your lender feels uncomfortable is to have really terrible bank statements. Typically when proving your down payment, the lender will require 90 days’ history of your account(s), with your name on the statement, showing that you have accumulated the down payment over time. Want to really mess things up? Make sure there are lots of deposits over $1000 that can’t be substantiated. This will look like money laundering. If that doesn’t work, you can always black out your “personal information.” Just use a black Sharpie and make your bank statements look like a classified FBI document. Lenders hate that!

So you’ve got a great job and lots of money… don’t panic, you can still absolutely wreck your chances of qualifying for a mortgage. Just don’t pay any of your bills on time. Seriously, borrow lots of money, and then stop paying! Boom. Why would any lender want to lend you money when you have a great track record of not paying back any of the money you borrow? Now, if this feels morally wrong, okay, here is an ethical way to wreck your credit. Don’t pay that cell phone bill out of principle. We’ve all been there — roaming charges, extra data charges that the cell company added on your bill… choose not to pay this on principle. This is a great way to sink your chances of getting a mortgage, I mean, how are you supposed to know that some collections (like cell phones) will show up on your credit report?

Last, if you want to make sure you never get financing, insist on buying the worst house in a bad neighbourhood. You see, the property you are looking to buy is very important to the lender. If they lend you the money to buy it and you stop making the payments, they will be forced to repossess and sell it. They are going to make sure they can recoup their initial investment. So, a “handyman special, fixer upper, with lots of potential” is a great option. As everyone knows, those words are code for “a giant dump.” Bonus points if you get those terms written in the MLS listing. Yep, insist on buying something that is falling apart and stick to it; don’t ever consider buying a solid home in a good neighbourhood.

So there you have it, if you don’t want a mortgage, no problem. Quit your job, borrow lots of money, wreck your credit, and insist on buying a dump.

However, on the off chance you feel homeownership is right for you, contact a Dominion Lending Centres mortgage professional. We can help you put a plan in place to avoid these (and many more) mortgage qualification pitfalls.

We have often talked about understanding the personalities of your mortgage on our blog, but another part of that is working with your Dominion Lending Centres mortgage broker to ensure that you are getting the best product and sharpest rate possible. Asking critical questions will help you to not only understand your mortgage, but to also understand the benefit of working with a broker vs. the bank. It will also allow you to rest assured that you have flexibility and security in the mortgage that is selected for you. Here are our 4 critical questions to ask any mortgage broker you work with:

Question 1: What is the sharpest rate you can get me?

Keep in mind, that if you are shopping for your own mortgage, you do not have access to the same resources that a mortgage broker does. A broker can do mortgage comparison to show you what you qualify for. In addition, a good broker can help you compare apples to apples and shops your deal to more lenders.

Question 2: What payout options are available with each loan?

Different lenders offer different payout options varying between 0-20% lump sum payments each year. Some institutions allow you to double your payments monthly and/or once a year. Others will allow you to increase your payments by 20% once per year. There are many varieties of prepayment options, so you really need a broker to seek out the best prepayment options for you.

Question 3: What are the penalties for paying out a mortgage early?

Penalties are three months of interest, or the interest rate differential (whichever happens to be greater) and pending on the type of mortgage you are in (fixed or variable). In another case, a lender may calculate your penalty based on the Bank of Canada’s 5 year posted rate as the penalty payout and not the discounted rate you are in. Unfortunately, since no one can predict the future, you can enter into a 5 year term, and you don’t know what may happen in 2-3 years. If there is a reason you need to get out of a mortgage, you must know your payout penalties.

Question 4: What about amortization?

Your amortization period is the number of years it will take you to become mortgage free. The more that you pay on a payment, the lower your amortization will be. A typical mortgage amortization is 25 years although some opt for 15-20 but others may need an extended amortization up to 35 years. There needs to be flexibility in amortization.

Note: Different lenders, especially working with people with bruised credit don’t always allow the extended 35 years.

Asking these 4 questions will help you to make critical decisions about your mortgage, and can give you peace of mind regarding your mortgage broker’s ability to get you the sharpest rate. Don’t be afraid to ask questions, and if you don’t understand something always ask for a more in depth explanation. Your home may be the biggest purchase you make in your lifetime, understanding the terms and working with a skilled DLC mortgage broker is worth an investment of your time.