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Buying in a hot market

As the summer approaches, it seems the Canadian real estate market has caught spring fever and things are not changing.

First-time homebuyers face many challenges when it comes to house-hunting during a peak home-buying season. Not only is there plenty of competition, but there is also deadline pressure.

But there’s a reason for that: buying and moving in spring/summer ensures better weather and provides breathing room for kids to settle in before starting at a new school. It also gives you all summer to decorate your new place, if you can beat out others vying for the same starter home.

 If you want to get an advantage over the competition, here are some top strategies for home buying during a seller's market.

Strategy No. 1: Hire a professional realtor

  • If you don’t already have a real-estate agent or realtor, I would be happy to make a recommendation.  A pro can help you narrow your search to the best neighbourhoods for your budget and lifestyle.
  • Local real-estate professionals know the finer points of different neighbourhoods, so you don’t waste time chasing bad leads such as a cute row-house on a street known for its crime, or hoping for a $400,000 house in a community where prices have started at $600,000 for the past five years.
  • Realtors and agents can fire up your search by emailing you pertinent listings right after they hit the market. A quick eye during spring house hunting can give you an advantage over other homebuyers who are surfing Realtor.ca or other real estate websites on their own.

Strategy No, 2: Use social media for PR and research

  • First-time homebuyers are twice as likely than other homebuyers to include social media in their home search. While it doesn’t replace the expertise of a realtor, social media is a valid tool.
  • Use social media networks for public relations: Serious about finding your first home? Launch your own PR blitz. Spread the word on Facebook that you’re looking, and in what neighbourhoods. You could get solid sales leads via family and friends (and friends of friends!).
  • For research: Twitter and YouTube provide valuable insights into a neighbourhood culture, helping you decide if it’s right for you. Wondering how family-friendly a particular street is? Google it, and you may find a bunch of tweets and YouTube videos of its legendary Halloween decorating and celebrations.

Strategy No, 3: Get mortgage pre-approval

  • It goes without saying that in any market, particularly a competitive one, you need to be pre-approved for a mortgage. Sellers won’t wait for a prospective bidder without mortgage pre-approval when there are plenty of other offers out there with their financing arranged.
  • Consider a mortgage broker and get your finances in order so that when you jump in with an offer, you’re doing so with both feet.

Strategy No. 4: Line up your real estate support team

  • In addition to your realtor and mortgage broker, it’s important to have other key, real-estate pros in your corner so you’re ready to move fast the moment you decide to put in an offer on a home, as well as provide you with sound financial advise.
  • Securing these pros ahead of time will ensure you’re not scrambling during peak home-buying season. Your team should include:
  • Accountant
  • Financial planner
  • Home inspector
  • Appraiser
  • Lawyer

Use word-of-mouth recommendations from trusted friends and family, or ask your realtor for their recommendations. 

We will be hosting a home-buyers information session with professionals on hand to answer questions on June 29  at 6:30 p.m. 

Please contact me to register 250 862 1806 or [email protected].
 





Grow-op nightmares

Buying a former Grow Op Property and Financing

I often get asked about the possibility of buying a home that was a marijuana grow operation or grow op for short. 

The price of these properties makes them attractive as they can be listed and sold far under market value. However, there are many things to consider in this kind of purchase. It's important to understand that once a property has been busted as a grow op, it will always need to be tagged as a former grow op even if it is 10 years later. This adds a negative stigma to the property.

Not only is it harder to get financing, but after a recent bust, there is always the danger of the property being mistaken by those involved in criminal activities.

The main danger with former grow ops is the presence; in 2014 CMHC and others had a conference to determine how to remediate the problem. The first thing is for a baseline condition to be determined by testing.

This is obtained by a home inspector who has qualifications to perform these special inspections. The inspector examines site conditions — exterior walls, foundation and roof, mechanical, electrical, plumping and interior structure. As well, air testing is conducted inside the residence to determine the presence of fungal growth/drug residue levels inside the residence compared to the outdoors. The drug levels must be less than the prescribed levels or the same as the exterior.

Once the condition has been determined then the remediation can begin. Again it is important that certified professionals are hired to do the work. After the renovations are completed, then there will be a post inspection with air-quality tests.

 The mortgages will need to be insured on these properties and this requires that the full renovation and decontamination be completed prior to funds being advanced. There is private financing available with a good down payment, if the property is in foreclosure and remediation cannot be performed prior to purchase. 

All mortgages for this type of property are approved on a case-by-case basis depending on the remediation and the strength of the borrower. Here are some of the additional documents that are required:

  •  Copy of occupancy permit
  •  Copy of post remediation home inspection
  •  Copy of Level 1 environmental assessment, including an air quality test
  •  Independent legal advise providing full disclosure of the risk associated with buying a former grow op
  •  Copy of RCMP/police report

In addition to this documentation, the client will have added fees and the interest rate may be higher to offset the risk. The purchasers must have good income, high credit score and a minimum of five per cent down payment.

The only way to remove the label of grow op from the property is to have the property completed rebuilt from the foundation. This means that each time the property changes hands the property disclosure statement must state that the property is a former marijuana grow operation and be provided to the subsequent purchaser.

For more information on former grow op financing please contact me at 250-862-1806 or email [email protected].



What is in a Beacon Score?

 
The beacon score is a very important part of the mortgage application process. Your Equifax Beacon Score tells lenders how much of a risk you are by your past debt history.
 
Beacon scores have a range from 300 to 800+ with the average Canadian being in the 700 range. The perception out there is in order to obtain a great interest rate you require an 800 plus beacon score. That is not that case — only 11% of all Canadians reach that score.
 
We can provide you with the best available interest rate with scores in between 680-700 and still obtain decent rates with scores below that range. The difference will be stronger requirements around income and previous delinquencies if any.
 
The minimum credit score for insured mortgages (less than 20% down payment) is 600 and that has been in effect since October 2008. This allows for a wider range of Canadians to reach the dream of home ownership.
 
The advantages of using a mortgage broker are that we deal with more than 50 lenders and can find mortgages for all Beacon scores. If your score is below 600 and you have had some issues with credit the banks are more cautious, but don't worry we have obtained mortgages for our clients with beacon scores as low as 450. There are of course other items required for these and we work with you to help you obtain the mortgage.
So basically, we can assist with mortgages for first time homebuyers, refinancers, self employed, rental properties and repeat purchasers with a wide range of Beacon scores.
 
If you want to improve your credit rating to help you obtain a better rate, here is the main criteria surrounding how it is calculated:
 
Payment History 35%
 
Factors in the frequency of and number of payments over 30 days late, collections, judgments, and bankruptcies. A single 30-day late payment can drop your score 15-20 points.
 
Current Debts 30%
 
Considers how much you currently owe (in absolute terms and compared with your credit limits), how many creditors you owe money to, and how much you could owe if you obtained all your available credit.
 
Age of Accounts 15%
 
The longer your accounts have been opened the better. The requirements are active accounts used within the last three months showing a balance that has revolved.
 
Type of Credit 10%
 
Bank loans, credit cards, and revolving credit accounts all impact your score differently.
 
Credit Enquiries 10%
 
Numerous credit applications in the past 12 months affect your score significantly and is definitely not advised. This is the advantage of using a mortgage broker as your credit is only pulled once for multiple lenders.

If you would like more information about credit scores or being pre-qualifying for a mortgage, please call 250-862 1806 or email [email protected]





Five c's of credit

Ever wondered how the financial institution or mortgage broker determines if you qualify for a mortgage? There are five key elements that most lenders use. These are often called the five c’s of credit to make it easier to remember.

Here are the five different factors that are examined before you get an approval for the mortgage on the home you would like to buy. They are listed in the order generally verified by the lender.

CHARACTER

This is a look at the borrower to determine if they are of good character. The lender looks at thing such as assets and  liabilities which will show the borrower’s ability to save money, and whether they rely too heavily on credit. 

Length of employment is used to determine whether the applicant is able to hold a job for a reasonable period of time and stability. 

Time at residence will show stability, and the current rent will also be a factor in affordability.

CAPACITY

This involves looking at the sources of income and nature of the borrower’s payments to determine their debt servicing. There are two ratios that the lender calculates. 

Gross Debt Service (GDS) looks at monthly mortgage payment + property taxes + heating costs divided by the monthly income. This ratio is generally less than 32%. 

The second ratio is Total Debt Service (TDS) which adds to the GDS and total monthly payments of the borrower. This should be close to 40%. Rent is looked at to determine if the mortgage payment is reasonable in comparison to the rent the applicant is accustomed to paying.

CAPITAL

Does the borrower have enough money for a downpayment? The ability to show that a mortgagor can save over the required 5% minimum downpayment will greatly strengthen the deal. Sometimes First Time Buyers will get a gift from family for the downpayment, and this will only work if the other c’s are good to excellent.

CREDIT

The lender or mortgage broker will often pull a credit bureau report from either Transunion or, more commonly in BC, Equifax.  

The credit bureau gives a snapshot in time of the borrower’s ability to handle credit. It will show the outstanding balances, limits, payments, and the past repayment record of the borrower. The credit report will also show whether the applicant has ever had any collections or bills they refused to pay. 

Many factors are used by the credit bureau to give the applicant a credit score. Many lenders use a minimum score of 620-650 for mortgages.

COLLATERAL

The collateral is usually the last to be confirmed. This refers to the property. In general, the lender wants to lend on a property that is in good condition, in a good location, and something that would appeal to other buyers should the lender ever have to foreclose and sell the property to recover the mortgage.

The application process is like a puzzle that the lender or broker tries to fit together to approve the loan. If one area of the client's application is weak, than it is important to point out and emphasize the strengths so that they compensate for the weaknesses. For example, if the borrower has no downpayment and it will come in the form of a gift, their strengths may be longevity in their employment (capacity) and very few loans (credit).

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About the Author

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business since 1991 and a broker since 1997. 

As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products.

Laurie has a Bachelor of Education degree from UBC.

Contact Laurie at 250-862-1806 or visit:
http://www.okanaganmortgages.com

Visit Laurie's blog at: https://www.okanaganmortgages.com/blog



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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