Support those who back you

Every once in a while I read something that really seems to hit home.

Last, week I came across something on Facebook that I’d like to share with you. This will circle back to mortgages, I promise.

A father, before he died, said to his son: “This is the watch your grandfather gave me and this is more than 200 years old. Before I give it to you, go to the watch shop on First street, and tell him I want to sell it, and ask how much they'd offer.”

The son went and after several minutes, he came back to his father and said, "The watchmaker offered to pay $5 because it's old and has a lot of scratches.” He then asked him to go to the coffee shop.

The son went and after an hour or so, he came back and said: “The coffee shop owner offered $5, father.”

“Go to the museum and show them that watch.” He went ahead and then came back happily.

“They offered me a million dollars million for this piece.”

The father said: “I wanted to let you know that the right place values you in the right way. Don't put yourself in the wrong place and get angry if you get treated like trash. Those who know your value are the ones who appreciate you, don't ever stay in a place that doesn't suit you."

Know your worth.

So how does this relate to mortgages?

During the last few weeks, I’ve been working on some very complex and challenging mortgages. Particularly for self-employed individuals, finding the right lender and mortgage product can feel a little like sorting out a Rubik’s cube — tough to make all of the pieces line up properly.

From time to time, this can feel disheartening when the numbers don’t line up. I found the quote above after a particularly frustrating day.

After a good night’s sleep, I woke up with an idea as to how to restructure one of my applications, and was pleased to find an approval for my clients within a day.

I am grateful as for the most part I work with amazing people. I love what I do as no two days are ever the same. Each day presents new opportunities to learn.

The above quote reminded me that even though some days are a little tough, I am blessed to work with clients that appreciate me.

Every once in a while I am reminded that people operate differently.

For me, its been a gradual evolution. When my girls were younger and funds were tight, I didn’t have much of a choice – I had to find the cheapest alternatives (food, clothing, etc), which generally meant shopping at the big box stores.

At a learning event a few years ago, we talked about self-employed individuals and small businesses in our community. We talked about how these smaller businesses support individuals and families locally. Trying to look for a deal or have people drop their prices directly impacts their bottom line.

Now, if I have the opportunity, I will purchase something made locally or from a smaller local vendor before I will buy the same item from a bigger chain store.

And how does this tie into mortgages?

I’ve been working with a family in Northern B.C. for almost two years. We’ve spent a lot of time discussing strategies and options as they have been looking for a unique property and are stretching their budget to make it happen.

They called me a few weeks ago to say that they had written an offer and called one of the national discount mortgage brokerages that advertise cheap mortgage rates for their approval.

They were really frustrated as the person they were working didn’t seem very knowledgeable, and that the rate he came back with was not the same as what was posted in all of their advertisements.

The unfortunate part of their story is that they lost the property as they were unable to get their financing in order and the seller would not extend the contract.

There is a lot more to finding the right mortgage than the lowest rate. There can be clauses and conditions that may cost you thousands down the road if you don’t understand what you are signing.

Working with a professional that takes the time to explain both the process and the fine print is key.

When you are purchasing goods or services from someone you know, rather than trying to wangle the cheapest alternative take a few moments to remind yourself of the value of working with someone you know, like, and trust.

I am very grateful for the amazing people in my world, professional and personal. I feel very blessed to work with clients who appreciate the skills and knowledge I bring to the table.

Hoping you’ve been able to enjoy time with family and friends this long weekend.

Happy Thanksgiving!

Get title insurance

When you get down to the nitty-gritty of buying a home, you need to make a lot of decisions in a short time.

Regardless of how prepared you are, it can feel a little overwhelming.

One of the last-minute decisions you will be asked about is title insurance. This will be discussed with your lawyer or notary just before your mortgage finalizes, when you are signing your final mortgage documents.

Most lenders require that you purchase title insurance.

When I first started working on mortgages close to 30 years ago, lenders required clients to provide a survey certificate when they purchased a home. Usually a copy was available from the seller, or sometimes from the respective city office.

If there was not a copy available, clients would have to pay for a new survey to be done. In some communities, this could cost close to $1,000, so survey certificates were (for the most part) carefully kept for future use.

Over the years, this requirement has changed. Now, most lenders require title insurance in lieu of a survey certificate.

Title insurance is generally purchased at the time your mortgage closes. In B,C., for purchases under $1 million title insurance costs approximately $225.

There is a mandatory policy that protects your lender, and you are able to purchase a personal portion as well. The personal policy generally costs about $50-$75.

This is a one-time cost that is usually included in your final closing costs.

What is title insurance and why is it important?

Title insurance is designed to protect the lender (and you if you buy the personal policy) against title fraud and potential defects relating to the title of your home.

Some of the risks that title insurance protect you against include:

  • An unforeseen defect in your title ownership.
  • Negligence or errors made by your lawyer relating to title risks.
  • Unpaid utilities, mortgages, taxes or condo/strata maintenance fees – these are known as liens.
  • Fraud, survey or records errors.
  • A pre-existing outbuilding that must be removed because it encroaches on a neighbouring property.
  • The gap period between when a property purchase is finalized or closed and when the title is officially registered with the government.

Over the last week, I’ve had two separate calls with title-related questions. One of my clients in Northern B.C. has an accepted offer on her home.

While doing their due diligence, the prospective purchasers discovered an error in the property line.

They are in the process of trying to sort out whether the developer made an error in building the house or whether the city records are incorrect.

Either way, the client did purchase the optional title insurance, so based on her initial inquiry to the title insurance company, it sounds like her situation will be sorted out and any costs will be covered by the policy.

Another client ran into a situation where the home they bought had a shed built almost three feet over the neighbour’s property line.

They are in the process of finding out exactly what costs their title insurance will cover as the City has ordered them to tear down the shed.

Do your paper work

“Why do they need that?”

“It wasn’t like this the last time I bought a house.”

One of the common frustrations shared by mortgage applicants is the amount of paper work required to get a mortgage.

While it may seem like a tremendous amount of documentation is required, we need to step back and think about the fact that we are asking a lender for several hundred thousand dollars.

Would you lend this amount of money to someone you barely know?

Lenders don’t ask for additional paperwork to make your life difficult. They are doing their due diligence to ensure that you will be able to repay your mortgage.

Under Canada’s anti-money laundering legislation and anti-terrorist financing regime, potential lenders are required to document large or suspicious deposits.

How can you make this a little more straightforward on your end?

If you are getting ready to buy a home, make sure your paper work is organized.

I send my clients a list up front of the documentation they will most likely need for their mortgage approval. It may seem like overkill in some cases, but by being organized upfront I am often able to have an approval within a few days … and sometimes even the same day.

Regardless of how prepared we are, lenders will sometimes ask for additional information, so don’t be surprised if you are asked for even more documentation.

Many lenders require verification of two years consistent employment. so it is helpful to dig out T4s and Notices of Assessment from Canada Revenue Agency for the last two years.

You will need to ask your employer for a letter that outlines your salary, position, and start date. You will also be asked for a current pay stub.

You will need to demonstrate where your down payment is coming from. Lenders need a 90-day history, which means you will need to provide bank statements for the last three months.

It is key that the statements you provide clearly show your name and account number. Do not scratch out the transaction list as lenders will not accept this.

If you have any large deposits during the last three months (generally more than $2,000) you will also have to show a 90-day history for those funds.

If you are self-employed, you will likely require additional information. Depending on the mortgage product you are using, expect to be asked for your Notices of Assessment and complete T1 Generals for the previous two years.

If you are incorporated, you will likely be asked for confirmation of that.

Not too long ago, I worked with a commissioned car salesperson. We got chatting about how the financing process for buying a car is so different from a mortgage application.

My understanding is that it is fairly common for dealerships to inflate people’s income to make their applications work.

In the mortgage world this is not an option.

A mortgage broker recently used an analogy with one of his clients. The client was a trades person. The broker explained that if the client didn’t have all of the materials and supplies needed, he would not be able to complete his construction project.

For a mortgage broker, your paper work is the equivalent of those materials and supplies.

Without the proper paper work, we cannot get your mortgage approved.

If you are thinking about buying a home, or already out looking, the more prepared you are with your paperwork the smoother your approval will go. And your mortgage professional will be very grateful.

Info for first-time buyers

Last week, I sat in on a webinar hosted by CMHC that covered more information about the First-Time Home Buyer Incentive Program.

The intent of the plan is to help makes mortgages more affordable for qualified first-time home buyers.

The federal government will help with your down payment in exchange for an equity share in your home. You need to have the minimum down payment of five per cent from traditional sources, which can include a gift from immediate family or savings.

The program will provide five per cent toward your down payment, or if you are buying a newly constructed home the program will provide either five or ten per cent.

How does this help you as a first-time buyer?

The additional down payment helps reduce your mortgage insurance premium, which can result in significant savings over the life of your mortgage.

The additional down payment and subsequent lower insurance premium means your monthly mortgage payments will be slightly lower

Who qualifies to use the First-Time Home Buyer Incentive program?

  • At least one purchaser must be a first-time home buyer
  • Must not have owned a home during the last four years
  • People who have gone through a marital breakdown or separation (even if they have owned a home within the last four years)
  • Household income cannot exceed $120,000 per year
  • Canadian citizens, permanent residents, or non-permanent residents who are legally authorized to work in Canada
  • The maximum mortgage amount can be up to four times the amount of your annual income. If your income is $100,000, the maximum mortgage amount will be $400,000 so your purchase price will be $400,000 plus your down payment.

If you have $20,000 saved and the program kicks in $20,000, your purchase price would be $440,000.

As the maximum allowable income under the program is capped at $120,000 this means the maximum mortgage amount will be $480,000 (plus the related CMHC premium) plus your down payment.

This puts the maximum purchase price under the program at $530,000, or $542,500 slightly higher for a brand new home).

Something to consider is that if you choose not to use the program, with the same income of $120,000 your maximum purchase price would be higher. Allowing for property taxes and heat, your purchase price would be approximately $575,000.

The federal government’s new plan is slated to roll out today. Mortgages approved under the program can close Nov. 1 or later.

The program’s information page contains a qualifier stating that these dates may change due to unforeseen circumstances.

The government’s contribution is non-interest bearing and must be repaid when you sell your home or after 25 years.

Instead of charging interest, the government has structured this as an equity share in your home.

What this means is that when you sell your home, you will repay the government the same percentage of the sale value of your home (or current value of the home if you still own it at the 25-year mark) as their original contribution.

As an example, you buy a home priced at $300,000. The government kicks in $15,000. Ten years later, you sell your home for $400,000. Your repayment to the program is $20,000 (five per cent of $400,000).

If the market crashed and your home sold for $200,000, your repayment would be five per cent of $200,000 so in this case $10,000.

Using the example of the $300,000 purchase price, having the additional $15,000 toward your down payment would reduce your monthly payment by about $75. You would pay about $4,500 less over the first five-year term.

If you sold at the end of five years for $400,000 your repayment of the equity share would be $20,000 – five per cent of the sale price of your home. Doing the math, you paid $4,500 less in payments but it cost you $5,000.

Say you sell your home at the 10-year mark. For years six to 10 of your mortgage, assuming a similar interest rate and no extra principal payments, with the reducing balance your payments are about $60 less per month less. So you pay $8,100 less over the ten years ($4,500 + $3,600).

By taking advantage of the program, your mortgage insurance premium would be $3,030 less than if you decided to only use your own funds for down payment.

At the end of the 10 years you sell your home for $500,000. Your repayment to the program would be $25,000. The government’s initial contribution was $15,000.

This equity share has now cost you $10,000  less the $3,030 reduced insurance premium which was added to the mortgage upfront. Factor in that your payments were $8,100 lower, so you have benefited by $1,130 having used the additional down payment.

There are a few additional costs that you will incur by using the program.

For example, there will be an additional charge at the lawyer’s for registering the equity share against the title of your home. You will need to get a quote from your specific legal representative, but with the BC program two years ago it cost my clients between $150 and $200 extra.

When it comes time to repay the equity share, an appraisal will be required to determine the current value of your home, so there will be the cost of the appraisal to cover.

The information released so far indicates that the government’s contribution to your down payment will be registered as a second mortgage against your home.

Repayment of the government’s share is triggered by either the sale of your home or when you hit the twenty-five year mark. The program guidelines say that the contribution does not have to be paid back if you refinance your home.

However, in the case of a refinance the government’s equity share would stay as a priority ahead of any new funds that might be issued by your lender. At this time, most lenders would require that the charge be removed so their mortgage has first priority.

As with any new program or policy change there may be a work-around developed, but I feel it is important to understand that you will likely have to repay the equity share if you are looking to refinance your home.

Ideally, you would pay off the government’s contribution as soon as possible, as the repayment amount is based on the value of the home at the time you pay it off, but in the event of a refinance this reduces the amount available to you (trade off being you have repaid the equity share sooner rather than later).

It may not sound like much, but by reducing your monthly mortgage payment by even $75 frees up those funds for daily essentials, or maybe even a savings account for future repairs to your home.

In our market, there are still many housing options available within the mortgage cap of the program. The key take-away is that if you are considering taking advantage of the plan, make sure you have a solid understanding of both the pros and cons.

For more information about the specifics of the program, check out the link to the government site on the Resources section of our webpage.

More The Mortgage Gal articles

About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

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

Visit their blog at https://www.okanaganmortgages.com/blog


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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