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Your home-buying team

Buying a home can be both exciting and overwhelming. One of the best things you can do is to surround yourself with professionals you trust. 

Key members of your team will likely include: a mortgage professional, a realtor, a home inspector, and a lawyer or notary. In some situations, you may also need an appraiser.

Professionals working in the real estate industry are often able to recommend highly qualified experts that they have worked with in the past.

You can search out members of your team by talking to friends and family about who they have worked with when purchasing their homes, and by doing your research online.

It is important that you feel comfortable with the members of your team. Working through the process can feel intimidating, so you need to be able to ask questions as you move forward.

Don’t ever be afraid to ask if you are unclear about something – it is far better to clearly understand than to guess and potentially make a decision you may regret later.

Here are the key members of your team:

MORTGAGE PROFESSIONAL

Also known as specialists, consultants, brokers or sub-brokers, a mortgage professional might work with only one financial institution or may have access to multiple financial institutions.

A significant advantage to working with an independent mortgage professional (not tied to one financial institution) is that they are able to shop for the best rates and features for you.

If for some reason a lender does not approve your application, independent mortgage professionals can then submit your application to other lenders who may have different criteria for assessing borrowers.

Many mortgage professionals work flexible hours and are available to meet with you evenings or weekends. For standard residential home purchases, there is usually no fee or cost to you for this service.

REALTOR

You will work closely with a realtor to find your home. Realtors are knowledgeable about the features and characteristics of your community.

They will help you identify your list of must haves and nice to haves to help narrow down your search for the right home.

Your realtor will arrange for you to view several homes, and once you have decided on a property will guide you through the process of making an offer.

Like the other professionals involved in your home buying journey, much of the work that realtors do happens behind the scenes. An amazing realtor can help a purchase come together by negotiating on your behalf.

From time to time, clients ask my opinion about listing their homes privately or making an offer on a private listing. Their feeling is they may save money by cutting out the realtor.

Last summer, I worked with a client buying a home that was a private listing. I suggested she hire a realtor to write up her offer and negotiate on her behalf. She didn’t want to pay any fees and rather had her lawyer draw up the contract.

There were multiple changes to the agreement, and by the time her purchase was finalized her legal bill was over $4,000. There was a fair bit of stress for both buyer and seller that (I feel) could have been reduced had they been working with a great realtor.

On the flip side, I’ve worked with clients who listed their homes privately. In one case, their home sat for months in a hot market while others around were selling like hotcakes.

Listing with a realtor helps your home get maximum exposure to potential home buyers.

Maybe most importantly, I’ve seen many situations where clients have been successful in multiple offer situations due to the expertise of their realtor.

Your realtor will support you until the keys have changed hands. Realtors work on a commission basis, and as a purchaser there is usually no charge for their service.

LEGAL SERVICES

A lawyer or notary (legal rep) will work on your behalf to ensure that your legal rights are protected. Your legal rep will take care of all the paperwork required to complete the sale and transfer ownership of your new home to you.

It is a good idea to connect with your legal rep as soon as you have an accepted offer. Ask for a written quote so that you are able to add this expense to your budget for closing costs.

Have your legal rep review your purchase contract before you remove your financing subjects. Some will provide a written report to help explain any potential issues with the title of the home, easements registered against the property, etc.

HOME INSPECTOR

Your home inspector will go through the home you are hoping to buy with a fine-tooth comb. He / she looks at everything from the life expectancy of your roof to any potential hidden issues like mould.

Most will prepare a written report for you, then go over it point by point to make you aware of any potential issues in the home. Ideally they will also make recommendations about upcoming maintenance that you need to be prepared for.

Even if you are buying a brand-new home, its important to have an inspection done.

WHERE TO START

Once you have decided on a mortgage professional to work with, call and set up an appointment.

Explain that you will be looking to purchase a home and would like to find out how much you are qualified to borrow https://www.okanaganmortgages.com/mortgage-pre-approval-know-what-you-can-afford/.

Sometimes, this conversation may be more of an education session so that you know what you need to do to be ready to purchase your own home.

Ideally, reach out to arrange your mortgage financing several months before you are wanting to start shopping.



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First-time buyer incentive

More details about the FirstTime Home Buyer Incentive program were rolled out last week.

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

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 can not exceed $120,000 a 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 (slightly higher for a brand new home).

The federal government’s new plan is slated to roll out Sept. 2, 2019. Mortgages approved under the program can close November 1, 2019 or later. The program’s information page contains a qualifier stating that these dates may change due to unforeseen circumstances.

In a nutshell, the government of Canada is offering either five or ten per cent towards your down payment in exchange for an equity share in your home. You must have a minimum of five per cent down from your own resources.

For existing homes, the maximum contribution from the program is five per cent; for new construction you may be eligible for ten per cent towards your down payment.

The government’s contribution is non-interest bearing and must be repaid when you sell your home or after twenty-five 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 twenty-five 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 $4500 less in payments but it cost you $500.

Say you sell your home at the ten-year mark. For years six to ten 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 $8100 less over the ten years ($4500 + $3600).

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 ten years you sell your home for $500,000. Your repayment to the program would be $25,000.00. The government’s initial contribution was $15,000.

This equity share has now cost you $10,000.00 less the $3030 reduced insurance premium which was added to the mortgage upfront. Factor in that your payments were $8100 lower, so you have benefited by $1130 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.

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. Guessing on my part as I haven’t seen the specifics yet, I expect that this will be registered not as the original amount but in a way that protects the government’s interest in the home over time.

This means 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.

The promotional material I’ve seen states that the intent of the program is to make home ownership more affordable. This is achieved by reducing the monthly mortgage payment.

I anticipate that we will start to hear from lenders over the coming weeks as to how they will be handling applications for clients wishing to use this program.

I also expect we will hear more from the government over the coming months as they address the multitude of questions that have already been raised.

This is one aspect of the program for you to think about. As I said, for some people this may be the assistance that means they qualify to buy a home as opposed to having to wait longer. 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.

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



Mortgage homework

Most first-time home buyers I work with are better prepared then they think.

There is a wealth of information available at their fingertips, so by the time they call for a mortgage pre-approval they’ve already started researching the home buying process.

There is so much information available that for some it becomes overwhelming.

As a mortgage broker, I want my clients to understand the process and be confident with the decisions they make. I want them to feel comfortable asking me any questions that come up.

I also want to be confident that I am providing the best advice based on their situation, so I pre-screen my clients and ask for certain information upfront

I get calls daily that start with “What’s your best rate?”

Three years ago, that was an easy question to answer. We had one rate sheet and (with a few exceptions) providing a rate quote was pretty simple.

After the mortgage rule changes in October 2016 and January 2018, providing the best rate is a more involved conversation. I have six pages of rates to go through and want to make sure I have the right fit.

Rate is only one piece of the mortgage puzzle, and I don’t want to misquote a rate that I can’t get for a client when they have an accepted offer on a home.

It is as important for your mortgage professional to do their homework as it is for you (as the client) to do yours.

For instance, if you are considering buying a home and using a Purchase Plus Improvements product, there are certain lenders who have low rates but don’t offer this program.

If you are writing an offer on a home on leasehold property in West Kelowna, there are a select few lenders that will provide mortgages.

If you are needing to use your Child Tax Benefits to qualify for the mortgage, there are only a few lenders that will use that income.

If you have student loans outstanding, lenders factor payments differently which can make or break an application.

If you are self-employed and have done some creative accounting, we are likely looking at a different mortgage product.

Buying a home is the largest investment and financial commitment many people make. It is easy to get caught up in the excitement and make a rushed decision based solely on interest rate.

Sometimes, the best rate or advertised specials may cost you dearly in the long run.

Many lenders offer two similar rates. As a generalization, the ones I see are .05 per cent apart. On a $400,000 mortgage, the interest savings is $943.22 over the five-year term.

If the lower rate mortgage comes with restrictive clauses such as a higher pre-payment penalty or the requirement to sell their home to get out of the mortgage I make sure clients understand the consequences of choosing that lower rate.

Statistics show that two out of three mortgages are broken before the five-year mark. By broken, I mean that the clients have either sold or refinanced, so have had to pay out the original mortgage.

If they have chosen one of the low rate mortgage products this can mean a significant penalty.

Last summer, I worked with a young couple who had chosen the lower rate as they were convinced they would be in their home for the long term.

They found themselves in financial distress when her position was eliminated and it took almost six months for her to find a similar job at the same rate of pay.

Their lender did refinance their mortgage to consolidate their credit cards and loan, but because they had chosen the low rate mortgage, they had to pay a penalty of $3,400.

Had they chosen the rate that was .05 per cent higher, there would have been no penalty involved.

With rates dropping over the last two months, another consideration for people purchasing a home is what the lender’s policy is for dropping your rate after your initial approval but before your mortgage closes.

A physician friend groans about patients who use Dr. Google to self-diagnose before they book an appointment.

The internet is a great tool for research, but it is also important that you work with a professional who takes their time to get to know you and does their homework to find the right mortgage for you.



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Courage to choose

Choose courage over comfort.

This phrase has been running through my head since I heard it. And this story does circle back to mortgages, I promise.

On Saturday morning, I attended Habitat for Humanity’s Key Ceremony in Peachland. A deserving  family received the keys to their new home.

Over the years, I had heard of Habitat for Humanity but had only a vague idea of what they do as an organization. I heard of projects overseas where people go to volunteer their time to help build homes for people in impoverished countries.

I knew about ReStore, as I frequented the store in Prince George before I moved to the Okanagan.

I started volunteering with Habitat for Humanity last fall. I was looking for an opportunity to give back as I feel I have been tremendously blessed and wanted to find a way to help others in our community.

What I have seen over the last few months is what a dramatic impact Habitat has on the lives of so many people in our area.

At the ceremony on Saturday, there were tears of happiness and whoops of joy. This family’s journey to home ownership was shared. For them, it was a 12-year plan to have a home to call their own.

When it came time for the new homeowner (a single mom) to say a few words, there were not too many dry eyes in the crowd.

She shared a little more about her journey, including how she had to put her dreams of pursuing her art as a career on the back burner, in order to take the steps necessary to qualify for a Habitat home.

She talked about having to make some tough decisions. She talked about prioritizing having a safe, stable home for her son over her desire to focus on her passion.

She talked about choosing courage over comfort.

Then, she snipped the ribbon and opened the door to her new home.

There are many of us who can learn from this amazing lady, me included. Sometimes, making the tough decisions and sacrifices now will pay off in amazing ways down the road.

One couple I worked with about four years ago shared a strategy with me. They desperately wanted to buy a home, but were having a tough time saving for their down payment.

They had done some reading and started by tracking where their money was going.

They diligently wrote down every penny they spent for a month. At the end of the month, they totalled up a few different categories, and were a bit stunned to realize what they were spending on coffees and meals out.

They went into the bank and opened what they called their Impulse Account. From then on, every time they were out and about and had the urge to spend $11.50 on coffee, they would transfer the $11.50 to their Impulse Account and skip the coffee.

At the end of the first month, they had just shy of $400 in their account. Once they realized they could save money, they knuckled down and made a few other changes.

Over the 1 1/2 years, they saved what they needed for their down payment.

The following year, I worked with another young couple looking to buy their first home. This couple took things to the extreme and made some dramatic life changes as they were determined to buy a home.

For them, this meant selling one of their vehicles and their travel trailer. The young lady walked to work for almost a year to help save for their down payment.

They moved to a cheaper rental and shared the space with a roommate. They cut back on all frills, including meals out and cable.

As she put it, they ate a lot of Mac and cheese.

I couldn’t have done this, and I doubt I will see anyone else work so hard to accomplish what they did.

We all have different priorities. Home ownership is not for everyone. Home ownership may seem like a pretty big goal.

It may not happen today, tomorrow, or even over the next few months, but with a clear goal, a plan, and a strong desire to succeed there may be options out there for you that you haven’t considered.

Having the right people in your corner can make all the difference.

Congratulations to this family on their new home – you’ve worked so hard to get there and are truly an inspiration.



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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