Dealing with mortgage conditions

Mortgage paperwork

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Time is of the essence.

Whether you are looking for a mortgage pre-approval, have an accepted offer on a home or are in the middle of refinancing, we are generally working towards meeting a deadline whether it is a financing subject removal date or an upcoming renewal date.

I feel like mortgage professionals all have their individual styles and processes as to how they work with their clients.

One of the things I’ve learned over the years is the importance of gathering my clients’ documents upfront and reviewing them thoroughly. There are times when a client calls with an accepted offer, so we are starting a little behind with respect to document collection.

Another of the things I’ve learned over the years is regardless of how thorough I try to be when collecting and submitting clients’ documents to lenders, there are often additional requests for clarification that come from the lender.

Hands-down, I feel like organizing and sending your paperwork to your mortgage person is the most frustrating part of the process for clients.

So what can you do to make that smoother?

First, if you receive a list of required documents please provide them all. Take a minute to confirm your documents clearly show your name and account number if applicable. Send all pages of the documents. Don’t guess at the pages you think the lender needs.

There are reasons lenders need specific documents and information. They are doing their due diligence to do their best to avoid mortgage or identity fraud. They want to make sure you truly have the capacity to make your mortgage payments.

Most days, I spend time explaining to my clients why we need particular information and documents and help them access and submit them. If paperwork is not your forte, I completely understand the frustration as you do your best to send your information. Even if paperwork is your forte I get your frustration.

Why is there such a high level of due diligence on our parts?

I recently had a chat with a friend that works at a TD bank branch. Because of the $3 billion fine TD was handed in the U.S., its mortgage rates are suddenly a wee bit higher and they don’t have the same wiggle room they did earlier in the year. This is also due to the mortgage interest rate environment overall. However, when huge fines like that cut into profitability, the loss has to be covered from somewhere.

Thorough document review and multiple ways to verify information feel like a pain, if those steps help identify potential money laundering or fraud it will save us all as consumers from higher interest rates and even stricter lending guidelines.

Its important to understand, when you feel like the paperwork is driving you crazy and if you are having troubles finding the necessary paperwork, pick up the phone and speak to your mortgage professional. There may be alternate ways to access or confirm the same information.

The more organized you can be with your paperwork, the smoother your mortgage approval will be.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

A guide to changing mortgage rules in Canada

Mortgage rules changing

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Things are picking up.

I have seen a significant increase in the number of purchases I am working on with clients. I did an informal poll of some of my realtor and broker friends and we are all seeing the same increase in activity.

Last week, I attended a learning session about the recent and upcoming changes to mortgage rules. This year it has felt like changes have rolled out so often it was hard to stay on top of new policies.

I thought it might be good to go over some of the changes, as they will benefit many homeowners and homebuyers.

Please note, this is a quick explanation and you may have questions or need clarification on some of what follows, so please make sure you speak with your mortgage professional before moving forward with a purchase.

In the order the changes were discussed in our session, here is a high-level overview.

Effective Aug. 1, first-time home buyers were able to purchase a newly built home using a 30-year amortization, with a minimum down payment. Prior to this change, the maximum amortization allowed for buyers with less than 20% down was 25 years.

Key to note here is the definition of a first-time home purchase. Purchasing homes is based on the Canadian Revenue Agency’s explanation of home buyers starting out or starting over. That includes buyers who have not owned their primary residence (or lived in a home owned by their significant other) for the last four years. It also includes buyers who were recently separated or divorced.

Also key to note is only one of the borrowers must qualify as a first-time home buyer for these rules to apply.

For the purposes of the Land Transfer Tax in B.C., even if clients are considered first-time home buyers under mortgage rules, they will still have to pay tax if they have ever owned a home anywhere in the world.

There is a small increase to the insurance premium (.2%) if borrowers elect to use the 30-year amortization.

Effective Dec. 15, the price cap for insured mortgages will be increased from $1 milion to $1.5 million. Clients will be able to purchase a home up to this price with a minimum down payment of 5% of the first $500,000 and 10% of any balance over that up to $1.5 million. For the full $1.5 million, the minimum down payment will now be $125,000, compared to the previous minimum down payment of $300,000.

Trying to come up with the required 20% down payment has been a barrier for many borrowers.

The changes to come into effect Dec. 15 also include the ability for repeat buyers to buy new builds with a 30-year amortization.

As well, all first-time home buyers will be eligible to qualify based for a 30-year amortization, regardless of whether they are buying a newly built home or an existing one.

For these guidelines to apply, mortgage applications must be submitted after Dec. 15.

The final change will roll out Jan. 15, 2025. Existing homeowners will be able to refinance their homes up to 90% of the "as-improved" value of their home if they are pulling equity out to create a secondary suite in their home using a 30-year amortization.

What does “as-improved" value mean? With these applications, owners will need to order an appraisal, which shows the current value of the home, as well as the value of the home once the proposed work is completed.

Current rules limit refinances to 80% of the value of the home, so I see this as a significant benefit for owners who are newer to the housing market and can really use the income from a secondary suite.

There are, of course, requirements for this program, including:

• Either the borrower or a close family member must live in one unit of the property.

• You can add more than one unit to the home (up to a total of four), providing zoning allows for that.

• Units must be completely self-contained.

• The financing limit cannot exceed the actual cost of the work.

Is your head spinning yet? Mine certainly is, trying to keep all of these changes straight.

Many lenders are still determining their own policies as to how they choose to incorporate these rule changes into the mortgages they offer. It is important to speak with a mortgage professional to see how these changes may impact your borrowing power.

As I mentioned, we are already seeing a definite increase in purchase activity. It will be very interesting to see if there is a flurry of activity following the implementation of the Dec. 15 changes as well.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Getting a head start on planning for your mortgage is important

Planning for your mortgage

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With the challenges in the mortgage world over the last few years, I’ve had a few people ask if I am still enjoying my work.

It’s a fair question as there are many days I feel like I’m fighting an uphill battle, but the truth of the matter is I absolutely love what I do.

I had a call with a young couple last week that reminded me why I enjoy helping people with their mortgage financing.

I helped this couple buy their first home about nine years ago, then helped them again with their renewal. They booked an appointment to chat about their future plans and asked how best to set themselves up for success.

After they brought me up to date with the renovations they’ve done to their home and the upcoming expansion of their young family, we spent an hour exploring different options and talking about which route would likely be the best for them. In their case we decided to wait until their renewal next summer before we make any changes.

I started my mortgage career with one of the big banks. We were always busy and tightly scheduled, so my meetings were all business. I didn’t have much opportunity to get to know my clients. My schedule did not allow for much social chit chat.

Interestingly, those conversations are what I enjoy most about my work. Being able to spend time with my clients, building a plan and creating a strategy around next steps is very rewarding.

I often have calls from clients who are almost apologetic because they aren’t ready to buy right away and are concerned about wasting my time. But I love these calls. Having the time to dive in and make sure clients are well organized to buy at some point down the road means we can outline concrete steps to help them get set up for success.

If you are starting to think about purchasing a home down the road I encourage you to connect with a mortgage professional sooner rather than later.

Taking time to learn about your options and the requirements for obtaining mortgage approval can help save much stress down the road and give you a clear goal to work towards.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

New rule allows larger refinancing for secondary suite creation

Secondary suite financing

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Mortgage rule changes seem to be coming at us fast and furious. This isn’t surprising given that we are in an election year.

Several weeks ago, I wrote about the change to the ceiling for the purchase price of insured homes and the extended amortization that will be available. On Oct. 8, the government announced a new program that will come into effect Jan. 15, 2025. It will enable clients who already own their homes to refinance up to 90% of the value of the home to use the available equity to create a secondary suite.

Current rules only allow refinances up to 80% of the value of the home, regardless of the purpose of the refinance.

The parameters of this new program, taken directly from the CMHC website (Mortgage Insurance Rule Changes to Enable Homeowners to Add Secondary Suites - Canada.ca) are as follows:

• This measure will apply to all borrowers seeking to access mortgage insurance in Canada to add more units (secondary suites). Borrowers must satisfy the following requirements:

• Already own their properties

• The borrower or a close relative are occupying one of the current units

• Intend to construct additional units

• The additional unit(s) must not be used as a short-term rental.

• Refinancing—Insured refinancing will be allowed for the purpose of building additional unit(s).

• Legal units—The new units must be fully self-contained units (e.g., basement suites with separate entrances, laneway homes) and meet municipal zoning requirements.

• Number of units—Maximum of four dwelling units including the existing unit.

• Maximum property value limit—The “as improved” value of the eligible residential property against which the loan is secured must be less than $2 million.

• Maximum loan-to-value limit—Up to 90% of the property value, including the value added by the secondary suite(s), in combination with any other outstanding loans secured by the property.

• Maximum amortization—30 years.

• Additional financing must not exceed the project costs.

We are still waiting on clarification from lenders as to their specific guidelines around this program, so I will provide more information as it becomes available.

With respect to what this means in dollars and cents, using a home valued at $800,000, we will now be able to refinance up to $720,000 for the purpose of adding an additional legal suite. Under previous guidelines we would only be able to refinance up to $640,000, so in this example clients will be able to access $80,000 more of the equity in their home. It will be interesting to see what the uptake is for this program.

One particular group of clients I see this benefitting is clients who have only been in their home a few years and who have seen a moderate growth in their equity after they put down the minimum down payment when they purchased their home.

With carrying a higher mortgage and the increased cost of living overall, those clients may really benefit from access to funds to add a secondary suite to their home.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.