HomeLife All Points Realty Inc., Brokerage*

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705-315-7000
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905-963-7991
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Banks have more competition than they used to.   The Credit Unions are a little more competitive now with the OFSI changes to the Banks lending guidelines.   Yes along with other changes we are talking about the Stress Test.   Credit Unions are not regulated by OFSI and the lending guidelines for Credit Unions have changed very little.   In addition there is a number of newer lenders that compete with the Banks mostly on Insured Mortgages for AAA clients.   These lenders also are not controlled by OFSI and have no Stress Test issues.

All of the lenders mentioned above share a few things in common these days.   First they are Proof of Income driven and expect good credit scores with no late payments.   Self employed individuals and late payers are finding life more difficult.

When buying a home remember that an A lender will want two years proof of income than support your ability to pay for the house and all other payments under the new Stress Test rules.   They also want to see the down payment money for the last 3 months.   Many lenders will demand explanations for any non employment deposits of more than $1,000.   Good credit is required with a little room if you have a larger down payment.

The home you are purchasing is the main asset of the lender in the event that you default.   If you are putting down more than 20% of the purchase price most lenders will request an appraisal be done.   This can take a little time.   If the appraisal comes back low the lender will fund the mortgage based on a percentage of the appraised value, not the purchase price.   You may be asked to put down more money in order to get the home.

If you are putting down less than 20% the lender will require CMHC or other insurance to protect the lender from default.   The underwriter does this for you but again this may take a little time depending on both your borrowing strength and the property.

A purchase plus improvements is the same as a purchase but there is more.   Most A lenders offer this product.   There is no additional cost for the borrower.   The home improvement costs are simply added to the mortgage from day one....   This saves people a lot of money if they plan to renovate using credit cards and credit lines and then refinance.

The refinance is expensive.   A lawyer must discharge the existing mortgage and register the new one.   You pay an early pay out penalty, discharge fee, lawyer fee to remove the old mortgage, lawyer fee to register the new mortgage,  appraisal fee, new title insurance, new property search, and new borrower searches.

It is much cheaper to run around quickly and get your renovation quotes in advance.   The lender may send someone to inspect the work when complete and they will pay the contractor.

An A lender will look at your credit and your proof of income for the last two years the same way.   The Stress Test works the same way.   Instead of purchase documents you will prepare property tax bill, mortgage statement and fire insurance for the lender.

Most people refinance in order to consolidate credit cards and credit lines so they can lower monthly payments.   Remember any of the items that you bought on payments when you do this.   The windows, air conditioner, furnace, furniture and so on.   If you forget a window or furnace lien it will stop your refinance when in the hand of the lawyer at the end of the process.   Yes it will cost you more to go back to the lender and get additional money to pay for the windows

Refinance plus improvements is almost the same as purchase plus improvements.   Most people refinance when they need money most often for a debt consolidation.   Be smart and run around and get your home improvement quotes and do everything at one time.   It is really bad to refinance and look at those nice credit cards with nothing owing and start renovating.   Let's refinance and spend all those fees again a few months later.   No thanks.

An equity take out is simply borrowing money on your house that is not owed to people.   Bank regulations limit this amount to $200,000.

My favorite mortgage for people that don't need additional money.   The NO FEE is easy to explain you pay nothing.   If there is an appraisal cost you may be asked to pay at the door and the lender rebates the appraisal cost later.   Your mortgage charge is simply transferred from one lender to another.   The mortgage balance owing stays the same.   The number of years left owing on your mortgage stays the same   

Caution banks at the last second like to offer you a better rate than they did previously to get you to stay with them   If you change your mind after the new lender has costs you will get the bill.

Treat private lenders and MIC's the same.

Your property is really there only security.   Some companies do high loan to value mortgages but I highly warn against them.   One MIC offers a 95% mortgage but with a high rate and a very large fee.   Why would anyone pay $4,000 a month on a $400,000 house that they could most likely rent for $2,000.

A 75% mortgage is in the reasonable space.   Please note, however, that private money is in short supply as a result of the Stress Test rules.   As in any industry high demand causes rates to increase.

Understanding a Private Lender

The most important thing to a private lender is preservation of capital.   They don't like to lose money.
 
On the surface it sounds so easy.   Let's look at an example and see what you think.
 
Fred owns a $400,000 home with a $300,000 bank mortgage.   Fred needs a $40,000 2nd mortgage to pay his credit cards.   $340,000 in mortgages 15% equity looks great yes?
 
Fred gets fired and walks away from the house.   The lender has to step in and sell the property.
 
The Power of Sale process is not so simple.
 
Step one get possession of the property under power of sale.   Two months later this is complete.   The lawyers bill is $15,000 + HST.
 
The 1st mortgage wants to get paid out as well so the private lender has to give him $300,000.   Oh NO why does the lender want $320,000.   Yes of course Fred was behind in his mortgage and of course there is a pay out penalty.
 
Ok let's sell it.   Great it sold for $400,000 like we hoped but the Real Estate Fee is $20,000 + HST.
 
What!!   That silly lawyer wants another $2,000 to complete the sale.   What else can go wrong.   Of course Fred didn't pay his water bill for like his life or something.   How can anyone have a $6,000 water bill and owe $4,000 in property taxes?   Oh well the private lender is done, the house is sold and he is happy to never hear the name Fred again.
 
What is the math?
 
$300,000 1st Mortgage
$  40,000 2nd Mortgage
$  15,000 Lawyer Bill 
$    2,000 Lawyer Bill
$  20,000 Mortgage Penalties
$    6,000 Water Bill
$    4,000 Property Tax
$  20,000 Real Estate Fee
$    5,000 HST
 
$412,000   Oh No it looks like Fred is going to get sued by the seller for $12,000 plus however much that Lawyer can charge.
 
I hope that sharing the life of a private lender with you helps you to understand private lenders better.   They are not only about high rates and fees.   Private lenders face real risks, many of these risks are unseen.   Do you think that a lender really wants to go to court to take possession of a house under power of sale and then sell it?

Alternative lenders such as Home Trust, Equitable Trust, MCAP Eclipse, IC Savings and many more like Business For Self clients with good credit.   If you are self employed and want a decent mortgage you need good credit and show that you make money on your tax returns in the last two years.   Your ratio's do not have to work with your income but it has to make sense.

It is possible for self employed people to buy a home with as little as 5% down but it is difficult.   Perfect credit is needed.   

Most of these mortgages will require 15% 20% or 25% down payment.

If you are short some of the down payment come and see me and see what we can do to help you.

Most lenders require up to date tax returns.   As much as income they will be looking to see if you are at risk with CRA as taxes owing come before a mortgage if there is a CRA problem.

Same as above.

Add home improvement quotes.

When you pay out your existing mortgage and replace it with a larger mortgage we call this refinance.   Every time you wish to increase your mortgage you must re-qualify for the mortgage in all respects credit, income, debt, debt service ratio, stress test and of course house value.

Property

MLS Feature Sheet, Agreement of Purchase, Waivers of Conditions

 

Income

Job Letter, Two Recent Pay Stubs, T4 Slips for the last two years, T1 General Income Tax Returns 2 years, CRA Notice of Assessments 2 years

 

Down Payment

3 Months Bank Statements showing full name and account number, RRSP Statements if borrowed against RRSP's, Investment Statements, Gift Letter if Gifted, Confirmation Gift in your account, If from sale of existing home the lender will require Agreement of Sale and existing Mortgage Statement

Same as above.

Add detailed home improvement quotes

Property

Existing Mortgage Statement, Property Tax Bill, Fire Insurance

 

Income

Job letter, two pay stubs, T4 slips last two years, T1 Generals two years, CRA Notice of Assessments two years

Same as above.

Add detailed home improvement quotes.

Same as refinance.

Same as refinance.

Add a copy of the mortgage charge and deed.

MORTGAGE ALTERNATIVES FSCO 12083

 

 

 

 

 

Mortgage Application Form  Download our Mortgage Application (fill-able PDF form) and submit within the PDF or email Rob@TheMortgageOffice.ca the completed form.

 

Robert Stanford

Office Manager

Mortgage Agent

 

IMPORTANT WARNING about most Institutional Pre-Approvals, they are only RATE HOLDS.   If it comes back to you fast you are NOT Pre_Approved!

In order to get a REAL Pre-Approval you must send the lender full documents showing your down payment, and full proof of income.   Lenders usually work on Purchases first so your Pre-Approval is likely to take days.

WARNING do not waive your condition of financing until the lender says the file is complete.   If you run out of time you need to extend the time on your condition of financing.   If you waive your condition of financing and don't get a mortgage you will most often be sued for not closing the sale by the seller as well as some Real Estate Companies.