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Insured and Uninsurable Mortgages?

Mortgage rate pricing is based much on insurance:

Insured and uninsurable mortgages will determine the rate that a lender will offer for your mortgage. This will depend heavily upon the lender’s ability to finance their own operation in the background. It’s important to understand the key aspects when your mortgage broker will discuss uninsurable and insurable mortgage products.

What is an Insured Mortgage?

Insured mortgages are covered by mortgage default insurance through one of three insurers – CMHC, Genworth or Canada Guaranty. A premium is added to the mortgage amount. The amount is a percentage of the loan based on the loan to value ratio with a down payment of less than 20%. These mortgages are most favored by the banks and are reflected by the best rate offers. The maximum amortization allowed for an insured mortgage is presently 25 years.

What is an Insurable Mortgage?

Insurable mortgages do not necessarily require an insurance premium when you are providing a down payment larger than 20%. However, if the insurers rules allow, the lender has the option to obtain insurance themselves. As a result, the borrower rarely knows if and when their mortgage is officially insurable. The maximum amortization will be limited to 25 years, similar as an insured mortgage would be.

Finally, Uninsurable Mortgages

Uninsurable mortgages do not meet the insurers rules; such as refinances and mortgages with amortization longer than 25 years. This is arguably the biggest difference between insured and uninsurable mortgages. As a result, no premium is paid by either the borrower of the lender to obtain default insurance. The risk with this type of mortgage is passed onto the borrower via higher interest rates. Having said that, uninsurable mortgages are often far more flexible in terms of borrowing guidelines. We are happy to discuss the distinct differences in those borrowing guidelines.

Assessments and Appraisals

The value on an assessment notice may vary quite a bit from a mortgage or real estate appraisal. One reason for this may be the timing that the assessment was done. Versus, the appraisal done reflecting the most recent value based on the current market conditions.

Home Appraisal

The appraisal provides you with a document outlining an estimate of a property’s current fair market value. An appraisal and an assessment are not definitively connected, most lenders will require an up to date appraisal report. Lenders use this valuation to base the size of mortgage they are comfortable lending.

Appraisers are highly regulated and provide unbiased valuations. They take into consideration the property, home, location, conditions and many other external factors. Nearby amenities and access to public transportation. Some lenders will provide a list of approved appraisers they accept.

Often the borrower that is responsible for the cost of the appraisal, which upon completion is sent directly to the lender. The lender will confirm they are making a good investment for the value of the subject property.

Even though the borrower has paid for the appraisal, they are often not able to view the report. The appraiser will perform the report following the parameters defined by the lender. As a result, it is the choice of the lender to allow the borrower to see the report. Incidentally, the reason for this strict access on the lenders part is to avoid the borrower taking the report to multiple lenders in search of the best deal.

Some lenders may offer to refund the cost of appraisal after funding your mortgage.

Preparing for an Appraisal
  • Appraisals do include pictures of the exterior and interior of a property, so clean up and consider the curb appeal of your property.
  • Make sure to note all upgrades that you have done and the costs associated to assure they are not overlooked.

Look for any small repairs that may affect the value and make repairs before the appraisal is done. It is likely that the appraiser may over estimate the cost, thus having a significant effect on your value. These are the key differences between Assessments and Appraisals.

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Self Employed? Get Approved!

Self Employed? Get Approved!

As a self employed individual to get approved, means taking advantage of write-offs that allow your income to be in a lower tax bracket. However, this may also hurt your ability to qualify for a mortgage. Lenders generally require two year of Tax Returns; two years Notice of Assessment  along with two years Financial Statements. For those self-employed, Tax Returns show a lower number for income, this will hinder qualifying based on income necessary to service the mortgage.

Our advice:

Think ahead. Two years prior to seeking a mortgage, work to get your personal taxable income to a larger number. A key piece if you are self employed to get approved.

Work with a certified accountant, lender will be more inclined to consider financials prepared and submitted by a professional that will consider you financial goals of getting a mortgage.

If you want a mortgage sooner rather than later and haven’t planned for this when filing your taxes, you can use Stated Income so long as you have been in the same profession for at least two years before becoming self-employed. More documents will be required, including bank statements that prove consistent income.

Lastly, you may have to consider a B lender. B lenders will be more flexible in considering your income. Of course, this does come at a cost of a higher interest rate. Once you have had time to increase your income,  you may be able move to the A lender space.

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How to Get Your Credit Report

How to get your credit report is so important as Lenders look to credit reports to assess the risk of a given borrower. Your score is a number from 300 to 900 that reflects how you have handled your finances in the past. The lower the number, the more risky you appear to lenders, so you are likely to be offered higher rates. It is always recommended to keep an eye on your credit. In Canada, you can receive a free copy of your credit report once a year from both Equifax and TransUnion.
The bureaus refer to your credit report as “client file disclosure” and “consumer disclosure” respectively. Ordering your “free report by mail” does not effect your score. Check your report for errors inconsistent with your true financial history and balances such as late payments; amount owing; or missing accounts. If you do find an error, report it it to the credit bureau to be corrected. We are happy to connect to answers all of your credit related questions. With over 25 years experience in the mortgage industry, we have seen it all. And we have the tools and guidance to handle any credit building (or rebuilding) needs you may. With this in mind, navigating today’s marketplace and credit takes expertise. Call us today.
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Top 4 Tips for Being Prepared to Buy

1. Here is 1 of the Top 4 Tips for Being Prepared to Buy. Strengthen your credit rating. It’s pretty simple: the higher your credit score, the lower your mortgage rate will be. Spend the time now to improve your credit. Check your credit report. Many credit reports have errors, so you need to ensure that your credit bureau is current and correct. Always pay every single one of your bills on time. Set up automatic payments if you have had any late payments over the last couple of years. Spend only 30% of credit limits on credit cards.

2. Find a Mortgage Broker and figure out how much you can afford to spend. The home buyer’s mantra: Get a home that’s financially comfortable. Get Pre-Approved sooner than later!

3. How much home do you need? Buying a cheaper, smaller home might sound like a good place to start, but could end up costing you more if you need to move due to changes in your lifestyle, including a growing family. Then again, buying more house than you currently need will cost you more with higher mortgage payments, higher maintenance, energy and tax costs. Prioritize your housing wish list. The 3 most important things to think about when buying are home are location, location, location.

4. Closing costs #4 of Top 4 Tips for Being Prepared to Buy. While you’re saving your down payment, you need to save for closing costs too. They’re typically 1.5% of the purchase price and due on the completion date. Transfer Tax, Legal Fees, Insurance and Home Inspection are all considered part of Closing Costs.