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Refinance Plus Improvement Mortgage

A refinance plus improvements can help you finally complete those home renovations you have always wanted to do! A conventional refinance enables a homeowner to borrow up to 80% of the fair market value of their home.

So, the equity a homeowner can access would be the difference between 80% of market value and the amount they currently owe outstanding on their current mortgage. This equity can be used for improvement on the home. But what if you go out and get estimates for the total cost of the project from a contractor and this isn’t quite enough money for the renovation project?

Well, these improvements also have the added bonus of potentially increasing the value of the home! A Refinance Plus Improvements Mortgage considers the post renovation (higher) value of the home, and allows a homeowner to borrow up to 80% of this increased home value.

Get your hard hats ready, and start renovating today!

Don’t Forget About Closing Costs

You have saved enough for a down payment, found your perfect home, negotiated the purchase price and made an offer subject to financing, and have now gotten approved! You’re all set, the hard part is done, right? Not in reality, there are quite few other fees that need to be considered – closing costs.

Closing costs are often hidden and often overlooked one time expenses due on the completion date. A rule of thumb is to budget 1.5% to 4% of the purchase price to cover closing costs. However, other factor such as taxes, the type of home, or if it’s a new build can impact the amount you need to account.

Some fees that you are fairly guarantee to face:

  • Legal Fees: Your lawyer will explain all of the paperwork and make sure what you are signing is binding, legitimate, and all items agreed to have been met. In addition, you are liable to repay the lawyer for any searches, registrations, and incidentals – all due on the closing day.
  • Title Insurance: Most lenders will require title insurance as a condition to their mortgage, which protects from fraud, identity theft and forgery, municipal work orders, zoning violations and other property defects.
  • Fire/Home Insurance: Lenders also require fire/home insurance in place by the time of purchase completion, which covers replacement cost of the home.
  • Adjustments: When possession takes place mid month, and the seller has already paid fees such as taxes, utilities, and strata. So, the amount you owe is based on the portion of that month you will have possession and prorated on the date of completion.
  • Property Transfer Tax: First time home buyers are exempt if purchasing property under $500,000 and all home buyers are exempt if they are purchasing new property under $750,000. Property Transfer Tax is calculated as 1% on the first $200,000, 2% over $200,000 and 3% on any value over $2,000,000.
  • GST: Is not charged if someone has previously lived in the home, but charged on all new home purchases.

This list is not extensive, as each purchase has its own set of costs. As your broker, I make sure to explain each one and assure you are fiscally prepared.

 

 

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 just done reflecting the most recent value based on the current market conditions.

Home Appraisal

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

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

It is most often the borrower that is responsible for the cost of the appraisal, which upon completion will be sent directly to the lender. The lender is getting assurance that 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 now allowed to look at the report –although usually a consolidated version – until after closing. The appraiser performs the report following the parameters defined by the lender. It is the choice of the lender to allow the borrower he see the report. 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 lender 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 could over estimate the cost, thus having a significant effect on your value.

Bank vs Credit Union Lenders

Both banks and Credit Unions are financial institutions that have similar financial offerings; however what they can offer in term s of mortgages are quite different. Banks are publicly listed and regulated by the federal government. Credit Unions on the other hand, are locally based organizations regulated by provincial government.

Because Credit unions are not regulated the federal Office of the Superintendent of Financial Institutions, they are often not subject to the mortgage lending rules. Of course, Credit Unions do not come without any downside; as a result of their provincially based operations, they do not offer the ability to port a mortgage to a different province. Further, more qualification and lending flexibility may come at a price of higher interest rates.

It is important to consider your unique situation and needs and weight the pros and cons when comparing lenders.

Self Employed? Get Approved!

As a self-employed individual, taking advantage of write-offs that allow your income to be in a lower tax bracket may seem great. 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; two years Financial Statement; statement of bank account activity; and investment income statement. Of note for those self-employed, Tax Returns will show a lower number than actual income, thus hindering them from qualifying based on income necessary to service the mortgage.

Our advice:

Think ahead. Two year prior to seeking a mortgage, make fewer write offs, and work to get your personal taxable income to a larger number.

Work with a certifies 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. But, once you have had time to increase your taxable income, in a few years, you may be able move to the A lender space.

What’s in a Good or Bad Credit Score

For many clients in the pre-approval process, their credit report and credit scores are a source of stress and mystery. Even with the endless information available at the click of a mouse, there seems to be no straightforward summary on what doesn’t and doesn’t affect them.

So, what determines a good (or bad) credit score?

Good Credit

From the time you get your very first credit card, your credit is being built. Keep in mind these relatively simple habits to develop that will ensure you achieve a desirable high number.

  • Pay your credit cards and all bills on time –including your cell phone and Internet!
  • Pay your parking tickets on time – that’s right, unpaid tickets will affect your credit score.
  • It’s ok to have more than one credit card, but keep it under control. The key is to not be continuously using your limits to the max! A good rule of thumb is keeping utilization under 30% of your available credit.

Myths

It is a common misconception that once a credit account is closed, you are no longer liable to pay; maybe the refusal to pay is rooted in principal, perhaps from a dispute with the cable company over a late charge. No matter the reason, once the creditor has reported the missing payment, you score goes down for 120 or until the creditor closes the account. But it doesn’t end there; they may send your account to a collection agency that will then add their own feels. The worst part, you now owe more money! The longer this goes on, the worst of an effect it has on your credit and the more difficult it becomes to recover you score.

You may have also heard that your credit score falls every time it’s checked. This is not necessarily true. Sites like Credit Karma allow you to check your score as many times as you like without damaging your score – although theses score may not be exactly what the credit bureau holds, they are certainly a good indication.

What DOES affect your score is a lender or creditor looking into your credit report. The more times lenders check (especially in a short period of time), the greater chance your score is going to decrease.

The Benefit of Using a Broker

To address that last point; many mortgage shoppers will have their credit pull multiple times within a short time frame when shopping around at various lenders (who each look into their credit report).

A huge benefit to using a broker is we will only check your credit once! Of course, that certainly doesn’t limit our reach; we have access to all sorts of lenders and the in depth knowledge of each lenders criteria for qualification, so we can find the perfect one that meets all your needs!

Knowing the Terms of your Mortgage

Prepayment

Having the option to pay off your mortgage faster should be a consideration when reviewing your mortgage terms. Prepayments allow you to pay off a little more each year (usually a set portion of you mortgage amount). This is a great feature if, say, you get yearly bonuses from works, work commission based and would like to use the income from busy times towards paying down your debt, or expect to be earning more in the coming years.

Prepayments come in many forms, and each lender had their own features. Some allow you to increase you regular payments, so you pay a little more each period. Alternatively, you could have the option to make a lump sum payment that goes directly to decreasing your principal, so no interest is paid on those extra funds.

Portability

Now, what is you decide to move; you would like the option to take your current mortgage and terms to put towards your new home. You may also have the option to increase the amount without having to pay the possible costly consequences of breaking your mortgage. You get to move without the stress of having to obtain a new mortgage, at a possibly higher rate.

Assumability

Lastly, consider your parents’ mortgage and your family home. They might be moving to a smaller more manageable property or to warmer weather; but you love this home and would like to take over their mortgage. Without assumability, you would have to get a new mortgage at current rates, and your parents would likely have to pay discharge fees. Instead, so long as qualify for the outstanding amount, assumability allows you to take over the remaining balance of their mortgage with their rate and terms.

Mortgage Payment Frequency Options

There are many factors that may influence your choice of payment frequency, including your budget flexibility and when your pay cheques come in each. Moreover, your ability to take on slightly larger payments will enable you to minimize total interest paid and pay off your mortgage quicker.

Monthly

Your mortgage payment is withdrawn from your bank account on the same day each month; making 12 payments per year.

Bi-Weekly

Your monthly mortgage payment is multiplied by 12, then divided by pay period per year.

Accelerated Bi-Weekly

Your monthly mortgage payment is divided by 2; this amount is withdrawn every two weeks. Like Bi-Weekly, you are making a total of 26 payments per year, however, the payment amount is slightly more. So, you accelerate paying off your mortgage and will be paying less interest total.

Using a Guarantor

A guarantor or co-signer assures payment responsibility if the primary borrowers default. They will enable the applicant to qualify for a mortgage, if on their own; the applicant(s) have to poor credit and/or insufficient income. A guarantors name will be on the loan but not the property and must be a spouse. Conversely, a co-signers name will appear on both tile and the loan, but can be any person that agrees and qualifies. There is a significant amount of risk involved in agreeing to be a guarantor or co-signer. If the borrower defaults, they are responsible for the full amount of the mortgage. So, lenders require them to qualify as if they were the sole applicants for the loan. Like a primary applicant, the lender will require a credit check and discloses of income, liabilities, and assets. Further, a guarantor or co-signer should consider how this would affect their ability to qualify for a loan in the future for their own personal purposes. Despite not making any real monetary contribution, the loan will be treated as if they have sole liability and included in their debt servicing calculations.

Mortgages Beyond Purchase

Once you have purchased your home with your new mortgage; what do you do with it down the road? Well, there are options to refinance, renew, or transfer. All of these options can be utilized at any point throughout the term of your mortgage.

Refinance

Say you have been in your home for a few years now; the value has increased and you have paid off a portion of your mortgage. Why add to your mortgage? Perhaps you wish to do some renovations or other debt with higher interest rates you wish to pay off. Well you have additional equity that you can access that you can receive in cash now, which will be added you your existing mortgage amount for you to pay back with interest.

Renewal

Now, say you committed to a 5 year term and that time is now passed. You still owe the remaining balance of your mortgage. Your current lender will contact you with a renewal offer with the interest rate they can offer you on the remaining balance and amortization. Unlike the initial approval process, the renewal process is much less extensive – no pre-approval, less required documents and application processes.

Transfers

Instead of re committing with your currently lender, you found a competitive rate or more extensive product offerings at a different lender. All other factors (mortgage amount, home, ownership, ect) will remain unchanged except who the interest will go to. You will them be transferring your mortgage from one lender to another.