How property types affect your mortgage application!

General Aman Gill 23 Oct

It’s All About The Property.

When your mortgage application goes through the approval process, they are not only looking at you, but also the property in question. In fact, sometimes when an application is denied it has nothing to do with you, and everything to do with the property.

To improve your chances of success when it comes to financing, there are three main things to consider:

  1. The type of property
  2. The location of the property
  3. The usage of the property

Let’s take a look at some of the specifics for each of these considerations.

type of property

There are various types of properties when it comes to home ownership – detached houses, semi-detached, condos, townhouse, duplex, carriage or heritage home. Depending on the type of property you have chosen, there may be specific considerations.

CONDOMINIUMS

When it comes to condo properties, the lender (and potentially the insurer) will consider the age of the building. In addition, they will look at maintenance history (or lack thereof), as well as the location for marketability. Some lenders may have stipulations that limit themselves to buildings with a certain number of units, or past a certain age.

If the condo you wish to buy is lacking a depreciation report, has a low contingency fund or large special levies pending, these will be red flags for the lender. Any of these situations will require a more thorough review. These items should also serve as strong considerations for you as it indicates the management (or lack of) for that condo building.

ADDITIONAL UNITS

If you are looking at a property with additional units, it is important to consider that buildings with over four units, are considered a ‘commercial’ property and would be evaluated on that basis.

HERITAGE HOMES

Whether registered or designated, heritage homes require a more detailed review and often come with special considerations for financing.

LEASEHOLD OR CO-OP PROPERTIES

These properties also have specific requirements, particularly when it comes to the maximum loan-to-value which means they will require a larger down payment. These types of properties also typically call for additional documentation, and may have varying interest rates.

If you shift from a standard condo to a lease-hold property, your down payment amount will likely change. If you want to move to a small rural town or a small island, there will be fewer options. In addition, you may have to pay a higher rate as well as provide more documentation on the property.

All About The Property

location considerations

You’ve heard it before – location, location, location! Location matters just as much to the potential homeowner as it does the lender. Some things to keep in mind when it comes to location include:

POTENTIAL RESALE VALUE

If the location limits the potential resale value for the building, lenders may not provide financial approval on that property. This is due to the increased risk if the borrower defaults. In that case, the lender may not be able to foreclose the property and get enough funds back due to the low resale. That said, some lenders may allow these properties but they might reduce the loan amount if the building is located outside of a major market area, or they may add a premium to the interest rate.

RURAL CONSIDERATIONS

For properties with water access only, or with no access to municipal utilities (heat, water, electricity, sewage), there will be additional requirements to assess lender risk. These requirements might include: Insurance coverage, water testing, septic tank inspection, seasonal access and condition of the property.

TRANSFER TO ANOTHER PROVINCE

It is also important to note that if you purchase a home in one Province and are transferred or move to a different province, some lenders won’t be able to port the mortgage due to being provincially based.

usage considerations

The use of the property can include things such as personal, investment, recreational, agricultural and also consider previous activities. A few things to keep in mind are:

CONDOMINIUMS

If you are looking at purchasing a condo on a property that has either a commercial component in the building (such as shops on the first floor), or allowable space in the unit for businesses (live/work designation), you may have limited lender options. In some cases, lenders will avoid these types of properties at all costs, while others may require approval from the insurer (i.e. CMHC).

RENOVATION REQUIRED

If the property requires renovations, the extent of the upgrades, as well as the property value will be taken into consideration.

PREVIOUS GROW-OPS

Homes that previously existed as grow-ops, have special lending options. These typically come with higher interest rates and costs due to decreased value.

RENTAL SUITES

For owner-occupied homes that contain rental suites, it is important to consider potential rental income. If the house is purchased for investment, rental income is automatically considered. This can result in a different interest rate than simply an owner-occupied dwelling. In these cases, the rental income can also increase the resale value of the property. However, an appraisal of the property must be conducted and reviewed to ensure the condition. This will also uncover whether any renovations were completed to add value.

SECOND PROPERTIES

Purchasing a second home for recreational use will require a review to determine if it is seasonal or year-round access.

Before you begin your home search, it is best to discuss your future plans with a Dominion Lending Centres Mortgage Professional. This will ensure you receive accurate information to understand the specific requirements your potential property might require. Seeking expert advice early on will also give you ample time to find the right fit! This will also ensure you can submit a full financing review before subject removal on a purchase.

8 Ways to Save for your Down Payment!

Mortgage Tips Aman Gill 30 Sep

8 Ways to Save a Down Payment for a Home or Any Other Big Purchase

There are many great ways that you can save for a home, but we have put together a list of what we think are the eight best ways you can save for a house. Although we say these tips are for saving for a home, many of these tips can be used to save a lot of money for almost any purpose—a car, an RV, a vacation, paying off your debts or saving for your retirement. Many people find that once they have achieved their first goal, these strategies help them achieve their other financial goals as well. So they keep on following them. It all depends on how motivated you are to accomplish your financial goals. Here are our tips.

1. You must prioritizeHow to save a down payment for a home or other big purchases.

Saving for something important—like a home—is all about priorities. Do you go out to eat all the time, take expensive vacations, buy all the latest stuff and drive brand new cars? Or are you willing to tighten your belt and save for a house? It is up to you. Which is more important?

If saving for a home is one of your top priorities, then try to identify other areas where you can cut back so that you can put more money into your savings. The best way to identify areas to cut back in is to do a budget. If you haven’t put together a budget yet, that is probably the best place to start. We can teach you how, click here to learn how to create a budget.

2. Pay off your credit card debts first

You can’t really save money if you are paying a lot of interest to someone else. The first thing you should do is pay off all of your debts. Start with your smallest high interest debt, and pay it off. Then take the minimum payment from that debt and use it to help you pay off the next small debt that has the highest interest rate. Once you have that one paid off, the two minimum payments that you used to pay for those smaller debts can help you pay off your next debt faster (again, choose a small debt with a high interest rate). You will notice a snowball effect as the minimum payments you are freeing up help you to make larger and larger payments against one debt at a time. This is one of the fastest ways to pay off debt.

Stop Paying with Credit & Save $3,000

Studies show that when people pay for things with a credit card rather than cash, they spend around 15% more. For the average Canadian household that pays for everything with credit in order to get points or cash back, they would save well over $3,000 per year if they paid with cash instead. Sure they’d lose their points or cash back, but on the best cash back cards in Canada they would only be giving up $400. They’d still be walking away with a big win.

Your spending may not be as high as an average household, but you can see the point. If you’re trying hard to save money, paying with cash can help you save more.

 

If you try to apply for a mortgage with too much consumer debt, you won’t qualify. For most people to qualify for the house that they want, they usually have to pay down their credit card debts first. To learn more about what it takes to qualify for a mortgage, click here.

3. Get rid of one car

If you have a partner and you have two cars, consider getting rid of one. This can save you thousands of dollars per year. You can move closer to where you work or where your partner works. You or your partner can look at walking, take transit (80% cheaper than owning a car), car pooling or even cycling to work (weather permitting). If you can make this work, you can potentially save one car payment every month, plus gas, maintenance and insurance. This adds up $9,000 per year for the average person. Even if you spend less than average, you’re still looking at some big savings. Try to bank all of this money if you can. If you don’t want to go cold turkey on this idea, try parking your car for a couple of months first to see if it works for you. Then sell your car once you see that it does work.

4. Save more from work

When you get a raise at work, take that extra money and save it in a separate savings account. It may not seem like much, but it will add up. Also try saving bonuses, extra sales commissions or tax refunds in your separate savings account.

5. Look for cheaper ways to do things

This is how smart people save a lot of money. They make a lifestyle of finding cheaper ways to do things without diminishing their fun. Here are some great examples:

  • Do you buy a lot of new books? Try the library. They have zillions of books that you can borrow for free.
  • Do you go out to a lot of movies? Try renting or sticking with cable. Some people are now even dropping their cable in favor of watching shows online. This works really well in the U.S., but it is getting better in Canada.
  • Do you eat out a lot? Try eating out less or look for cheaper places to eat that you still like. You can also look for 2 for 1 coupons or buy an Entertainment Book and only eat at the places that have coupons (this will cut your eating out budget in half).
  • Do you spend a lot of money on your hobbies? Try spending less or finding other hobbies that cost less—at least for a while.
  • Do you buy a lot of new clothes? Try sticking with your current wardrobe for a little longer, or selectively buy clothing items that coordinate with what you already have. This will allow you to put together more outfits with fewer clothes. When you buy your clothes, look for sales.
  • Do you take expensive vacations? Try something less expensive or closer to home.
  • Do you buy a lot of new music? Try listening to the radio more, borrow music from the library or buy a card to monitor how much you download (and then you get what you actually want to listen to!).
  • If you have a busy family, you can really save money if you eat at home more often (and this includes buying less snacks and drinks on the run), and look for fun things to do around your community that are free or don’t cost very much. If you go to the movies a lot, try renting. If you rent a lot, you could save even more by checking out the library. Many libraries have videos you can borrow for free. This option is really great for kids.

If you are able to work some of these changes into your lifestyle, you will definitely save money. However, the key to saving money is to resist the temptation to spend it on something else right away, and to start considering the cheaper alternatives.

6. Borrow from your RRSP

You can withdraw up to $25,000 from your RRSP to buy your first home. This is a great way to come up with a down payment if you already have some RRSPs. If you don’t, this may be a good way to save money for your RRSP and at the same time get a tax credit to help reduce your taxes. The only catch to this program is that you have to pay the money back to your RRSP within 15 years. If you don’t repay the money, it is treated as income and you will have to pay tax on the money you withdrew as though it were income. Check with your financial planner or advisor to see if this option is right for you.

7. Use the Tax Free Savings Account

The Tax Free Savings Account can also be a great place to save your down payment money. The money can grow tax free in this account. This means you won’t have to pay income tax on the money you earn as it grows in this account. Consult with your financial planner or advisor.

8. See if your city has a First Time Homebuyers Program

From time to time some cities have programs where they provide new home buyers with part of their down payment for their first home as an interest free loan. Programs like this are usually initiated for two purposes: 1) to make it easier for first time home buyers to afford a home in an expensive city, and 2) to redevelop a part of the city that is struggling. These programs usually have very specific requirements. You can check with your city hall to see if your city has any sort of program like this to help first time home buyers. In the past, Winnipeg, Manitoba and Surrey, British Columbia have offered up to $20,000 per couple under these programs. The money is repaid without interest over a set number of years.

5 Ways to Increase your Property Value this Fall!

General Aman Gill 30 Sep

Buying & Selling Tips

5 Investments That Will Increase your Property Value this Fall

Upgrade your home’s worth with these five tips
By Justin Kerby Sep 29, 2020

When you want to build equity or increase your home’s selling price, sometimes it takes money to make money. Investing in your property by doing renovations or making design changes can really pay off, both in the long and short run. As a rule of thumb, if you can update your property so that buyers can picture themselves hosting a cocktail party on the same weekend they move in, that’s a good indication that you’ve maximized your value. You will attract more offers and higher prices if your property is perceived to be move-in ready.

In that spirit, here are five investments you can make that will increase your property value this fall.

 

1. Design a Clean and Cohesive Kitchen

When you’re trying to up your property value, never forget that the kitchen is the big-ticket item. If you only have the budget to focus on one of these five projects, we’d strongly consider investing your time and money into updating your kitchen.

There are endless possibilities when renovating your space, but a few key upgrades will go a long way. Updating cabinets is a great starting point. Whether you’re installing entirely new cabinets or just updating their doors and handles, an investment here will go a long way to adding value to your home. Flooring is another way you can add value, and while its a hotly debated topic, adding hardwood or laminate flooring throughout your kitchen looks great and won’t cause any major problems if you have a solution for moisture.

The final investment we’d recommend making in your kitchen would be countertops and appliances. For counters, a nice quartz countertop is a great option. Quartz is slowly becoming as popular as marble and granite in high-end kitchens, as it looks great and is extremely durable. Stainless steel countertops are another great investment, as their sharp finish communicates cleanliness to any potential buyers.

 

2. You Guessed It: Paint

This is an absolute must if you’re getting ready to sell, as it can hide regular wear and tear and really brighten things up. If you can afford it you can get busy painting the entire house (the outside too), but if not we’d at least suggest covering the inside. Pick a neutral colour throughout, and be sure to add a few extra coats of paint if you’re using white so that it finishes properly. If you haven’t painted in a long time, you should also consider looking up and seeing how the ceilings look. Adding a fresh coat of white paint to the ceilings can really go a long way in freshening your space up.

Painting is a DIY home improvement that almost anyone can do, though you’ll still need to invest in some materials if you’re doing the job yourself. One of the best tips you can get when you’re having your home painted is to not skimp on the paint itself. Use high-quality paint and apply multiple layers. It shouldn’t drip or run and after a few coats should cover the original colours completely. If you’re doing the job yourself, remember that you’re already saving money on labour, so invest some extra money into your materials and do the job right.

 

3. Make Your Layout Standout

Layout updates are some of the larger investments you can make on your property, and if you’re really trying to maximize your value they should not be overlooked.

First up is the basement. If you have an unfinished basement, putting in a rental suite is a great project to tackle this fall if you want to up your property value. Buyers and investors love rental suites, as they look to offset mortgage costs with rental income. Work with a contractor and be sure to keep in mind what you’ll need the suite to include to maximize your investment. Most renters are interested in units with laundry provided, and a separate entrance is a must.

Another major layout change that can up your property value is investing in an open floorplan. If you’ve ever turned on HGTV you’ve likely seen this suggestion made, and it’s a trend that isn’t going anywhere. Most unrenovated 30+-year-old homes have closed in kitchens that cut off space in the living room and removing a wall will really open things up – you’ll be amazed at how much bigger your space feels. Check with a contractor to see if walls are load-bearing and if they are you can still remove them and install a beam for support.

 

4. Improve Your Home’s Energy Efficiency

Energy efficiency won’t just save you money while you’re in your home, it’s also becoming a major selling point. There are many energy-efficient features that buyers love and want to see already installed in a home they’re considering living in long term.

Programmable and smart thermostats are a great place to start. They’re often connected to wifi which makes it easy to control or program directly from your smartphone. Low and high-end systems are available, but even simply adding in one of the cheaper options is a good idea when it comes time to sell.

Another home-efficiency investment you should look into is installing double-pane windows. Heat can escape through thin windows, and buyers want to make sure that any home they’re living in is air-tight. Tackling this project is a great way to up your property value and relieve concerns over energy-efficiency.

 

5. Upgrade Your Flooring

We discussed this earlier when referencing the kitchen, but you should really be looking at the flooring throughout your home if you want to maximize your property value. Start by assessing any rooms with carpeting. Should you have any stains or old carpet, now is a great time to replace it or upgrade to hardwood or laminate flooring. Ugly carpets are a top project to tackle, as they’re going to immediately turn off potential buyers.

On the flip side, one of the types of flooring that is most likely to impress buyers is heated floors in your bathroom. Just as sure as old carpets will elicit a negative comment from potential buyers, heated floors will evoke positive sentiments.

There are great options for laminate flooring if you’re looking for entirely new floors. Prices vary, but there are plenty of styles that range from $3 to $6 a square foot. Tackling a project like this won’t take too long, and can dramatically change the look and feel of your home.

With many homeowners staying close to home this fall, home improvement investments will be as popular as ever. Try taking on one of these five projects to up your property value.

In the Market for a Secondary Property? Check out this Guide for all you need to know!

General Aman Gill 18 Sep

The Ultimate Guide to Secondary Properties

All the key tips to buying, using, and even renting out a vacation home
By Dominion Lending Centres Sep 9, 2020

So, you are looking to purchase a second property! Congratulations! This is an incredible opportunity and we are here to help provide you with the keys to success to expand your financial portfolio and ensure stability for the future.

Before you launch into this purchase there are a few things you should know, depending on which type of second property you are looking to purchase.

 

Purchasing a Second Property

When it comes to considering additional investments, most people don’t look at secondary properties. Why? Generally, people are trained to stay out of debt. As a result, they don’t tend to consider using the equity in their home to buy an investment property, but it all comes down to the art of leveraging.

In the case of purchasing a secondary property, most lenders will allow you to borrow money against the equity you have in your current home and use it as a down payment for a second home. Before jumping in, it is important to understand the different financing options to determine which route best suits your circumstances and property goals.

Refinancing Your Home

One option for tapping into your home equity for the purpose of purchasing a secondary property is to refinance your mortgage. Essentially, mortgage refinancing means getting a reevaluation on your home and then redoing your mortgage based on the current value. This will allow you to tap into the equity your home has built over the years, and pull out the extra funds for a down payment on your secondary property.

Keep in mind, when using some of your current equity, it will increase the principal amount and the interest payments on your mortgage as the mortgage is now refinanced at a higher amount.

 

Using a HELOC

There is a second option to unlock your home equity, which is through a line of credit or a HELOC, which stands for “Home Equity Line of Credit”. This option allows you to borrow money using the equity in your property, with the property as collateral.

A HELOC serves as a revolving line of credit to allow the borrower to access funds, as needed, letting you utilize as much (or as little) equity as required. Another benefit to this is that you will only pay interest on the amount you actually use. This can provide financial breathing room, especially during tight months. That said, if you do choose to pay the interest as well as a portion towards the principle, it can help you pay off the loan much faster.

You can utilize a HELOC in two ways:

1)    You can tie it to your existing mortgage

2)    You can apply for a HELOC separate from your mortgage

In Canada, you are able to borrow up to 65% of your home’s value using this method. However, keep in mind, your HELOC balance AND current outstanding mortgage cannot exceed 80% of your home’s value when added together.

 

Types of Secondary Properties

When it comes to secondary properties, there are multiple uses for them such as purchasing a vacation home, or using a second property for the intention of earning rental income. Depending on which purpose you are considering, there are different requirements to keep in mind.

 

Vacation Properties

Whenever people hear “vacation property”, you automatically assume these are only for the super-rich but that is simply not true! Vacation properties can be possible for anyone and are a great option for those who want to get away from it all!

If you’re inclined to head down that road, buying a vacation property is essentially like purchasing a second home. The minimum down payment remains 5% of the purchase price and will require the same processes as your first mortgage. If you are purchasing a non-winterized vacation home, or will not have year-round access, then you will be required to put down 10%.

It is also important to note that if you plan to use your vacation home to provide rental income as this will have different requirements as noted below.

 

Second Property with Intention to Rent

If you are purchasing a secondary property – whether a vacation home or investment property – there are a few differences if the intention is to rent.

Before you look at purchasing a rental property, there are a few things to consider:

  1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.
  2. Only a portion of the rental income can be used for the qualifying and determining how much of a mortgage you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income while subtracting your expenses. This can have a much higher impact on how much you can afford.
  3. Interest rates usually have a premium on them when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

Rental income from the property can be used to debt service the mortgage application, but do bear in mind that some lenders will have a minimum liquid net worth requirement outside of the property. Also, if you do eventually want to sell this property, do note that it will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

 

Who Can Qualify?

You might be surprised to learn that you don’t need to be one of the uber rich or make six figures to have a second property. You just need to have knowledge, determination and financial planning.

When it comes to purchasing a secondary property, whether for investment or rental or vacation, it can be a great opportunity! Before taking on a secondary property, you will need to have your down payment in order (whether from savings or home equity) based on the minimum requirements, and also have sufficient credit score to qualify (680 or higher).

In addition to the down payment, you will also need to pass the stress-test and prove that you can financially carry both mortgages. Also keep in mind any barriers with lenders as most will limit the number of mortgages in a portfolio. If this is only property number two or three, you won’t have any concerns, but as you expand your portfolio you may run into limits at five properties (at which point you would be considered a commercial file).

Before you jump into the purchase of a secondary property, consult with a Dominion Lending Centres mortgage professional. They can help review your financial situation, current mortgage and equity, and help you make a plan. The keys to success are right around the corner with a little bit of expert advice!

Home Ownership likely one of our biggest investments.

General Aman Gill 17 Jun

Home Ownership for most of us will be the biggest investment we make in our lives, there are many important factors to consider before you take the next step. This is a great quick read for anyone looking at purchasing a new home, contact me, your trusted professional mortgage advisor to discuss any questions you might have!
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CMHC Tightening Mortgage Qualifications!

General Aman Gill 7 Jun

 

CMHC MAKES IT HARDER TO QUALIFY FOR AN INSURED MORTGAGE

CMHC Makes It Harder To Qualify For An Insured Mortgage

Once again, the Canadian Mortgage and Housing Corporation (CMHC) is tightening the criteria to get a mortgage with less than a 20% down payment. Any potential home buyer with less than a 20% down payment must purchase default insurance on their loan and have a minimum down payment of 5%. CMHC is a federal Crown Corporation that provides such default insurance. Its mandate is to help Canadians access affordable housing options. Providing mortgage insurance to home buyers is one of its main activities. Mortgage default insurance protects lenders in the event a borrower ever stopped making payments and defaulted on their mortgage loan–a very infrequent occurrence in Canada.

There are private providers of default insurance as well–Genworth Financial Canada and Canada Guaranty. CMHC is the only insurer of mortgages for multi-unit residential properties, including large rental buildings, student housing and nursing and retirement homes. It is the largest provider of mortgage default insurance by far and is also the primary insurer for housing in small and rural communities.

Investment properties are not eligible for mortgage insurance. Because of this, the buyer needs at least a 20% down payment to buy an investment property. Homes costing more than $1 million, as well, are not eligible for mortgage insurance. Typically, the lender chooses the mortgage insurer.

Why is CMHC Tightening Qualifications?

The economics team at CMHC has predicted that owing to the pandemic lock down, home prices will likely fall by 9% to 18% over the next 12 months. They also believe that it will take at least two years for prices to return to pre-pandemic levels. The CMHC forecast for the economy is more pessimistic than many other forecasts, particularly that of the Bank of Canada, which asserted yesterday that the outlook for the economy was better than their April forecast suggested. Moreover, CMHC acknowledges the high degree of uncertainty associated with any forecast at this time. The Crown Corporation highlights the post-shutdown job losses, business closures and the drop in immigration that adversely affect Canadian housing.

They also have emphasized the 15% of existing mortgages that are now in deferral and believe there is a risk that 20% of all mortgages could be in arrears when deferrals end. Their stated justification for tightening qualification requirements is “to protect future home buyers and reduce risk“.

What Are These Changes In Underwriting Policies

Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:

  • The maximum gross debt service (GDS) ratio drops from 39 to 35
  • The maximum total debt service (TDS) ratio drops from 44 to 42
  • The minimum credit score rises from 600 to 680 for at least one borrower
  • Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes

CMHC goes on to say that “to further manage the risk to our insurance business, and ultimately taxpayers, during this uncertain time, we have also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing. Consultations have begun on the repositioning of our multi-unit mortgage insurance products.”

Here’s What We Know So Far

Anecdotal reports suggest that it is likely that private default insurers will not match CMHC’s lower debt ratios. They might, however, be more selective in their approval processes.

Canadian fiscal and monetary authorities are expending huge sums to keep the economy afloat, cushion the blow of the shutdown, and to make sure ample credit is available. These actions are intended to minimize unnecessary insolvencies. It is, therefore, surprising that a federal Crown Corporation would take these pro-cyclical actions now.

The exact impact of these changes will not be known until more details are available: How the Big Banks will respond with their own prime mortgage underwriting rules; how these new rules will apply to the securitization market; and how far the private default insurers will go along with these new rules.

Suffice it to say that this batters buyer and seller confidence and, all other things equal, has a net negative impact on the near-term housing outlook.  Most importantly, in my view, these changes are unnecessary to protect the prudence of Canada’s home lending practices. Mortgage delinquency rates are meager, and even the Bank of Canada’s forecast is for delinquencies to remain less than 1% of all outstanding mortgages. Moreover, home buyers with jobs who meet former qualifications would undoubtedly have a longer than two-year time horizon when buying their first homes. They were already qualifying at the posted rate that is more than 250 basis points above the contract rate. If anything, the pandemic recession assures that interest rates will remain very low over the next two years.