22 Dec

5 House Hunting Mistakes To Avoid

Mortgage Tips

Posted by: Tyler Cowle

Buying a home is one of the largest investments you will ever make! In order to make your home hunting experience the best it can be, there are a few key mistakes to avoid and be aware of before you start your journey:

  1. Not Getting Pre-Approved: One of the most important aspects of buying a home is the mortgage application and approval process. No matter what type of home you are looking for, you will need a mortgage. One of the biggest mistakes when it comes to the home-buying process is NOT getting pre-approved prior to starting your search. Getting pre-approved determines the actual home price you can afford as it requires submission and verification of your financial history to ensure the most accurate budget to fit your needs.
  2. Not Setting or Following a Pre-Determined Budget: Another mistake that people make when home-hunting is not setting, or following, a pre-determined budget. It can be tempting to start looking at the top of your budget, or even slightly over, but when you consider closing costs and the long-term financial responsibility of home ownership, it is best to avoid maxing yourself out. Getting pre-approved will help determine what you can afford, as well as making an appointment with your mortgage broker to determine your financial situation and the best options for you now, and in the future.
  3. Not Hiring a Real Estate Agent: Your mortgage broker and your real estate agent are two of the most important members of your homebuying A-Team! In today’s competitive real estate market, it can be very difficult to acquire property without the help of a realtor. One reason is that realtors can provide access to properties that never even make it to the MLS website! They can also gain access to information about homes that may come onto the market, before a listing is even signed. Most importantly though, a realtor understands the ins-and-outs of the home buying process and can tell you how to be successful in your endeavors to purchase a home by guiding you through the process from the first viewing to having your bid accepted.
  4. Focusing Too Much on Aesthetics: While we understand that bad interior design can really affect the perception of the home, you don’t want to be blindsided by it. At the end of the day, aesthetics can always be updated! Giving up the perfect price or location or size for a few aesthetic details (such as paint color, flooring, or even outdated appliances or light fixtures) is one of the biggest mistakes people make! Most homes have incredible bones that only need some minor tweaks to become your perfect space.
  5. Not Thinking Ahead: What you want and need in a house today, could be very different from what you want and need in a house in the future. It is important to be able to look ahead – are you planning on having children? Are your parents getting older and in need of a retirement space? These are things that are good to take into consideration when buying a new home. Buying a home isn’t a permanent decision as you can always sell your home later on if it doesn’t work for you in the future, but it is almost always easier to plan ahead so you can grow with—and not out of—your home whenever possible.

If you are looking to purchase a new home, whether your first space or a step-up from your current living situation, I would be happy to help! Please don’t hesitate to reach out to set up a virtual appointment and discuss your mortgage options, pre-approvals and everything you need to know BEFORE you get started.

Published by the DLC marketing team!

21 Nov

When Higher Rates Can Be Better!

Mortgage Tips

Posted by: Tyler Cowle

When it comes to getting a mortgage, there is a common misperception that a low rate is the most important factor. However, while your rate does matter for your mortgage, it is not the only component to consider.

If you’re looking to get a mortgage, these are some other important factors that you should look at beyond simply the interest rate:

Term: The length of time that the options and interest rate you choose are in effect. A shorter term (5 years) allows you to make changes to your mortgage sooner, without penalties.

Amortization: The length of time you agree to take to pay off your mortgage (usually 25 years). This determines how the interest is amortized over time.

Payment Schedule: How often you make your mortgage payments. It can be weekly, every two weeks or once a month and will affect your monthly cashflow differently depending on your choice.

Portability: An option that lets you transfer or switch your mortgage to another home with little or no penalty when you sell your existing home. Mortgage loan insurance can also be transferred to the new home.

Pre-Payment Options: The ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty.

Penalty Calculations: Where variable rates typically charge three-months interest, a fixed rate mortgage uses an Interest Rate Differential (IRD) calculation. This can add up quite quickly! In fact, in some cases, penalties for breaking a fixed mortgage can sometimes be two or three times higher than that of a variable-rate.

Variable versus Fixed: For fixed-rate mortgages, the interest rate does not fluctuate over time. For variable-rate mortgages the interest rate fluctuates with market rates, which can be great when rates drop but not so great when rates are rising.

Open versus Closed: An open mortgage is similar to pre-payment options, allowing you to pay off your mortgage at any time with no penalties. A closed mortgage, on the other hand, offers limited to no options to pay off your interest in full despite often having lower interest rates.

When considering your mortgage, the above components all have a part to play in your overall mortgage as well as your homeownership experience.

It is easy to think that a low-interest rate is good enough, sign on the dotted line… but you may be overlooking important options such as portability, which allows you to switch your mortgage to another property should you choose to move. Or pre-payment options, which give you the choice to make additional payments to your mortgage. Without looking deeper at your mortgage, you may find yourself being forced to pay penalties in the future because you wanted to make a payment or a change to your mortgage structure. In some cases, agreeing to a higher rate to have more options and flexibility is better in the long run than the savings received from a lower rate.

Before agreeing to any mortgage, it is best to talk to me about the contract, as well as your future goals and any potential concerns you have to ensure that you get the best mortgage product for YOU.

Published by the DLC Marketing Team

14 Nov

So, You Want To Be A Landlord?.

General

Posted by: Tyler Cowle

Are you dreaming about owning a rental property and making some extra income each month? Before diving into becoming a landlord, there are some things you should know from the advantages and disadvantages to some tips when it comes to buying a rental property.

Advantages of Owning a Rental Property

If you’re looking to purchase a property for rental and become a landlord, you are likely already aware of some of these advantages, but just in case, some benefits to this include:

  • Earning additional regularly monthly income
  • Allows you to continue to build home equity in the property(s) that you rent
  • Ability to deduct certain items from your gross rental income such as mortgage interest, property taxes, insurance, maintenance costs, property management fees and utilities.

Disadvantages of Owning a Rental Property

As with any investment, there are also some disadvantages to owning a rental property, which are important to consider before you make the leap. These can include:

  • Responsibility of maintaining the rental property and managing your tenant(s)
  • Rental income is taxable and must be included on your income tax. Depending on the value of the extra income, it may push you into a higher tax bracket.
  • Unexpected expenses and issues may crop up over time. It is ideal to budget 2% of the purchase price of your property for potential repairs. You’ll also want to keep some money aside should your tenant leave and you need to cover a few months to find a new tenant.
  • If you choose to sell the rental property in the future, it will be subject to capital gains tax.

What to Know BEFORE You Buy

Before getting started, it is important to calculate the cost of your investment (purchase price and closing costs), as well as consider maintenance amounts (approximately 1% of the property value for the year) and compare to current rental prices to be sure it is a profitable investment before purchasing. In addition, note the following:

  • 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. Another option is to utilize existing equity in your primary residence and refinance for the cash to purchase your rental or investment property. Be sure to factor in funds for closing costs, potential repairs and maintenance in your amount.
  • Only a portion of the rental income can be used to qualify and determine how much 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 and subtract your expenses.
  • Interest rates usually have a premium 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.

Final Tips on Becoming a Landlord

If you’ve decided to move forward with getting a rental property and becoming a landlord, here are some tips to consider:

  • Don’t forget about insurance! Ensure you have proper coverage for a rental situation and to cover any unforeseen events.
  • Educate yourself on what it means to be a landlord in your province from tenant laws to rental responsibilities.
  • Do your research on rental rates and locations before you choose to buy so that you are aware of where the market is at when it comes to potential earning power.
  • Choose the right mortgage for your rental property. Your mortgage broker can help you with this!
  • If you’re looking to run multiple rental properties, consider hiring a property manager who can be a go-between with you and the tenants.

With the right purchase price and rental costs per month, a rental property can be a great way to supplement income. If you’re looking to purchase an investment property, be sure to reach out to me to discuss your options and understand what is required.

27 Sep

Second Mortgages: What You Need to Know.

Mortgage Tips

Posted by: Tyler Cowle

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them. Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage.

The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

  • The ability to access a large loan sum (in some cases, up to 90% of your home equity) which is more than you can typically borrow on other traditional loans.
  • Better interest rate than a credit card as they are a ‘secured’ form of debt.
  • You can use the money however you see fit without any caveats.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

  • Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
  • Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to speak to me! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

3 Aug

Adapt Your Finances

Budget

Posted by: Tyler Cowle

The latest news has been focused on rising interest rates, surging inflation, and economic uncertainty with suggestions that the Canadian economy could be tripped into recession.

With all this information circulating, now is a good time to discuss ways to adapt your finances and protect your future.

Fortunately, there are a few key things you can do to get started today!

1. Set a budget and reduce monthly expenses and overall debt by including the following:

Review your income and expenses and identify areas for reduction – such as getting a cheaper cell phone plan, reducing streaming service subscriptions, reviewing transport costs, etc.

Make a list of your current high-interest loans (such as credit card balances). If your mortgage is up for renewal, you may be able to benefit by consolidating debt into your mortgage to save on interest and free up cash flow with one payment. Refinancing your mortgage before the renewal is also an option, but a review of the penalty cost versus your debt consolidation goal should be considered. As your mortgage professional, I can assist you with this analysis.

Allot a percentage of your income towards savings such as an emergency fund. Your goal should be to have the equivalent of 3 to 6 months of earnings in this fund to provide breathing room should you lose your job or face any unexpected expenses. Another form of emergency funds could also be a line-of-credit. Once set-up, these generally have no cost to you unless you use it in the event of an emergency.

Having a healthy and realistic budget will give you peace of mind and allow you to properly allocate your monthly cash flow between debt, expenses, and savings.

2. Evaluate your investment portfolio:

While you will want to avoid making any knee-jerk reactions, it maybe a good time to diversify your portfolio to help reduce risk. Consider rerouting your investment to real estate or other areas to ensure you have various sources of income and always talk to an expert.

3. Find additional income sources!

Many people have found innovative ways to increase their income by asking the following three questions:

– Are you a fit for a potential promotion?

– Do you have a review coming up?

– Do you have transferable skills that you can apply to consulting or additional contract work?

One final reminder – don’t panic. I know the word “recession” can be stressful but understanding what is happening and making appropriate adjustments will help you stay financially secure.

If you have any additional questions, I would be happy to chat with you anytime! Please don’t hesitate to reach out if you want to discuss the impact on your mortgage, or how to make changes.

8 Jun

How Bridge Financing Works

Bridge Financing

Posted by: Tyler Cowle

How Bridge Financing Works.

In life, things rarely go as planned. This is especially true when it comes to real estate! When it comes to buying a new home, in a perfect world, most of us would like to take possession of their new residence before having to move out of the old one. This makes moving a lot easier and allows you time for painting or renovations prior to moving into your new digs. Unfortunately, this is where things get complicated.

Most people need the money from the sale of their existing property to come up with the down payment for the new house. This is where bridge financing comes in. Essentially, bridge financing allows you to ‘bridge’ the financial gap between the firm sale of your current home and the firm commitment to purchasing your new home.

WHAT ARE BRIDGE LOANS?

Bridge loans are short-term solutions that range from 90 days to 12 months, with an average of six months in length. This type of financing allows you to access some of the equity in your existing property, to put towards the down payment of your new home. However, to be eligible for a bridge loan, a firm sale agreement MUST be in place on your existing home, meaning all subjects have been removed. You will also require a purchase agreement for the new home to verify the amount required.

If you have not yet sold your home, you will not be eligible for bridge financing as the lender needs that to accurately calculate how much equity you have available and if you can afford your new home.

If you are currently looking to sell, or are in the midst of selling your home and considering bridge financing, it is important to understand that unless you can qualify and pay for two mortgages, you should always sell your existing home before purchasing a new one. There are a couple reasons for this:

  • Property values are constantly changing. You won’t know how much money you have until you sell your home as a home is only worth what someone is willing to pay for it NOW. Past sales and future guesses don’t count!
  • You need the proceeds from your existing home to help pay for the down payment on your new home, as well as renovations, moving costs and (if required) the size of mortgage you qualify for.

However, if you have firm sale and purchase agreements in place and are adamant about bridge financing, there are some things you should know.

GETTING BRIDGE FINANCING

If you have sold your existing home but the closing date comes after the closing date of the new property you just purchased, then bridge financing will likely be your best option.

Remember – in order to qualify you must have a firm sale agreement for your current home and a purchase agreement for the new home. If you don’t have a firm selling date you may need to consider a private lender for the bridge loan.

If you do have firm sale and purchase agreements and want to move forward with bridge financing, you also need to consider the lender. Your new lender may not allow for bridge financing as not all lenders do. It is important to consider whether or not you think you need bridge financing so you can ensure you sign with the appropriate lender. Utilizing a Dominion Lending Centres mortgage broker can help you find a lender that provides the options you need.

COSTS OF BRIDGE FINANCING

It is important to mention that bridge financing typically costs MORE than your traditional mortgage. It is best to expect the Prime Rate plus 2, 3 or 4 percent, as well as an administration fee.

Also, in some cases, if you require a loan over $200,000 or a loan for more than 120 days, your lender may register a lien on the property until the loan is repaid. In order to remove this lien, you will need to consider the added costs of paying for a real estate lawyer.

PRIVATE FINANCING

If you have purchased your new home and are closing the deal, but your existing home has not yet sold, you would not qualify for bridge financing and would therefore need to consider a private loan.

Private financing is expensive, but it is generally a more affordable option versus lowering the asking price of your existing home and losing out on tens of thousands just to sell quickly. Seeking out a specialized mortgage broker who has access to individuals that lend money out privately to get the best rate and terms available to you.

COSTS OF PRIVATE FINANCING

Private loans are dependent on having enough equity in your current property to qualify and are more expensive than traditional mortgages. Private loans have a much higher interest rate than traditional mortgages, which averages anywhere from 7-15 percent. The costs associated with a higher interest rate is in addition to an up-front lender fee and potential broker fee. These amounts will vary based on your specific situation with consideration to: time required for the loan, the loan amount, loan-to-value ratio, credit bureau, property location, etc.

When it comes to bridge financing and selling and buying of your home, don’t waste your time trying to figure it out on your own. Give Tyler a call and he can help you determine your best option!

Published by the DLC Marketing Team

31 May

9 Reasons People Break Their Mortgage

General

Posted by: Tyler Cowle

Did you know, approximately 60 percent of people break their mortgage before their mortgage term matures? While this is not necessarily avoidable, most homeowners are blissfully unaware of the penalties that can be incurred when you break your mortgage contract – and sometimes, these penalties can be painfully expensive.

Below are some of the most common reasons that individuals break their mortgage. Being aware of these might help you avoid them (and those troublesome penalties), or at least help you plan ahead!

Sale and purchase of a new home

If you already know that you will be looking at moving within the next 5 years, it is important to consider a portable mortgage. Not all mortgages are portable, so if this is a possibility in your near future, it is best to seek out a mortgage product that allows this. However, be aware that some lenders may purposefully provide lower interest rates on non-portable mortgages but don’t be fooled. Knowing your future plans will help you avoid expensive penalties from having to move your mortgage.

Important Note: Whenever a mortgage is ported, the borrower will need to re-qualify under current rules to ensure you can afford the “ported” mortgage based on your income and the necessary qualifications.

To utilize equity

Another reason to break your mortgage is to obtain the valuable equity you have built up over the years. In some areas, such as Toronto and Vancouver, homeowners have seen a huge increase in their home values. Taking out equity can help individuals with paying off debt, expand their investment portfolio, buy a second home, help out elderly parents or send their kids to college.

This is best done when your mortgage is at the end of its term, but if you cannot wait, be sure you are aware of the penalties associated with your mortgage contract.

To pay off debt

Life happens and so can debt. If you have accumulated multiple credit cards and other debt (car loan, personal loan, etc.), rolling these into your mortgage can help you pay them off over a longer period of time at a much lower interest rate than credit cards. In addition, it is much easier to manage a single monthly payment than half a dozen! When you are no longer paying the high interest rates on credit cards, it can provide the opportunity to get your finances in order.

Again, be aware that if you do this during your mortgage term, the penalties could be steep and you won’t end up further ahead. It is best to plan to consolidate debt and organize your finances when your mortgage term is up and you are able to renew and renegotiate.

Cohabitation, marriage and/or children

As we grow up, our life changes. Perhaps you have a partner you have been with a long time, and now you’ve decided to move in together. If you both own a home and cannot afford to keep two, or if neither has a rental clause, then you will need to sell one of the homes which could break the mortgage.

Divorce or separation

A large number of Canadian marriages are expected to end in divorce. Unfortunately, when couples separate it can mean breaking the mortgage to divide the equity in the home. In cases where one partner wants to buy the other out, they will need to refinance the home. Both of these break the mortgage, so be aware of the penalties which should be paid out of any sale profit before the funds are split.

Major life events

There are some cases where things happen unexpectedly and out of our control, including: illness, unemployment, death of a partner or someone on the title. These circumstances may result in the home having to be refinanced, or even sold, which could come with penalties for breaking the mortgage.

Removing someone from title

Did you know that roughly 20% of parents help their children purchase a home? Often in these situations, the parents remain on the title. Once their son or daughter is financially stable, secure and can qualify on their own, then it is time to remove the parents from the title.

Some lenders will allow parents to be removed from title with an administration and legal fees. However, other lenders may say that changing the people on Title equates to breaking your mortgage resulting in penalties. If you are buying a home for your child and will be on the deed, it is a good idea to see what the mortgage terms state about removing someone from title to help avoid future costs.

To get a lower interest rate

Another reason for breaking your mortgage could be to obtain a lower interest rate. Perhaps interest rates have plummeted since you bought your home and you want to be able to put more down on the principle, versus paying high interest rates. The first step before proceeding in this case is to work with me to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate – especially if you might incur penalties along the way.

Pay off the mortgage

Wahoo!!! You’ve won the lottery, got an inheritance, scored the world’s best job or had some other windfall of cash leaving you with the ability to pay off your mortgage early. While it may be tempting to use a windfall for an expensive trip, paying off your mortgage today will save you THOUSANDS in the long run – enough for 10 vacations! With a good mortgage, you should be able to pay it off in 5 years, thereby avoiding penalties but it is always good to confirm.

Some of these reasons are avoidable, others are not. Unfortunately, life happens. That’s why it is best to seek the advice of an expert. I want to be part of your journey and help you get the best mortgage for YOU.

Published by the DLC Marketing Team!

3 May

Benefits Of Home Ownership

General

Posted by: Tyler Cowle

So, you have decided to utilize your buying power in the Canadian retail market and are looking to purchase a home – congratulations! This is a great step towards ensuring your future.

As a potential homeowner, there are some amazing benefits that we think you should be aware of right out of the gate:

  1. Homeownership is the single largest source of savings for Canadian households.
  2. Your payments build equity (as opposed to renting, where your money goes to the building owner).
  3. Equity you build in your home can be used as security for other loans.
  4. The return on investment is substantial – in fact, the average price of a house for sale on the Canadian real estate market has increased every year since 1998.
  5. While other investments can prove volatile, investing in real estate is a solid use of your hard earned money.

Buying a home is not just about equity and investments, but it is about the future. While it is important to know what a mortgage is and how much you qualify for (and can afford), ensuring your new home is so much more than numbers. In these changing times with the cost of living constantly increasing, having home equity to fall back on can have a huge impact on your quality of life. Not only that, but owning your own home gives you a sense of pride, a feeling of security and the freedom to design the perfect living space for yourself – without having to ask permission from strata or a landlord! Moving into your first apartment or moving on up to your first house is an incredible step in the journey of life!

Now, as excited as you are to get started, you probably have some questions! Let us take you through some of the most important things to know when it comes to home ownership to ensure your experience is as smooth as possible – and provides the best possible outcome for you!

WHAT EXACTLY IS A MORTGAGE?

It is amazing how many people really don’t know what a mortgage is. Maybe you weren’t sure you would be in a position to have one or maybe you just never asked! Never fear – we have the answers.

To keep it simple, a mortgage is a loan that is specific to properties and homes. This type of loan uses the home or land you purchase as security in the event the loan cannot be paid. Mortgages are registered as legal documents and can be obtained through a variety of sources (or lenders) including banks, credit unions and alternative lenders or through the use of a mortgage broker!

MORTGAGE TERMS TO KNOW:

Principal The principal is the amount of the loan that is actually borrowed.
Interest Rates As with any loans (credit cards, lines of credit, etc) interest will be incurred. This is the amount that the lender charges for the privilege of funds borrowed. The amount of your interest payment will depend on the interest rates, which vary depending on terms and conditions of the mortgage and the borrower’s credit history.
Mortgage Payments These can occur monthly, semi-monthly (twice a month), bi-weekly (every other week), accelerated bi-weekly or weekly and are made to the lender. These payments encompass both payments to the principal amount borrowed, as well as interest charges.
Amortization Period This is the number of years it will take to repay the entire mortgage in full and is determined when you are approved. A longer amortization period will result in lower payments but more interest overall as it will take longer to pay off. The typical range is 15 to 30 years.
Term Term is the length of time that a mortgage agreement exists between you and the lender. Rates and payments vary with the length of the term. The most common term is a 5-year, but they can be anywhere from 1 to 10 years. Generally a longer term will come at a higher rate due to the added security. A “Fixed Mortgage” means you are locked in at the interest rate agreed for a longer length of time.A “Variable Mortgage” features an interest rate that is adjusted periodically to reflect market conditions.
Maturity Date The maturity date marks the end of the term. At this time, you can repay the balance of the principle or renegotiate the mortgage at the current rates. Note: If you choose to repay or renegotiate the mortgage before the term is up, penalties may be charged.

HOW MUCH DO I QUALIFY FOR AND WHAT CAN I AFFORD?

One of the biggest factors to purchasing a home is knowing how much you qualify for when it comes to a mortgage – and how much you can afford!

To determine the amount of the mortgage you qualify for, banks will utilize a set of ratios which determine the amount of your income that will be used to pay down the debt. These ratios are Gross Debt Servicing (GDS) and Total Debt Servicing (TDS).

It sounds confusing, but let us help break this down for you!

GROSS DEBT SERVICING (GDS) RATIO

The first ratio, Gross Debt Servicing (GDS) is the percentage of gross income that is required to cover housing costs. If you are looking at getting an insured mortgage (less than 20 percent down payment on the purchase price) the limit is 32% GDS. For uninsured mortgages (20 per cent or more down payment) the limit is 39% GDS.

To calculate this, you would take any home-related expenses (mortgage payments, property taxes, utilities and strata fees when applicable) and divide them by gross monthly income to get your GDS percentage.

Gross Monthly Income $4,500.00
Mortgage Payment $1,000.00
Property Taxes $200.00
Heating Expenses $150.00
Total Expenses $1,350.00
Gross Debt Servicing (GDS) 30%

 

The rate of 30% GDS is well within the requirements and would be approved.

TOTAL DEBT SERVICING (GDS) RATIO

The other ratio banks use is known as Total Debt Servicing (TDS). This is the percentage of your gross income required to cover housing costs (same as with the GDS) but also any other debts. The guidelines for an insured mortgage (less than 20 percent down) has a limit of 40% TDS while an uninsured mortgage (20 per cent or more down) is 44% TDS.

To calculate this, you would take all home-related expenses (mortgage payments, property taxes, utilities and strata fees when applicable) and other debts (credit cards, personal loans, student loans, car payment or a line of credit) and divide them by gross monthly income to get your TDS percentage.

Gross Monthly Income $4,500.00
Mortgage Payment $1,000.00
Property Taxes $200.00
Heating Expenses $150.00
Student Loan Payment $100.00
Car Payment $300.00
Total Expenses $1,750.00
Total Debt Servicing (TDS) 39%

The rate of 39% TDS is well within the requirements and would be approved.

DECLARING YOUR INCOME

In order to get approved for the mortgage, you need to declare your income so the bank can compare it to your expenses and determine the ratios noted above.

If you are employed with a company, you would provide an employee statement declaring minimum guaranteed gross wage OR last two-year average if there were bonuses or commissions that put your income above your guaranteed wages. If the most recent year was lower, that year will be used instead of the average.

If you are self-employed, you would provide the average of your last two years of income based on line 150 of your tax returns. It is important to know that there are programs available for self-employed borrowers in cases where the two-year average does not qualify them for a mortgage. Just ask your mortgage broker!

BE SMART!

There are many cases where buyers will qualify for more than they intend on spending – but don’t get greedy! It is vastly more important, especially for your first home, to stay within a budget that you can afford each month instead of overextending yourself simply because it is available to you. The most important aspect is that your payments are reasonable and affordable. There are always options to move to a larger home in the future!

Published by the DLC Marketing Team!

25 Apr

Why You Need A Home Inspection!

Mortgage Tips

Posted by: Tyler Cowle

Why you need a home inspection.

A home inspection isn’t a legal requirement when you buy a home in Canada. Yet, it’s certainly a wise decision for the largest purchase you will likely ever make.

Here are five reasons why you should opt for a home inspection when buying a home, even if it is a brand-new build.

  1. Things unseen

The home you want to buy may have a gorgeous skylight, cathedral ceilings and a huge master bedroom.  But the home’s aesthetics can hide big problems.

When you tour a house, you aren’t climbing into the crawl space or looking at the furnace. A home inspector isn’t wowed by beautiful staging. He or she will look at what’s in your walls, not what’s on them.

  1. Realistic budget for home maintenance

Many home inspections include the items that will need to be replaced within the next five years.

Paying for a home inspection can help you come up with a realistic home maintenance budget. If you know that the windows and roof are nearing the end of their lifespan, you can plan for that.

  1. A solid negotiation tool

Getting a home inspection gives you a huge amount of leverage. You can ask the sellers to fix some or all of the issues found during the inspection. Or you can renegotiate the sale price or ask the seller to contribute more towards closing costs.

With a home inspection, you have the upper hand in the deal. This gives you a lot of power to get a better deal on the purchase. Of course, you can also choose to back out of the sale if there are big, expensive issues that you’d rather not deal with.

  1. Can be an eye-opener

A home inspection will reveal the big picture when you might be focused on the location and the open kitchen plan. You don’t want to be blind to the potentially big issues like foundation cracks or electrical problems that can lurk unseen.

  1. Peace of mind

Lastly, and most importantly, a home inspection gives you peace of mind. You’ll be able to finalize the sale of a home knowing exactly what you’re getting yourself into. That way, you don’t uncover any major surprises shortly after moving in—even new builds are subject to issues.

Published by FCT

19 Apr

Process In The Paperwork.

Mortgage Tips

Posted by: Tyler Cowle

Documents Required to Qualify for a Mortgage

Mortgages can sometimes feel like endless stacks of paperwork, but being prepared in advance can save you time and stress! Getting your mortgage pre-approved is part of this prep-process, and will make things easy in the long run.

In order to get pre-approved, the lender must have taken you on as a client and reviewed all your documents before you begin house-hunting. It is important to ensure you have your pre-approval certificate before moving ahead and your pre-approval agreement in writing. This should include the pre-approved mortgage amount, the mortgage term, interest rate, payment information and the expiry for the pre-approval. Typically, they are valid for up to 120 days.

To prepare for the mortgage pre-approval process, there are a few must have documents that you will need to organize and have available prior to submission.

  1. Letter of Employment: One of the key aspects for financing approval is employment stability. Lenders want to see a letter from your employer (on a company letterhead) that details when you started working at this company, how much you make per hour or your annual salary, your guaranteed hours per week, and any probation if you are new. This can be done by your direct manager or the company HR department – they will be used to this type of request.
    1. Previous Two Pay Stubs: In addition to the employment letter, you must also have your previous two pay stubs. These must indicate the company name, your name and all tax deductions.
  2. Supporting Documents for Additional Income: If you have any other income, such as child support, long-term disability, EI, part-time income, etc., the lender will want to see any and all supporting documentation.
    1. NOTE: If you are divorced or separated and paying child support, it is important to also bring your finalized separation or divorce agreement. In some cases, they may request a statutory declaration from your lawyer.
  3. Notice of Assessment from Canada Revenue Agency: Lenders will also want to see your tax assessment for the previous year. If you do not have a copy, you can request one from the CRA by mail (4-6 weeks) or you can login to your online CRA account to access it.
    1. Your Previous Years T4: Along with your tax filing and assessment notice, lenders will also want to see your previous years T4 slip to confirm income.
  4. 3-Month (90 day) Bank Account History: Lastly, it is important for lenders to see 90 days history of bank statements for any funds that you are using towards the down payment. As saving up for a down payment takes time, there should be no issues providing these documents. If you received the money from the sale of a house or car, or as a gift from your family, you will need proof of that in the form of sales documents or a letter.

The above documents are required for any potential buyer who is a typical, full-time employee. But what if you only work part-time? Or maybe you are self-employed? Here is what you will need:

Part-time employee

You will still require all of the above documents (letter of employment, previous pay stubs, supporting documents for any additional income and 90 days of bank history).

However, the difference between a full-time employee and a part-time employee, is that if you only work part-time, you will need to supply THREE years worth of Notice of Assessments, versus just one. You will also need to have been working for at least two years in the same job to use part-time income.

If you have both a full-time and a part-time job, you can use that income too, assuming it has been at least two years.

Self-employed

If you are self-employed, the requirements for documents to lenders is slightly different. You will need to provide them:

  1. T1 Generals: Also known as the Income Tax and Benefit Return
  2. Statement of Business Activities: This is used to illustrate the business income versus expenses and should include financial statements for your business.
  3. Notice of Assessment from Canada Revenue Agency: Similarly to part-time income, if you are self-employed you will also need to provide the previous three years of assessments.
  4. If Incorporated: You will need to supply your incorporation license and articles of incorporation.

When it comes to mortgages, preparation is key. By having a pre-approval in hand, it can prevent any delays or issues with subject-to-financing clauses in the mortgage agreement. While you can walk into a bank, fill in an application and get a rate for a potential mortgage, this is just a ‘rate hold’ meaning it is a quote on the rate so you can qualify for the same rate later. This is not a pre-approval and does not guarantee financing.

To save yourself the headache down the line, contact me today to start the pre-approval process! Plus, my services are free to you. Why wait? Get fully pre-approved today to make closing the deal that much faster when you do find that perfect home.

Published by the DLC Marketing Team!