Consistently I have people ask why so much documentation is required for mortgage financing. Along with an employment letter, you are asked to provide a copy of the offer to purchase/sale agreement, MLS feature sheet, a pay stub, your most recent Personal Tax Notice of Assessments (NOA), T4’s, confirmation of down payment, etc. “Why is this required, doesn’t the employment letter satisfy this condition”? Unfortunately the employment letter is not sufficient.

A pay stub confirms what was written in the employment letter along with year to date earnings, overtime, special allowances/bonus/commissions received, etc. T4’s confirm previous years earnings and Personal Tax Notice of Assessments (also know as NOA’S) confirm taxes have been filed for previous years income and no personal taxes are owing to Revenue Canada. No taxes owing to Revenue Canada is important as Revenue Canada can place a lien on a property for taxes in arrears, ahead of the mortgage claim on title.

A realtor will provide an offer to purchase/sale agreement and MLS feature sheet. The purchase agreement confirms the financial agreement and what is included with the house while the MLS provides property details required by the lender; this enables the lender to establish whether or not one has paid fair market value for the property.

Finally, a lender will ask for a 30-90 day (depending on whether or not the mortgage is insured or uninsured) history of where down payment has originated to confirm it is from own sources and not borrowed. This process is required by the government due to anti money laundering laws, which require the confirmation of the source for all funds used for down payment.

Before shopping for a home contact me to have yourself pre-approved so that you can go out shopping, search for the home of your dreams and confidently make an offer. dcarlson@jencormortgage.com

403-245-3636 x 2027

Bank of Canada Qualifying Rate Changes

Yesterday’s announcement indicated the Bank of Canada Qualifying rate decreased from 5.34% to 5.19%. This is the first decrease that we’ve seen since September 2016. What does the decrease mean?

The change would increase a client’s buying power…marginally.

“For a borrower buying a home with 5% down, today’s drop in the stress-test rate means:

• Someone making $50,000 a year can afford $2,800 (1.3%) more home
• Someone making $100,000 a year can afford $5,900 (1.3%) more home
• (Assumes no other debts and a 25-year amortization. Figures are rounded and approximate.)
• For a borrower buying a home with 20% down, today’s drop in the stress-test rate means:
• Someone making $50,000 a year can afford $4,000 (1.4%) more home
• Someone making $100,000 a year can afford $8,300 (1.4%) more home

(Assumes no other debts and a 30-year amortization. Figures are rounded and approximate.)

dcarlson@jencormortgage.com

403-245-3636 x 2027

It’s common for a first-time homebuyer to be overwhelmed when it comes to real estate industry jargon, so this BLOG is to help make some of the jargon understandable.

To help you understand the process and have confidence in your choices, check out the following common terms you will encounter during the homebuying process.

1. Amortization – “Life of the mortgage” The process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero. Typical amortizations are 25 years or if you have over 20% down payment – 30 years.
2. Appraisal – An estimate of the current market value of a home. A property is appraised to know the amount of money that a lender is willing to lend for a buyer to buy a particular property. If the appraised amount is less than the asking price for the property, then that piece of real estate might be overpriced. In this case, the lender will refuse to finance the purchase. Appraisals are designed to protect both the lender and buyer. The lender will not get stuck with a property that is less than the money lent, and the buyer will avoid paying too much for the property.
3. Closing Costs – Costs you need to have available in addition to the purchase price of your home. Closing costs can include: legal fees, taxes (GST, HST, Property Transfer Tax (PTT) etc.), transfer fees, disbursements and are payable on closing day. They can range from 1.5% to 4% of a home’s selling price.
4. Co-Signer – A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
5. Down Payment – The portion of the home price that is NOT financed by the mortgage loan. The buying typically pays the down payment from their own resources (or other eligible sources) to secure a mortgage.
6. Equity – The difference between the price a home could be sold for and the total debts registered against it (i.e. mortgage). Equity usually increases as the mortgage is reduced by regular payments. Rising home prices and home improvements may also increase the equity in the property.
7. Fixed Interest Rate – a fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
8. Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS)
   a) GDS – Typically mortgage lenders only want you spending a maximum 35-39% of your gross income on your mortgage (principle & interest), property taxes, heat and 50% of your strata fees.
   b) TDS – typically, lenders want you spending a maximum 39-44% of your gross income on your GDS – PLUS any other debt obligations you have (credit card debt, car payments, lines of credit & loans).
9. High-ratio mortgage / Conventional Mortgage – a high ratio mortgage is a mortgage loan higher than 80% of the lending value of the home. A conventional mortgage is when you have more than 20% down payment. In Canada, if you put less than 20% down payment, you must have Mortgage Default Insurance (see below) and your mortgage affordability (GDS & TDS) is “stress tested” with the Bank of Canada’s qualifying rate (currently 4.64%).
10. Interest Rate – This is the monthly principal and interest payment rate.
11. Mortgage – A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.
12. Mortgage Broker – A professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.
13. Mortgage Default Insurance – Is required for mortgage loans with less than a 20% down payment and is available from Canadian Mortgage & Housing Corp. (CMHC) or 2 other private companies. This insurance protects the lender in case you are unable to fulfill your financial obligations regarding the mortgage.
14. Open / Closed Mortgage
    a) An open mortgage is a flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term, because of the flexibility the interest rates are higher.
    b) Closed mortgages typically cannot be paid off in whole or in part before the end of its term. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment. If you try and “break your mortgage” or if any prepayments are made above the stipulated allowance the lender allows, a penalty will be charged.
15. Pre-Approval – A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
16. Refinance – Refinancing is the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.
17. Term (Mortgage) – Length of time that the contract with your mortgage including interest rate is fixed (typically 5 years).
18. Title – The documented evidence that a person or organization has legal ownership of real property.
19. Title Insurance – Insurance against losses or damages that could occur because of anything that affects the title to a property. Insurance Title insurance is issued by a Title Company to insure the borrower against errors in the title to your property.
20. Variable Rate Mortgage or Adjustable Rate Mortgage (ARM) – A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions, the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

dcarlson@jencormortgage.com

403-245-3636 x 2027

It’s important to understand the home buying process, so here’s a 7-step checklist.

Step 1: Down Payment

The hardest part to buying a home is saving the down payment (a gift from the Bank of Mom & Dad also works).

• For purchases under $500,000 minimum down payment is 5%.
• Buying between $501-999,000 you need 5% on first $500,000-PLUS 10% down payment for anything over $500,000.
• Buying a home over $1 million you will need at least 20% down payment, depending on the lender’s sliding scale

For any home purchases with less than 20% down payment, you are also required to purchase Mortgage Default Insurance.

Step 2: Strategize, Define Your Budget and get Pre-Qualified

Unless you can afford to buy a home, cash in hand, you are going to need a mortgage.
You need to get pre-qualified, which should not be confused with the term pre-approved.
The big difference is that no approval is ever given by a lender until they have an opportunity to examine the property that you wish to purchase. The bank may love you… but they also must love the property you want to buy.

Pre-qualifying will focus on gathering documentation to prove the information on your mortgage application including credit, debt load, income/employment, down payment etc.

Mortgage brokers will make sure you get a great mortgage rate. Just as important as rates are the terms of your mortgage which should include:

• prepayment options (10-20%)
•  penalties
• portability

We also discuss what type of mortgage fits your current situation

• fixed vs variable?
• life of the mortgage (amortization) 25 or 30 years etc.
• payments – monthly, semi monthly, accelerated bi-weekly

Step 3: Set Your Budget

Keep in mind that just because you’re pre-qualified for a certain amount of mortgage, doesn’t mean you can actually afford that amount. Prepare your own monthly budget to be sure.

Typically, your total home payments (including mortgage, property taxes, strata fees & heat) should not exceed 32-39% of your gross (pre-tax) income.

Step 4: Find the Right Property – Time to Engage a Realtor

Once you have been prequalified for a mortgage, based on your budget… you need to find a realtor.

Selecting the right real estate agent is a very important step in the home buying process. When you work with an agent, you can expect them to help you with many things, including:

• Scheduling tours of homes
• Researching the market, neighbourhood and home itself
• Making and negotiating your offer to purchase, and counter-offers
• Providing expert advice on home buying
• Handling the offer, gathering documentation and closing paperwork

Get referrals for realtors from friends and family… OR ask me, I have a group of realtors that I know and trust.

Step 5: Mortgage Approval

Once you have found the property you would like to call home, your mortgage broker will send your mortgage application and property information to the lender who is the best fit for your situation, based on your input.

If the lender likes your financial situation and the property, they will issue a “commitment” letter outlining the terms of the mortgage. The lender will send you a list of documents, so they can verify and validate all the information you told them on the mortgage application.

Step 6: Time for the Solicitor (Lawyer or Notary)

Once the lender has reviewed and approved all your mortgage documentation and the property documentation, your file will be sent to your solicitor (in B.C. you can use a lawyer or notary). They will process all the necessary title changes and set up a time for you to meet, review mortgage documents and sign.

Step 7: Get the Keys

On the closing day the documentation for your home purchase will be filed at the land titles office by your solicitor. Typically, the possession date is 1 or 2 days later, giving time for the money (down payment & mortgage) to get to the home seller. On possession day you set up a time to meet with your realtor to get the keys.

Congratulations you’re done – you now own your home!!

Mortgages are complicated, but they don’t have to be… Call me today!

dcarlson@jencormortgage.com

403-245-3636 x 2027

By: Kelly Hudson – DLC

With government officials citing limited resources and a lack of funds available to conduct a proper investigation, criminals have been manipulating and taking advantage of the Canadian legal system. It is now coming to light the impact this has had on our economy, most notably our real estate market.

To crack down on this, the government implemented “sourcing the funds” for down payment used to purchase a home. The federal and provincial government require mortgage lenders collect a minimum of 30 (for uninsured mortgages) –  90 (for insured mortgages) days of transaction history for every bank account where money has originated to complete a real estate purchase.

E-transfers and transfers between accounts within a 30 – 90 day period require a history of the account in which funds were transferred from. For example, if a savings account has been reserved just for down payment and $1000 a month has been transferred into this account from a chequing/savings account, cashed in $5000 from a TFSA and deposited $3000 in cash, all before an offer was written on a home, the lender is going to request a 30- 90 day history of the savings, chequing and TFSA account, along with a history of the $3000 cash deposit.

This process may feel invasive and frustrating, rightfully so. However, due to the extreme affect money laundering has had on the economy, these rules are probably not changing. When accumulating down payment be prepared to provide a 30 – 90 day history of every account where money is coming from for down payment. This process is difficult and time consuming for the client, mortgage broker and lenders.

Be prepared! With more focus on anti money laundering, rules and regulations may become more rigid.

If you have any questions,  please feel free to contact me.

dcarlson@jencormortgage.com

403-245-3636 x 2027