29 Oct

What is Title Insurance?

General

Posted by: Chanele Langevin

Title insurance can easily seem like another unnecessary add-on to the already complicated and costly process of buying a house, but nothing could be further from the truth. It can help speed up the process of closing on your new home, while protecting you and your heirs against a variety of unforeseen and expensive risks. It offers cost-effective, long-term, powerful protection, but there is a great deal to know about it.

Your notary or lawyer is a fantastic resource to learn about this vital protection for you as a homeowner—we’ve compiled some of the most frequently asked questions they receive:

• What is title insurance?

Title insurance is insurance that protects against losses from defects in your title—the legal ownership of your property. These defects can include issues with the property survey, the registration of your land title and problems you did not know you inherited from a previous owner, like back taxes or improper renovations. Title defects are unpredictable and expensive, but title insurance lets homeowners protect themselves.

• Are title insurance and home insurance the same thing?

It is common to confuse home insurance with title insurance, or to assume because you have home insurance, you are fully protected. But they cover completely separate risks, and even their premiums work differently.

Home insurance deals with your home’s physical structure, and the items inside it. Title insurance deals with your legal ownership of the property, even if it is an empty lot. Home insurance covers potential future physical damage to the home, or losses to replace stolen insured items. Title insurance covers (apart from future fraud) losses from issues that already existed, but that you did not know about.

Here is a classic example of the difference:

*Are you out money because your shed flooded or got broken into? You may be covered by home insurance.

*Are you out money because the shed turned out to be on your neighbour’s land (a mistake by the surveyor) and you had to move it? That may be a title insurance claim.

What is covered by title insurance?

Most title insurance policies cover losses from problems that already exist but that you do not know about.

If the survey for your property was not done correctly, you will not know until you are forced to move the shed you unwittingly built on your neighbour’s land.

If the previous owner of your home did renovations without a permit, you will not know until the city forces you to bring your home up to code.
If the previous owner left taxes on the property unpaid, or there were taxes that were not addressed or correctly levied on the property when the deal closed, you will not know until the government comes looking for those back taxes.

Title insurance may cover your losses in each of these scenarios, and many more. Another notable point of coverage is title fraud—a thief using your identity to borrow money against your home, or even sell it out from under you.

What is NOT covered by title insurance?

It is important to remember title insurance coverage often depends on whether or not an issue was known about when you bought the policy. While you can always get owner’s title insurance at any time, it’s best to get your policy as you are buying the house. That way, any issues you learn about afterward can fall under its umbrella—coverage almost never applies to title defects you knew about before getting the policy. There are some instances where title insurance can still protect you from a known title defect, but it is important to ask your lawyer or notary.

Title insurance covers the legal existence of your property, not the property itself. The losses it covers will often originate from something physical—moving a shed, bringing your home up to code—but the coverage comes from the title defect that led you to be responsible for the cost, not the issue that incurred the cost.
Here is a quick example: A couple finds a leak in their roof and has to pay to have it repaired, as well as fixing the water damage the leak caused before it was discovered. Does title insurance apply?

• It can, if the previous owner had done work involving that roof without a permit. The covered risk is from the previous owner’s lack of a permit, not the possibility the roof might leak.
• If the previous work had a permit, or if the old owner never did work on the roof, title insurance unfortunately can’t cover the losses from repairing it.

The most common coverage confusion we see comes from this perceived grey area between home and title insurance. Just because the builder or previous owner did a shoddy job doesn’t always mean title insurance can cover the losses. When the government makes you bring a previous owner’s build up to code, always verify if the work was properly permitted—if it wasn’t, your next call should be to your title insurer to make a claim.
If your neighbor makes a claim against you, for instance alleging your new garage extension encroaches on their property, the issue title insurance checks for is the property survey, not the garage itself.

Is title insurance mandatory?

Yes and no. There are two types of title insurance policies: one that protects the lender and one that protects the property owner—you. The law does not make either mandatory, but most lenders will require you to buy the lender policy as part of securing your mortgage from them. The owner policy is optional, so it is important to make sure your notary or lawyer includes an owner’s policy as well when you close on your home.

One more huge point in favour of an owner policy is that it lasts as long as your title does. If you refinance your mortgage with a different lender, they will get you to buy a new lender policy, but you will never need to buy a new owner policy on the same property—you are still covered. Always make sure when you are discussing with your notary or lawyer that you are talking about an owner’s title insurance policy, and never be afraid to ask questions about the coverage.

Written by My DLC Marketing Team

7 Oct

Your Credit Rating: The Four C’s

General

Posted by: Chanele Langevin

Buying your first home is an incredible step in life, but it is not without its hurdles! One of which is demonstrating that you are creditworthy, which all comes down to your credit rating. This is how lenders and credit agencies determine the interest rate you pay, or whether you will qualify for a mortgage at all.

As mortgage rules continue to change, the credit rating is becoming even more important as a higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.

If you’ve never given much thought to your credit rating before, don’t worry! It is not too late and we are going to take through everything you need to know. The most important of which is that, in order to qualify for a home, you must have a credit rating of at least 680 for one borrower.

There are several attributes that factor into your credit score, and these are commonly referred to as the “Four C’s” and consist of: Character, Capacity, Capital and Collateral. Let’s take a closer look at each:

Character

The character component of your credit score is essentially based on YOU and your personal habits, which comes down to whether or not it is in your nature to pay debts on time. Some of the components that make up this portion of your credit score viability, include:

  • Whether you habitually pay your bills on time
  • Whether you have any delinquent accounts
  • How you use your available credit:
  • Quick Tip – Using all or most of your available credit is not advised. It is better to increase your credit limit versus utilizing more than 70% of what is available each month. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.
  • If you need to increase your score faster, a good place to start is using less than 30% of your credit limit.
  • If you need to use more, pay off your credit cards early so you do not go above 30% of your credit limit.
  • Your total outstanding debt

Capacity

The second component relating to your credit rating is your capacity. This refers to your ability to pay back the loan and factors in your cash flow versus your debt outstanding, as well as your employment history.

  • How long have you been with your current employer?
  • If you are self-employed, for how long?

Don’t be confused as capacity is not what YOU think you can afford; it is what the LENDER thinks you can afford depending on the debt service ratio. This ratio is used by lenders to take your total monthly debt payments divided by your gross monthly income to determine whether or not you are able to pay back the loan.

Capital

Capital is the amount of money that a borrower puts towards a potential loan. In the case of mortgages, the starting capital is your down payment. A larger contribution often results in better rates and, in some cases, better mortgage terms. For instance, a mortgage with a down payment of 20% does not require default insurance, which is an added cost.

When considering this component, it is a good idea to look at how much you have saved and where your down payment funds will be coming from. Is it a savings account? RRSPs? Or maybe it is a gift from an immediate family member.

Collateral

Collateral is something that is pledged against a loan for security of repayment. In the case of auto loans, the loan is typically secured by the vehicle itself as the vehicle would be repossessed and re-sold in the event that the loan is defaulted on. In the case of mortgages, lenders typically consider the value of the property you are purchasing and other assets. They want to see a positive net worth; a negative net worth may result in being denied for a mortgage.

Overall, loans with collateral backing are typically more secure and generally result in lower interest rates and better terms.

There is no better time than now to recognize the importance of your credit score and check if you are on track with the Four C’s and your debt habits. A misstep in any one of these areas could be detrimental to your efforts of getting a mortgage.

If you are not sure or want more information, I would be happy to discuss your credit further and answer any questions you may have.

written by My DLC Marketing Team

30 Jan

Different Insurances Involved When Securing Financing

Mortgage Tips

Posted by: Chanele Langevin

As a Mortgage Agent, I noticed that many clients get confused with the different insurances products available to them when securing a mortgage.

Mortgage Loan Insurance

The first insurance is the Mortgage Loan Insurance or Default Insurance.  This insurance takes place when there is a home purchase with down payment being less than 20% of the purchase price.  Mortgage loan insurance helps protect lenders against mortgage default and enables borrowers to purchase homes with a minimum down payment starting at 5% for most competitive interest rates.

The minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home.  For a purchase price of $500,000 or less, the minimum down payment is 5%.  When the purchase price is more than $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.  Mortgage loan insurance is available only for properties with a purchase price or as-improved/renovated value below $1,000,000.

The premium is added to your mortgage loan amount and included in your monthly payments.  The amount of the mortgage loan insurance premiums range from 0.6% to 4.5% and are based on Loan to Value percentages.  The Loan to Value amount is determined by the percentage of the purchase price you choose to deposit in the form of a downpayment.  The more downpayment there is, the less your insurance premium will be.

The default insurance works in tiers. 5% downpayment attracts a 4% premium, a 10% downpayment attracts a 3.1% premium and a 15% downpayment attracts a 2.8% premium of the loan amount after downpayment .

There are 3 companies that lenders deal with regarding the mortgage loan insurance.  They are:

  • Canada Mortgage and Housing Corporation (CMHC) which is a government department
  • Canada Guaranty which is a Canadian-owned private mortgage insurer
  • Sagen (formerly Genworth), also a private mortgage insurer

Life & Disability Insurance

The next insurance that is involved with home financing is life and disability insurance.  Being a mortgage broker with Dominion Lending Centres HT Mortgage Group in Grande Prairie, Alberta, we have a specific life and disability insurance we offer through Manulife.  This insurance is called Mortgage Protection Plan (MPP).  What many do not realize is that this is a “debt” insurance which means Manulife would pay the amount left owing on the mortgage in the event of death.  In the event of disability Manulife would pay your monthly payments on the mortgage as well as property tax monthly payments.  MPP is a unique debt insurance in that it is portable.  If the borrower decides to sell their house and purchase a different house, with a different mortgage, the insurance is ported to the new mortgage; even if it is a different lender than the previous mortgage.

Fire Insurance

Another insurance that gets brought up once mortgage financing has been approved is referred to as either home or fire insurance.  In Canada, anyone purchasing a home MUST be able to prove they have a fire insurance policy in place before they will be allowed to take possession of the property.  This insurance is purchased through a home insurance company.  In Alberta we have insurance brokers who are similar to mortgage brokers in that they do the “shopping around” with all of the different insurance companies to find the best policy for the borrowers situation.

***Reference CMHC website:  https://www.cmhc-schl.gc.ca/

30 Dec

Co-Signing vs Being a Guarantor on a Mortgage

Mortgage Tips

Posted by: Chanele Langevin

Have you ever been asked to co-sign or become a Guarantor for someone on a loan or mortgage?  This is generally something that is considered very personal to people and usually involves close family members or parents and children.  Having sufficient income is not all that is necessary to obtain a mortgage.  The borrower must also have a certain level of credit to be approved.  When a client has sufficient income but too much debt, as a mortgage agent, I will recommend they have someone co-sign or be a guarantor on their mortgage to be approved.  There are differences between being a co-signer and being a guarantor.  It is important to know these differences and make sure you are comfortable with your responsibilities when you agree to help someone secure a mortgage.

Co-signer:

When purchasing a property in Canada and requiring a co-signer to secure the mortgage, the co-signer must reside in Canada; there may also be even stricter stipulations depending on the lender.  Some lenders will require the co-signer to reside in the same province as the initial borrower and or of the property being purchased as well.  Although a relative can commonly co-sign on a mortgage, it is not a requirement that the co-signer and borrower be related.  Also, the co-signer does need to qualify for the mortgage in order for the loan to be approved.  This means that they must have sufficient income and excellent credit history as if they were applying for their own financing.  It is important to keep in mind that any other mortgages the co-signer has will be part of the debt load.  A co-signer will be legally registered as an owner of the property. They sign legal documents regarding the property and are liable for mortgage payments in the event the borrower defaults on loan payments.  For a co-signer to be removed from legal ownership of a property, the borrower must reapply for the mortgage (covenant release) and be successful at qualifying without the co-signer.

Guarantor:

A Guarantor is someone that guarantees to pay any mortgage payments that the borrower does not follow through on paying.  Therefore, the guarantor must have a source of income and also have excellent credit to be approved.  Guarantors are NOT listed as a titleholder on a property.  If mortgage payments are not made by the borrower, the guarantor is responsible for making the payments while not having any rights to the actual property.  Many Guarantors are parents helping children secure a mortgage because they either do not have enough credit history or have small delinquencies on their credit history.

Co-signers and Guarantors must also keep in mind that all loans they have signed onto will be taken into account when applying for any other type of credit.  100% of the payments will be included in debt ratios by all lenders when considering any type of financing.

With the current stipulations in place for home buyers, it can make home ownership seem unattainable, especially if there has been any kind of credit issues or delinquencies in the past.  Having someone become a co-signer or guarantor on a mortgage can make all the difference and may be the best scenario for many people that are capable of making the payments required.

As a co-signer or guarantor it is important to research and understand the responsibilities but also important that you have full trust in the person you are helping out.  For the majority of situations, it is very rewarding to help someone accomplish their home ownership dream while also strengthening your own credit history.

 

1 Dec

The Facts of Mortgage Life and Disability Insurance

Mortgage Tips

Posted by: Chanele Langevin

One of the responsibilities I have as a mortgage agent in Grande Prairie, Alberta is to ensure that my clients are aware of and understand the importance of having life and disability insurance on their mortgage. There are so many different types of insurances that we are offered throughout our lives that it can be very confusing and frustrating. I am very proud to let people know that Dominion Lending Centres has teamed up with Manulife to offer a very straight forward life and disability insurance called Mortgage Protection Plan® (MPP). There are many aspects to MPP that enable it to stand apart from other insurances offered through other companies.

Whether you are a first time home buyer or an experienced home buyer, a mortgage is most likely the largest debt you will have to your name. No one likes to think about the possibilities of themselves or their significant others dying or encountering a disability that prevents them from earning income. The reality is that the mortgage payments still need to be paid. Many people are under the impression that they have life and disability insurance through their work if they have health benefits. That is a different type of insurance and is just a lump sum that is paid in the event of death. Mortgage and disability insurance are called a debt insurance and covers off the actual cost of the debt.

When I secure a mortgage for a client, I have the ability to offer MPP which is a portable insurance and goes with the client from house to house and lender to lender. If you move and your mortgage amount increases, you have the option to top up on the insured amount. Adversely, when a client goes to a financial institution for their mortgage, they will be offered life and disability insurance. The insurance offered is generally specific to the mortgage on the home you are purchasing. This is a way for financial institutions to try to retain the client. If the client moves or chooses to leave for a new financial institution, they will lose the insurance they had been paying for.

Benefits of Manulife Mortgage Protection Plan®

  • Coverage begins as soon as your application is submitted
  • You choose your payment option: monthly, semi-monthly or bi-weekly
  • Coverage moves with you: house to house, lender to lender
  • Your premium is locked in at the age you were when you applied, there are no increases due to your age moving forward
  • Every eligible applicant is approved. For those that do not qualify due to pre-existing health conditions there is the option to apply for accidental death and accidental disability at reduced premium amounts
  • There is a 60 day money back guarantee. If you change your mind, you will be refunded
  • All mortgages are protected including private mortgages and Home Equity Lines of Credit
  • In the event of a death, Manulife pays the monthly mortgage payment and property tax payment until all paperwork is handled for the claim

Facts about the MPP Disability Insurance

  • Disability is not just physical, mental illness is also covered
  • Premiums remain the same throughout the lifetime of the policy
  • Disability benefits are not reported as income and are not subject to income taxes
  • Disability insurance does not have to be combined with life insurance (many insurance companies will not allow disability insurance to be purchased without also having life insurance purchased)
  • Coverage is portable from house to house and lender to lender
  • Provide up to $10,000/month for 24 months of coverage. If client returns to work before the 24 months of coverage have been used, Manulife will pay an extra month payment to help the client build up some hours at their job
  • There is no limit to how many claims can be made over the lifetime of the policy. If 24 months has been used up and then the client has another situation with disability down the road they will be eligible for another 24 months of coverage
  • All occupations are covered
  • There is no financial review or verification as it is based on the client’s mortgage and not on their income. This makes it especially beneficial for clients who are self-employed.

Two Additional Benefits Offered by Mortgage Protection Plan®

  • Terminal Illness: If you are diagnosed with a terminal illness after 6 months have passed from the insurance start date, Manulife takes over your mortgage payments (terminal illness means progressive in nature, cannot be cured and cannot be treated and therefore it is expected to result in death within 12 months of diagnosis)
  • Waiver of Premium due to Job Loss: If you involuntarily lose your job after 6 months from insurance start date, your life and disability insurance premiums will be waived for 3 months

With our world ever changing it is very important that anyone investing in a home know what realities come along with having a mortgage. Many people do not understand insurance as a whole and by dealing with a mortgage broker like myself it can give great comfort knowing that your best interests in the entire process are always my first priority.

14 Nov

Mortgages and Divorce

General

Posted by: Chanele Langevin

For many divorcing couples, a home is the most valuable asset. It is important to seek legal advice, as well as the advice of a mortgage agent, very early in the process.  As a mortgage agent in Grande Prairie, Alberta, I can assess overall expenses you would incur, with different scenarios, in regard to your mortgage loan.

In Alberta, the laws which involve assets between married couples differ from other Canadian provinces.  It is important to consult with a legal professional to get informed as to what would be considered joint with your former spouse.

For Common Law relationships there are also legal stipulations that need to be considered.  Common law relationships in Alberta are now referred to as Adult Interdependent Relationships. Effective January 1, 2020 there were changes made to the law to ensure that adult interdependent partners have the same property division rules and protections as married spouses.

When Are You Considered Common Law in Alberta?

In Alberta, a couple is considered “common law” or is seen as an Adult Interdependent Partner (AIP), when one of these circumstances are true:

  • the two individuals have lived together for three (3) or more years
  • the two individuals have lived together with some degree of permanence, and has a child together
  • the two individuals have entered into an Adult Interdependent Partnership

In contrast, to enter into a marriage, a couple need only apply for and obtain a marriage license and then go through a legal ceremony.

“COMMON LAW”

MARRIAGE

Age Must be 16 years or older Must be 18 years or older (persons between the ages of 16-18 must have consent from a legal guardian.)
Marital Status Cannot be currently married or in another AIP relationship. Cannot be currently married to another person.
Personal People may not enter this relationship under duress. The marriage must be voluntary.
Property Upon separation, property is divided between the parties as may be fair in all the circumstances. Basically, everything obtained during the marriage is divided equally.
Support Each partner may have an obligation to support the other financially, and definitely has an obligation to support any children resulting from the union. Each partner may have an obligation to support the other financially, and definitely has an obligation to support any children resulting from the union.
Relation Partners can be related to one another. Partners cannot be closely related to one another.

***

These are the options with regards to mortgage loans when a divorce takes place:

Some couples will choose to break the mortgage contract entirely and sell the home.  Note: This may result in costing thousands of dollars in pre-payment penalties.

Another option would be keeping the home and the person staying in the home buying out the former partner/spouse.  Generally, in this case the mortgage will need to be refinanced for the person staying in the home to pay a lump sum to the former partner/spouse. This scenario typically offers refinancing up to 95% Loan to Value.

Refinancing also means going through the re-qualifying process. The lender needs to make sure the spouse taking over the mortgage in full can make the mortgage payments on their own.  Part of this process also includes the lender asking for a separation agreement, amount of any child support payments and amount of any spousal support payments.

Once qualified for the mortgage, the partner/spouse removed from the mortgage will be removed from the home’s title.

There is always the option of keeping the mortgage between the two parties and continuing to share the mortgage payments.  This scenario would mean that the person not living in the home would still have to include mortgage payments on any future loans, mortgages, or credit applications.

Regardless of which scenario works best for your situation, it is critical that both parties make sure all mortgage payments, and any credit payments, are made.  Any late payments or delinquencies will show up on your credit bureau reports and that will affect both of your abilities to move on in the future.

Many people that have been married for awhile do not remember what joint debts are in place.  It is important to make sure that any individual debt, as well as joint debts are accounted for.  If you are unsure of your credit responsibilities, it would be best to request a credit report from either Equifax.ca or Transunion.ca.

Whether you are in a common law relationship or married, when a breakup occurs, it is critical to consult with a lawyer as well as a mortgage broker like myself to make sure there is an understanding of what steps need to be taken for both parties’ best interest.

***Reference

24 Oct

Questions To Ask Your Mortgage Broker

Mortgage Tips

Posted by: Chanele Langevin

Choosing a Mortgage Broker/Mortgage Agent is a critical first step when you are planning to purchase and finance a home. A mortgage broker is an intermediary between the borrower and the pool of lenders. Using a mortgage agent eliminates the need for you to shop around trying to find the best rate and mortgage product to suit your short-term and long-term needs and goals. Why not leave it up to a professional that deals with lenders daily and is educated in every aspects of the mortgage industry? Most people looking to purchase a home do not know all the details that go into applying for a mortgage & securing financing; therefore it is important to be confident and trust your mortgage broker. Many questions will come to mind throughout the process.  Some of the most common questions are as follows:

What is the best price range for me when looking for a home?

Your mortgage broker will be able to do a pre-approval for you.  A true pre-approval requires the borrower to provide specific income documents. Additionally, a credit bureau will be pulled to evaluate what the debt situation is and what the credit score is sitting at.  These elements are better to be evaluated upfront because lenders are specific as to a minimum credit score and debt ratios in relation to income.  The credit bureau will also show debt repayment and utilization. Once a mortgage agent assesses the overall file, a maximum purchase price amount will be released.

How much money should I use for my down payment?

There are a few things to consider when deciding on your down payment amount:

  • The minimum amount you must have for a down payment in Canada is 5% of the purchase price of the property.  The more money you use for a down payment the less your mortgage loan amount will be.  Any amount between 5% and 19.9% is called a High Ratio Mortgage and requires the lender to get approval from a default insurance provider for the mortgage.  For more information on the different types of insurances associated with mortgages stay tuned for an additional blog post I will be doing, specifically on insurances.
  • What can you afford? You do not want to leave yourself “cash poor” as you always need to keep cash on hand for unexpected emergencies. 
  • You will need cash for the closing costs at the end of your transaction.  These would be things such as lawyer fees, possible appraisal fee, home inspection, home insurance, utility hook-up fees, etc.  Be sure to ask your mortgage agent what the approximate costs would be for your particular scenario.  As a mortgage broker in Grande Prairie, I prefer to get a few different quotes from lawyers for my clients so they can choose the best option if they do not already have a specific lawyer in mind.
  • There are options for coming up with the funds for a down payment.  You may have enough cash in a savings account, a family member may give it as a gift (that is not expected to be paid back), proceeds from the sale of a property, RRSP’s…always confirm with your mortgage broker or agent for what would be acceptable for a down payment.

Should I choose a fixed interest rate or a variable interest rate?

Going with a variable interest rate means your rate can fluctuate throughout the term of your mortgage.  The variable rate is based on the Bank of Canada’s prime rate, meaning the payment amount can vary throughout your term.  With a fixed interest rate your rate is just that, fixed.  It means the payment amount will always be the same for the length of your term.  There are pros and cons to both and it does come down to personal situations as to what would be best.  As a mortgage agent, I go through several options with my clients by finding out what their plans are and assess their situations to determine the type of rate that will best suit their needs.

What is a prepayment penalty?

Each lender has their own stipulations when someone wants to pay off their mortgage in full or put a lump sum of money towards their mortgage principal.  This is referred to as prepayment privileges and it will be stipulated in your mortgage commitment.  If prepayments are allowed with your lender they will state a percentage of the loan amount that may be put towards the loan each year that would be considered penalty free.  Once you go over that amount with a lump sum or pay your mortgage off completely, you will be charged a prepayment penalty.  Each lender is a little bit different and it is important for you to understand how your particular amount would be calculated as it can end up costing you thousands of dollars.  It is very beneficial to make lump sum payments on your loan but it is critical to know how much money those payments need to be and when they should be paid.  Make sure you have your mortgage agent break down the different options and possible penalty amounts for you.

Should I use a Realtor for a home purchase?

The answer to this question is simple…absolutely YES, always enlist the services of a trusted realtor when purchasing a home.  A home purchase is a huge investment and can be a very emotional transaction.  Realtors are professionals in home sales the same way that a mortgage broker is a professional with home financing.  Home buyers do not pay a commission to real estate agents, their commission is paid by the seller, so there is really no reason not to use a realtor and have them handle the negotiations, paperwork and legalities of your home purchase.

Acquiring the services of a realtor, mortgage broker and lawyer are very important steps in the process of purchasing a home.  They work solely for you, the client, and will provide you with great advice and guidance throughout the process, eliminating much of the stress and definitely saving you countless hours of time.

12 Oct

Avoid These First Time Home Buyer Mistakes

General

Posted by: Chanele Langevin

As a Mortgage Broker in Grande Prairie, Alberta, I have had the pleasure of helping many people realize their home-ownership dream. Purchasing a home can be stressful if homeowners lack proper professional support throughout the transaction; especially if this is their first home purchase.

There are a few things that are critical to keep in mind when planning to make a purchase. I would like to elaborate on some of the issues that have come up during transactions as a Mortgage Agent. Below are commonly made mistakes to avoid:

  • House shopping before getting Pre-Approved:

    Getting pre-approved means contacting a mortgage broker like myself to find out what property price range is realistic to be looking at. The pre-approval process is not difficult, however, it does require documentation to be provided such as previous 2 years of Notice of Assessments, T4’s or T1’s (if self-employed), letter of employment and recent paystubs. As your mortgage broker, I will request a credit bureau and compile the documents to prepare your application for pre-approval and calculate the pre-qualified amount that you are able to afford based on mortgage rules, regulation and ratios.

  • Not using a recommended Realtor:

    Chances are pretty good that someone you know has used or knows a realtor in your area that they would recommend. As a first time home buyer, it can be beneficial to find one that has a lot of experience in dealing with first time buyers as they will make sure to explain and recommend things that you might not know about off hand. Always make sure your realtor does not start showing you houses that are at the top of your pre-approved price range. Start looking at the lower end or you may end up in a situation where the only homes you like end up being higher than your pre-approved amount.

  • Not being aware that you need separate funds for a Down Payment & Closing Costs:

    The minimum amount you must provide once you find a home and have an accepted offer is 5% of the purchase price. This amount can not be a loan (can be on exception), is typically required to be savings, Investments, RRSP’s (see RRSP programs), proceeds from the sale of another property, sale of an asset or a gift from an immediate family member. Closing costs can amount to a few thousand dollars and are also part of the process to pay for the solicitor, a property inspection, appraisal (if requested by lender/insurer). I always make sure to disclose to my clients the amount to expect for closing costs and additionally, I like to get quotes from lawyers so that you can get the best price out there.

  • Not knowing that Property Taxes are a payment above and beyond your mortgage payment:

    Property taxes are owed to the city or municipality that you live in. They are assessed at a flat amount each year and you have the choice of paying monthly or making the full payment each year.

  •  Not realizing that there are First Time Home Buyer programs through the Government or by utilizing RRSP’s:

    Always look into any first time home buyer programs that may be applicable to you. If there are programs that you do believe would be beneficial, make sure to research them thoroughly as some might end up not being the way to go depending on your circumstances. Click here to see the first time home buyer incentive program.

  •  Saying “NO” to the Life and Disability Insurance offered on your mortgage:

    The life and disability insurance program is critical for anyone that does not have life and disability insurance through other sources. The premiums are minimal and if you end up selling your home and taking on a new mortgage with a different lender at some point, the insurance can be ported to your new mortgage as well assuring coverage at all time. You do not start over and your premiums do not increase on the original loan amount. It can give great comfort to know that your mortgage is covered off if you were to pass away or unable to continue earning income due to a disability.

  •  Purchasing vehicles with credit or big items with credit cards before possession date:

    Once you start the process of a home purchase you do not want to start piling up any debt. Debt is a huge factor with lenders saying yes or no when approving financing. They take any debt you may have into account when the application is in the processing stage but even once funding is approved they may actually pull another credit bureau report before possession to make sure your debts have stayed consistent.

Making your first home purchase is a huge step and can be very overwhelming. The best way to make sure you are not going to end up with undesirable surprises is to enlist the services of a mortgage broker like myself. I take great pride in making sure that the entire process is a positive experience for home buyers and am happy to help anyone with any mortgage financing questions.

10 Sep

What is the First Time Home Buyer Incentive Program?

General

Posted by: Chanele Langevin

The First Time Home Buyer Incentive Program, referred to as FTBHI, is a Government of Canada program granted by Canada Mortgage and Housing Corporation (CMHC). CMHC acts as the Program Administrator of the program.

The amounts of the incentive that are provided are as follows:

  • Re-sale home, 5% of home value
  • New construction home, 5% or 10% of home value
  • Mobile/Manufactured Home (new construction or resale), 5% of home value

This first time homebuyer incentive is not interest bearing and does not require ongoing repayments. The amount of the incentive is owed back to the Program Administrator after 25 years from the date of the purchase or when the home is sold. There is also the option to prepay the money in full with no penalty to the homebuyer.

Requirements to be eligible for the First Time Home Buyer Incentive are as follows:

  •  Homebuyer’s total annual income cannot be more than $120,000. If there is more than one Homebuyer, the annual incomes must be combined and be no more than $120,000. This means salary before taxes and investment income.
  • The total amount to borrow can not be more than 4 times the total qualifying income.
  • The Homebuyer must be a Canadian citizen, permanent resident or a non-permanent resident who is legally authorized to work in Canada.
  • A least one person involved in the purchase must be a First Time Home Buyer. The definition of First Time Home Buyer is:
    • Having never purchased a home before; or
    • In the last 4 years, they did not occupy a home that they or their current spouse or common-law partner owned; or
    • They are experiencing a breakdown of a marriage or common-law partnership

First time home buyers are permitted to obtain this incentive only once and as soon as the money is advanced to the home buyer they are not eligible for any additional first time home buyer incentives.

When applying for the First Time Home Buyer Incentive buyers also need to be aware that they are still required to have a minimum down payment of 5% when purchasing a home. This money may come from savings, withdrawing RRSP’s, non-repayable financial gift from relatives. Down payments sources that are not allowed are unsecured personal loans or a line of credit.

*Here is a scenario involving the Incentive being 10%:

Anita wants to buy a home for $400,000. Through the Incentive, Anita can apply to receive $40,000 in a shared equity mortgage (10% of the cost of a new home) through the program, on top of the minimum required down payment of $20,000 (5% of the purchase price) from savings. This lowers Anita’s mortgage amount and reduces the monthly expenses. As a result, Anita’s mortgage is $228 less per month or $2,736 a year. What if Anita has an annual qualifying income of $83,125? To be eligible for the First Time Home Buyer Incentive, Anita will have to purchase a home that is no more than $350,000. She still has the required minimum down payment of 5% of the purchase price ($17,500) from savings and can apply to receive $35,000 in a shared equity mortgage (10% of the cost of a newly constructed home). This would reduce Anita’s mortgage payments by $200 per month or $2,401 per year. What if Anita sells the home for $420,000? At this time, the Incentive will need to be repaid. Anita will repay the Incentive as a percentage of the home’s current value. This would result in Anita repaying 10%, or $42,000 at the time of selling the house.

At the time of repayment the amount owing will be based on the market value at the current time. It definitely benefits the homebuyer to repay the incentive early as well as prior to doing any home renovations that may increase the home value. The equity from the sale of the home also becomes a part of the 5% or 10% owed back to the Program Administrator.

**Here are a few scenarios involving paying back the First Time Home Buyer Incentive:

Scenario 1 – Increase in Market Value-Resale home purchase (5% share) – Shared Equity Amount owed when home sold after 5 years:

Information Amount
Original Home Value $400,000
Incentive ($400,000 x 5%) $20,000
Assumed Market Value at sale of home $480,000
Shared Equity Amount ($480,000-$400,000) x 5% $4,000
Amount to repay to the Program Administrator

(Incentive Principal Amount PLUS Shared Equity Amount)

$24,000
Equivalent APR (assuming the home is sold after 5 years) 3.71%

Scenario 2 – Increase in Market value-New Construction Purchase (10% share) – Shared Equity Amount owed when home sold after 5 years:

Information Amount
Original Home Value $400,000
Incentive ($400,000 x 10%) $40,000
Assumed Market Value at sale of home $480,000
Shared Equity Amount ($480,000-$400,000) x 10% $8,000
Amount to repay to the Program Administrator

(Incentive Principal Amount PLUS Shared Equity Amount)

$48,000
Equivalent APR (assuming the home is sold after 5 years) 3.71%

Scenario 3 – Decrease in Market value-Resale home purchase (5% share) – Shared Equity Amount owed when home sold after 5 years:

Information Amount
Original Home Value $400,000
Incentive ($400,000 x 5%) $20,000
Assumed Market Value at sale of home $331,040
Shared Equity Amount ($331,040-$400,000) x 5% -$3,448
Amount to repay to the Program Administrator

(Incentive Principal Amount PLUS Shared Equity Amount)

$16,552
Equivalent APR (assuming the home is sold after 5 years) -3.71%

Scenario 4 – Decrease in Market value-New Construction Purchase (10% share) – Shared Equity Amount owed when home sold after 5 years:

Information Amount
Original Home Value $400,000
Incentive ($400,000 x 10%) $40,000
Assumed Market Value at sale of home $331,040
Shared Equity Amount ($331,040-$400,000) x 10% -$6,869
Amount to repay to the Program Administrator

(Incentive Principal Amount PLUS Shared Equity Amount)

$33,104
Equivalent APR (assuming the home is sold after 5 years) -3.71%

 

 

*Reference

**Reference

25 Aug

Understanding the Mortgage Renewal Process – A Step by Step Guide

General

Posted by: Chanele Langevin

When your mortgage is first established it is set up with an amount of years it will take for you to completely pay off your loan. This is called the “Amortization Period”.  Within the Amortization period there is a “Term” which is the amount of years that a Lender will guarantee you the agreed upon interest rate.  During the years within the term, you are obligated to fulfill the commitment initially agreed to.  Once the term is coming to an end, as the mortgagor, you have the right to renegotiate a new interest rate and possibly change mortgage details for the next term without any penalty.  This is called the Renewal Process.

  • The first step is knowing when your mortgage is up for renewal.  You do not want to leave the renewal process too close to the term’s maturity date.  Many recommend beginning the process with a mortgage broker 120 days prior to the end of your term.  Your Lender will send you a renewal statement 21-30 days prior to your renewal date with the hopes that you will continue your mortgage with them and let it renew automatically for the next term.
  • The next step would be working with a Mortgage Broker to see what other options as far as interest rates and terms are available to you moving forward. 
  • It is beneficial to list any changes to finances, debt, and overall lifestyle changes.  You will need to determine if you want to increase your payments or if you need your payments to be less than they currently are.  This will help determine what type of payment would work best for the next term that will be agreed upon.
  • Your Mortgage Broker then uses their expertise to submit applications to Lenders that work with your specific needs and requests.  This takes the renewal process stress away from you and can truly be a simple process that may save you time and money on your overall mortgage loan.

Mortgage renewals are great opportunities to make any adjustments to your mortgage according to what is happening in your current life.  Essentially, the more money you choose to pay towards your mortgage the faster you will pay off your entire mortgage loan.  If planning to move to a new home, renewal time works well because it gives you the ability to secure a mortgage for your new home without having to worry about a payout penalty.

Mortgage Brokers are always a wise choice when you are needing to assess your options.  Rather than you taking on the stress of “shopping around” for a better interest rate a Mortgage Broker is unbiased and capable of answering all of your questions and explaining different scenarios to you with regards to your mortgage.  They work for you by having access to numerous lenders, which gives them the ability to help you achieve the greatest options when it comes to your mortgage loan.