How to Safely Buy a Home in Calgary and Obtain Financing

      It may be hard to understand but there are still people out there buying homes, renewing mortgages and refinancing their homes to increase cash flow. How could they and why would they want to mix with strangers in these uncertain times?

     Well, until March 14^th , most places in North America were starting their busy spring housing market. People had given notice in January and February that they were not going to renew their leases and had made offers on new and existing homes. Many people were also shopping for rates as their mortgages were coming up for renewal. Who knew that the world was about to come crashing down on their heads.

The housing industry had to make accommodations in order to help these people out.  If you had an accepted offer on a house, how could you obtain a mortgage without meeting a mortgage professional ? 

Fortunately we had the technology to help us out. Mortgage applications can be taken online or over the telephone and have been for several years. The big change has been signing a mortgage commitment. Lenders now allow us to have mortgage documents signed using an electronic signature.

     If you had not made it that far in the house buying process, realtors have also made a number of changes to limit contact. Obviously sellers are not happy with having strangers walking through their homes and touching door knobs and other items. “RECA, the real estate Council of Alberta is encouraging realtors to ask a series of health questions before realtors arrange to show homes” says Julie Pinault of Royal Lepage Solutions in Calgary. “Think of a property as a museum and don’t touch anything” she adds.

 “Open Houses have been cancelled for the foreseeable future” says Rebecca Yarmoloy of ReMax First. Homes can be first viewed using websites and if you are seriously interested in a property.”

   Some realtors are going even further. Lionel Sale from Frist Place Realty states that buyers meet the realtor at the property. The sellers are encouraged to turn on all the lights and leave doors and closets open so that no one will touch any surfaces that could spread the virus. Some sellers are leaving disposable gloves by the front door.

    If a home needs an appraisal, what can you do? Appraisers need 45 minutes to examine a property from top to bottom in order to establish a proper value for the home.  Once again, adaptations have been needed. For bungalows, the appraiser will go to the windows around the home and take photos. Other appraisers are   using 3^rd party technology to do their jobs. They will Facetime or WhatsApp the client and have them walk around the house they way they normally would in order to do a full inspections. This is called a Full Modified Appraisal.

     Finally, we get to the end of the process and you need to sign all the mortgage documents with the lawyer or notary. At this time, “wet” signatures are still needed. E-signatures are not allowed which poses a problem for social distancing. Another solution has been found. The home buyers go to the lawyer and go into a room with a copy of the mortgage documents. The lawyer sits in the next room using video conferencing or Zoom and goes over his copy of the documents, telling the buyers where they need to sign and explaining any parts of the contract they may not understand. When the clients leave, the lawyer goes into the signing room and picks up the signed copy to be registered at the title office.

     From beginning to end in the home buying , refinancing and renewal process, it’s now possible to obey social distancing rules and accomplish your home financing goals.

If you need any further information please feel free to contact me. At 403-836-1201

David Cooke has been a mortgage broker since 2005 and presently works for Jencor Mortgage Corp, situated in Calgary, Alberta

Calgary Rent To Own Explained

In some markets like Calgary, Alberta , it can take a long time to sell a property. An option available to some sellers is the Rent to Own sales method.

    If you have someone interested in purchasing your property but they can’t obtain a mortgage either because they don’t have a down payment saved or their credit score is too low this can be way to purchase a home. Usually the agreements run for 2 – 3 years.

   

A sales agreement is signed which states what the tenant and future owners are going to pay as rent while they save up a down payment and /or improve their credit score. The agreement has to state how much of their monthly payment is going towards the down payment.  They also have to be paying market rents. In addition, the agreement must state that if the deal is cancelled the purchasers will get their down payment funds returned to them.

   The reason that this must be stated in the agreement is that the mortgage insurers like Genworth and CMHC stipulate these terms must be in the agreement before they will approve a mortgage.

What are the pros and cons of this type of an agreement?  The pros are that the tenants will maintain the property and not abuse it as they want to purchase It. The seller gets steady income while the buyer is saving for the purchase. The con is that as the price is determined in advance – radical changes to the local housing market may mean that the purchaser will get a great deal at the end of the agreement or walk away if the market drops significantly. 

   If you are considering this option, consult with a Dominion Lending Centre mortgage professional before you sign an agreement . They  can determine if it will be valid with the mortgage companies and insurers before you’ve spent a cent.

99 Year Mortgages and the Power of Amortization

Back in the late 80’s, the Japanese housing market came to a grinding halt. Homes were no longer affordable for your average Japanese consumer. The government came to the rescue with a novel idea: 99 year mortgages. You could buy a house, pay lower more affordable payments, your son or daughter would take over and pay the mortgage down and finally your grandchild at some time close to retirement age would finally pay off your mortgage. Who would want to do this? This was a short term solution. In 2007, we had 40-year amortized mortgages which allowed a great number of people to buy homes who normally would have continued to rent. This created a housing boom, but it made the banks nervous and terms were cut back to 35 years, then 30 and finally back to where they were in 2005 at 25 years. While longer amortizations mean lower monthly payments, the flip side is that you end up paying a lot more interest over time.
Calgary mortgage professionals use amortization as a tool to help their clients at various stages in their lives. Often we use the maximum 25 years to help people get into their first homes. The idea is to get them into home ownership regardless of the cost. Later when they renew we often suggest a shorter amortization if it’s possible.
For example, after paying down a mortgage for 5 years, a couple with a $300,000 mortgage renewing today would be offered a 20-year amortized mortgage with monthly payments of $1659. In 5 years the couple will have paid $40,356 in interest $59,214 in principal and have a balance of $240,785 left on the mortgage.
If the amortization was shortened to 17 years the payment would go up to $1,874.95, an increase of $215.95. but at the end of 5 years they would have paid  $39,365 in interest, $73,131 in principal and have a balance of $226,868.11. In addition, they would now only have 12 years instead of 13 years on their mortgage.
Now, if they are at a stage in life where their twins are going to be going to university or if they need to build a granny suite for aging parents, they may need to lower monthly payments in order to pay for renovations. If they have 20% equity in their home, they could extend their amortization to 30 or even 35 years with some lenders.
Now their monthly payment drops to $1,260 with a 30 year amortization.
And it drops to $1,149 with a 35 year amortization.
Amortization is only one tool that yourCalgary mortgaeg broker can use to save you interest, help you to pay off your mortgage quicker or to lower your mortgage payments. Be sure to call and ask them for help.

5 Reasons why you need a home inspection before buying in Calgary

Several  years ago I had a client who wanted to buy a home before he moved to my city. He was in a hurry as he had to get back home. He put very few conditions in his offer to purchase but he did have a financing condition and an home inspection.  A few days later he called me to say the inspector found 10 things that showed him that this house was a former grow op. If he had not had the inspection and found out after he had removed conditions he could have been unable to get financing, home insurance and been stuck with a hefty remediation bill.

     One thing I always encourage my clients to do is get a home inspection. It’s $500 well spent.

You may not be buying a former grow op but there can be costly repairs that you  may have missed while inspecting the home yourself. If you have watched even one home renovation program you know that once the work starts they usually find a surprise or two.

 Here’s a list of the most common faults in homes

Foundation Cracks - the biggest and a very costly item is a cracked foundation. While some cracks in the basement floor are acceptable cracks in the foundation walls need to be excavated and filled which is expensive.

Roof Problems – did you go up on the roof and check the shingles , the pointing around the chimney, etc? Probably not.  Did you check the tresses in the attic? This can be another big repair cost that could be difficult to pay after purchasing a home.

Loading Bearing Walls Removed -  1950’s homes converted to open plan are popular but do you know if a support wall was removed and the roof could end up in your new open concept living area?

Encroachments – are any building, retaining wall ,fence or driveway that extends into a neighbour ‘s property or the City Right of Way. . It was 2 weeks after I moved into my first home that I found out that my retaining wall behind my home was falling into my backyard neighbours’ yard.  Another unexpected repair that I had to handle. 

Electrical or Plumbing Issues – while heritage  homes close to the city centre have character, they also have old wiring that uses fibre insulation. All you need is for a mouse to chew on it and you could have a fire.  Find out how much it will cost to re-wire your home and save yourself headaches down the road.

The same goes for plumbing . It’s old. There’s a chance it could have a slow leak.

     As I said before, it’s always wise to get a house inspection and include this in your offer to purchase. The anguish that you can avoid by doing this is well worth the time and expense. 

Checkout my website here.

Brokers make a Difference

While many people will go to their bank to obtain a mortgage or line of credit they often feel betrayed by their favourite bank if their application is rejected. One big advantage that we have over banks is that we can send underwriter notes along with the application. Our questions and speaking at length with the borrower give us insight that the underwriter will never get from the facts and figures on the application.

 A while ago, I had an application at a lender for a young man who wanted to buy his first home.

He worked in the construction trades and his income history was up and down over the past 3 years. He needed overtime to support his application and the two year average wasn’t there.

I went back with 3 years of Notices of Assessments, his recent pay stubs and pleaded the case for my client. The underwriter finally asked for an exception based on my confidence in the client. She trusted my judgement and the mortgage was approved.

     This leads me to the idea that underwriter notes are very important and can mean the difference between an approval and a decline. If you have a chance, ask your underwriter how they like their notes; in point form or in paragraphs . Do they prefer emails or phone calls?

   When a successful mortgage broker writes notes they start by stating what product they are asking for and giving their contact information. I put my contact info at the top of the notes and at the bottom so they don’t have to go searching for it if they have a question or need clarification.  I then state what my client is trying to do; purchase their first home, refinance, a renewal or if it’s’ a switch, that they want to benefit from lower interest rates.

I then list the areas I want to highlight: Income, Credit, Property , Down payment and start with it their weakest link first and explain their situation. I had a client who had her down payment in a joint account with her father in Japan. I started with that knowing that a paper trail would be important. If the credit score is low, is it due to a past illness, divorce or job loss? I tell the underwriter right away. As  a result, underwriters trust me and have given my clients a second look or asked for an exception.  Finally, I finish up by summarizing the strong points in the file and thanking them for their consideration of my file. 

     I never yell or give my underwriters a blast if they decline a file. I will , however, ask why the file was declined so that I can better prepare my client for the disappointment and plan on how we can remedy the situation.  Just as a FYI,  a manager at a major bank told me that at one bank he worked for after hitting the send key he received a simple message back – either APPROVED or DECLINED with no explanation.  Now who do you think mortgage clients should deal with? A bank or a broker?
for more information visit my website at http://davidcooke.ca