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? 
 Contact David Cooke at http://davidcooke.ca 

Legalized Marijuana and the Canadian Housing Market

     October 17^th will be an  important day in Canada’s social history. It’s the day when we are going to have legalized marijauana across the country. We will be the second major country in the world to do this. How does this affect mortgage brokers like myself?  When someone comes to me to obtain financing for a home purchase and the sellers have disclosed that they smoked pot in the house or grew a few plants , how will this affect their home purchase? 

     A few years ago, someone disclosed that their home had been a grow op 6 years previously and their home insurance company cancelled their policy siting safety issues. I could see this happening with both lenders and mortgage default insurers like CMHC, Genworth and Canada Guaranty. A recent article by a member of the Canadian Real Estate Association suggested that both lenders and insurers might ask for a complete home inspection. It was suggested that sellers who have grown a few plants might want to get a head of a problem and have an inspection before they list the property. If there are any issues of mold or electrical systems that are not up to code, they can remedy this and have a quick sale.

     I contacted both CMHC and Genworth Canada to find out if any policy changes are in the works. CMHC told me that there’s nothing planned beyond what is already on the books. If there’s been a grow operation it needs to be inspected and remediation done before they will insure. Genworth says that nothing has been announced as of yet . Any changes will result in an official announcement to all brokers.

       Mortgage brokers may want to call their realtor referral partners and discuss this with them to see if local real estate authorities have any changes planned. If nothing else it will be good to touch base with your realtors to find out how the market is in your area.  

     If you are thinking about smoking  pot in your home or want to grow a few plants , contact your local Dominion Lending Centre mortgage professional first to find out if this could affect your house value or sale in the future. for further information visit my Facebook page

Homeowners are going on ‘spending binges’ – study

  Here's a great article by my associate Michael Mata .

Homeowners in Canada’s hottest housing markets are taking advantage of rising property values to go on spending binges, according to National Bank of Canada, the nation’s sixth largest bank.
“The sharp appreciation in home prices in Ontario and British Columbia, fueled by extremely accommodative monetary policy, have undoubtedly encouraged some homeowners to tap into their home equity in order to support a spending binge,” said Stéfane Marion, chief economist and strategist at National Bank of Canada.
In Canada, there are currently about three million active home equity lines of credit (HELOCs), according to National Bank, citing data from the Financial Consumer Agency of Canada.
On average, the outstanding balance on Canadian HELOCs is $70,000, and these types of loans account for about 45% of consumer credit.
Rather worryingly, there has been an increase in this type of consumer debt. “We estimate that HELOCs at Canadian chartered banks have surged by close to $20 billion in the past year, accounting for close to 60 per cent of the growth in total consumer credit,” Marion said.
Households taking advantage of HELOCs are fueling a broader borrowing frenzy, said National Bank. During the last quarter, consumer credit grew at its fastest rate since 2010.
While National Bank doesn’t examine what Canadians are spending their HELOCs on, earlier this year, one Toronto-based mortgage agent told BuzzBuzzNews that homeowners are increasingly using their HELOCs to help their children finance their own home purchases.
Overall, the racking up of consumer debt is extremely risky, National Bank warned. While it supports near-term GDP growth, increased debt, including HELOC debt, poses risks to the financial system’s stability and undermines the financial well-being of individuals.
“So, the resurgence in consumer credit may ring some alarm bells at the Bank of Canada which, as you may recall, continues to see household indebtedness and housing market imbalances as ‘the most important vulnerabilities for the Canadian financial system,’” Marion said.  

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

The Lady with the Dog wants a Mortgage

     Several  years ago, I got an email from a prospective client. She said she was a single mother with 3 kids and a well behaved dog. She was looking for a home in a small town. I told her that I would be happy to help her get into the home of her dreams but I would need to know more about her. She asked me what homes I had that would accommodate her family. It was at that moment that I realized that she didn’t know what a mortgage broker does. She thought that I was a realtor. I also realized now that she had rented her whole life and stating that her dog was well-behaved was important when renting so she thought that banks would not provide mortgages to people with dogs who would mess up the house.

   That is when I started asking people who called me , “Why did you call me and do you know what a mortgage broker does?” The responses I got were interesting. I often was told that a family member told them that they needed to call a mortgage broker. They followed this advice even if they did not know what brokers do. This isn’t a surprise, as a recent survey showed that 76% of new home buyers sought advice from family members while 70% consulted a mortgage broker. (source: CMHC 2015 First-time home buyers survey)

   This reminds me of the TV commercial where a man is told by his doctor over the phone that he can perform his own open heart surgery and he says “Shouldn’t you do this?” , the idea being leave the complicated stuff to the experts. People still refer to family members who may have bought a home 20 years ago rather than consulting with a professional who does mortgages 40 hours a week. I think this all comes back to the fact that the general public does not really know what we do. They have heard that we can help people with bad credit get into a home but they do not realize what we can do for the rest of the people we work with.

   People are at different stages in their lives. Some have kids about to go to university, others are nearing retirement and want to pay off their mortgages as quickly as possible. I ran into someone the other day who had just had twins. Twice the fun but also twice the expenses. He needed to lower his mortgage payments to free up his cash flow for his suddenly larger than expected family.

   Mortgage brokers ask more questions than the banks. We want to know where you are in life and what is coming up in the next few years so that we can advise you on the way to finance your home. 

Contact me before you start your spring home search at 403-836-1201 or visit my website

Why a Big Down Payment is Better

First time home buyers look to their families, the media and the Internet for all their information on how to buy a home. As a result they know that they need 5% of the total home purchase price to buy the home of their dreams. While this is true there are a few things that family may not tell you or they may not be aware of. 

    Putting down as much as you can afford is a great idea. We have all heard that mortgage rules are tightening, the economy in Alberta is down  and lenders are being a lot more selective in who they give mortgages to. What you may not have heard is that the mortgage insurers, CMHC, Genworth Financial and Canada Guaranty are also looking at lenders more carefully before approving mortgage default insurance. They are looking closely at employment, credit and how likely you are to stop paying your mortgage. While 5% is the minimum, if you have a few late payments from your college days or a collection from a cellphone company on your credit report, they will think twice about giving you an approval. However, if you put 10% down they will look at your differently. Putting twice the minimum down payment shows commitment. It shows that you have “skin in the game” and are less likely to default on your mortgage. If they are reluctant to approve your mortgage , a higher down payment can sway their decision.

   The second advantage of a larger down payment is lower monthly payments. Let’s face it, when you get into a home , your paid off car will eventually need to be replaced and you will now have car payments and repairs chipping away at your monthly income. If you are newly married, child care expenses, baby furniture and starting an RESP will come up. You may be able to afford higher monthly payments but you will be better off down the road if you have lower payments.

    The third advantage is a lower CMHC premium rate. The bigger your down payment, the lower the risk to the mortgage insurer and the rate that they charge you.  With 5% down you must pay 3.60% on the mortgage balance. On a home purchase of $350,000 this comes out to a premium of $11,970.  

10% down results in a lower premium of $7560 and if you can make a 20% down payment you can avoid mortgage default insurance and pay $0 .

Down Payment	Premium	Amount	Savings
5%	3.60%	$11,970	0
10%	2.40%	$7560 `	$4410
20%	N/A	$0	$11,970

  

Finally, the bigger your down payment the smaller your mortgage balance is to start. As a result you will save lots of money over the term of your mortgage.

A 5% down payment will result in a payment over 25 years of $115,381 of interest. 10% down lowers this to $108,042 and 20% down lowers this to $93,786.

In other words, if you can come up with a 20% down payment you will save over $21,000 in interest over term of your mortgage. This is based on today’s historically low interest rates. I’m sure that sometime over the next 25 years rates will go up to the 5.79% that people were paying 6 years ago and they could go higher.

    In conclusion, if you have a chance to put more money down on the purchase of your new home, you should consider it. You can save money big time by doing so. 

for more information on this and other mortgage topics , visit http://davidcooke.ca or call David directly at 403-836-1201