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.

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 

It’s not all about the rate: Amortization & Renewals

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It’s not all about the rate: Amortization & Renewals

Have you spoken to a mortgage broker lately? When it’s time to renew your mortgage you have the freedom to do a number of things that are not possible at any other time without a financial penalty.  Renewal time is an opportunity.

Have you looked at your mortgage amortization lately?  Let’s say that you started your present mortgage 10 years ago and you had a 30 year amortization. You now have 20 years left on your mortgage but your situation has changed. Your children have grown up and one is ready to leave for college and another one will follow in a couple of years. An easy way to help the kids out would be to refinance your home.  However, the rules have changed and if the value of your home has not risen a lot and you have not paid down the balance you may not have the 20+% you need to withdraw the equity.

 Another possible solution would be to use the amortization on your mortgage to help you achiever your financial goals. 

You can extend the amortization and lower your monthly payments thus freeing up cash flow. 

Here’s an example. With a balance of $400,000 on your mortgage 

Amortization	Interest Rate	Monthly Payment	Savings
20 years	3.19%	$2252.
25 years	3.19%	$1932	$320
30 years	3.19%	$1723	$529

By adding 5 years to your mortgage you can lower your payments by $320 a month. If that’s not enough and you have more than 20% equity , in other words, your mortgage is less than 80% of the value of the home, you can extend your mortgage to 30 years with most lenders. This will free up $520 a month. When your children graduate you or your mortgage broker can contact the lender and have your amortization lowered again.  Note that changing the amortization can result in costs. Check with your Dominion Lending Centres mortgage broker before you make any changes to your mortgage.  For more information visit www.davidcooke.ca

Be creative when saving to buy a home

Homeownership is a goal for most of us and millennials appear to be the most optimistic group. According to an RBC poll, two in five millennials said they intend to buy a home in the next two years. But the cost of homeownership and things such as regulatory changes can make saving for a downpayment more difficult and for many put the dream of homeownership out of reach.
However, first-time buyers may not be looking at all their options. A little flexibility and compromise can help make ownership more accessible when considering the following:
Begin with a starter home: Think about your lifestyle for the next five to 10 years and make a decision based on that. Your dream home in your dream neighbourhood may still be yours, just a bit later in your life.
Get a renter: Could you afford the home you want if you rented out part of it? Many people create a basement suite or rent out a second bedroom as a way to offset their mortgage payments.
Consider co-ownership: Buying a property with family or friends is a great way to get your foot in the door. Discuss options with your mortgage specialist and be sure to establish a solid contractual agreement that will help avoid or mediate any future disagreements when selling the property, renegotiating terms or buying each other out.
Be patient: Style your home slowly. Get creative with chic but less expensive, gently used furniture or pieces that may not last a lifetime but will save you money today. Calgary Sun Feb 24, 2018

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