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

5 Ways you can Kill your Mortgage Approval

So, you found your dream home, negotiated a fair price which was accepted. You supplied all the needed documentation to your mortgage broker and you are waiting for the day that you go to the lawyer’s to sign the final paperwork and pick up the keys.

 All of a sudden your  broker or the lawyer calls to say that there’s a problem. How could this be? Everything has been signed and conditions have been removed. What many home buyers do not realize is that your financing approval is based on the information the lender was provided with at the time of the application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval. There are 5 things that can make home financing go sideways.
1 Employment – You were working for ABC company as a clerk for 5 years making $50,000 a year and just before home possession you change jobs. The lender will now ask for proof that probation for this new job is waived and new job letters and pay stubs at the very least. If you change industries they will want to see more proof that you are capable of keeping this job.
  If your new job involves overtime or bonuses of any kind that vary over time, they will ask for a 2 year average which you will not be able to provide.
 Another item that could ruin your chances of getting the mortgage is if you decide to change from an employee to a self-employed contractor just before possession day. Even though you are in the same industry, your employment status has changed . This is a big deal killer. .
2. Debt – A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Your approval was based on how much you owed on that particular date. Buying a new car or items for the new home need to be postponed until after possession of your new home.
Don’t be fooled by “Do not pay for 12 months”  sales campaigns. You now owe this money regardless of when the payments start. Don’t buy a new car and don’t buy furniture for the new home. This will increase your debt ratio and can nullify your financing.
3. Down payment source – And yet again I reiterate that the approval is based on the initial information you have provided. You will be asked at the lawyer’s office to verify the source of the down payment and if it is different than what the lender has approved, then you may be in trouble. For example, you said that you were going to save the funds and then at the last minute Mom and Dad offer you the funds as a gift. There’s no problem accepting the gift if the lender knows about it in advance and has included this in their risk assessment but it can end a deal. .
4. Credit – Don’t forget to make your regular credit card payments. If your credit score falls due to late payments, this can kill your financing. If you have a high ratio mortgage in place which required CMHC insurance, a lower credit score could mean a withdrawal of their insurance once again , killing the deal.

5-Identity Documents  - This can be a deal killer at the lawyer’s office. The lawyer is required to verify your identity documents and see that they match the mortgage documents. Many Canadians use their middle names if they have the same name as their parent.   Lots of new Canadians adopt a more Canadian sounding name for their day to day lives but their passports and other documents show another name.

 Be sure to use your  legal name when you apply for a mortgage to avoid this catastrophe . Finally, keep in touch with your Dominion Lending Centres mortgage professional right up to possession day. Make this a happy experience rather than a heartbreaking one.  

The Compound Effect: Building Your Household’s Wealth

Wealth is within reach for many people; however, according to a recent study, 63 percent of Americans said it’s not likely they’ll become rich.¹ While younger people are more likely to say they’ll achieve wealth one day, only 34 percent of people aged 30 to 49 and 21 percent of people aged 50 or older say the same. There is no secret to becoming rich: it takes time, sacrifice and good financial sense. Here are a few ways to build your household’s wealth.
Let Compound Interest Work for You
Compound interest is your interest earning interest. While the concept may work against you when you take out a loan to buy a car or use your credit card, it works in your favor when you’re saving money. For example, if your savings is growing at a rate of four percent, your investment will double in eight years and quadruple in 16 years. Your money will grow exponentially the longer you save: the more money you’ve saved, the more your money will grow.
Tap into Your Home Appreciation
Experts expect home prices to appreciate 3.24 percent and grow by 21.4 percent cumulatively.²  If a homeowner purchases a home this year for $250,000, they could earn more than $40,000 in equity over the next five years. Although the home value of the average American family’s home is $165,000, home values vary by market.³ If you’re curious about the value of your home, give us a call!
Build Equity in Your Home
One of the most compelling reasons to own a home is it allows you to build wealth over time. According to one study, the average homeowner has a net worth of $200,000, which is 31 to 46 times the net worth of the average renter.⁴ Saving for a down payment, especially if you plan to put down more than 20 percent, helps you adopt good financial habits. The more you put down when you buy, the higher your share of equity when you close. Although for the first five to seven years, the majority of your payment will go toward interest, over time more money will be applied to the principal. There are many tools online that calculate your current and future equity in your home, including this one here.
Build equity sooner by choosing a shorter amortization term. While your payment may be higher, you’ll likely qualify for a lower interest rate and will pay less interest over the life of the loan.
Build Equity Faster in Your Home

Mortgage Term	30 Years	15 Years
Loan amount	$118,000	$118,00
Months to pay	360	180
Annual percentage rate	4.0%	3.0%
Monthly payment	$563	$815
Total interest	$84,806	$28,680
Interest savings	–	$56,126

Source: Federal Reserve Bank of Dallas, Building Wealth: A Beginner’s Guide to Securing Your Financial Future
Pay Down Your Mortgage…or Not
Many homeowners grapple with whether or not to pay down their mortgage. On one hand, if you pay it down, or pay it off early, you’ll save money on interest, which you can use to make other investments. On the other hand, if your goal is to be debt free, it’s better to pay off your higher-interest debt, such as credit card debt, first before paying down your mortgage debt. Additionally, if you’re saving for retirement, putting extra cash toward your retirement accounts will help you build a nice nest egg to enjoy later on.
If you decide to pay off your mortgage sooner, here are a few ways to do so:

1. Pay more money at the beginning of your amortization period and apply it to your principal.
2. If you receive a tax refund or other windfall, apply it toward your principal.
3. Make one extra payment each year. You’ll save money on interest and pay your loan off sooner.
4. Add an extra $50, or another amount you can afford, to the principal of your payment each month.
5. If you locked into a 30-year fixed loan, refinance to a shorter, 15-year fixed loan. Your payment may be higher, but you’ll pay it off sooner.

Your financial advisor can help you decide if paying off or paying down your mortgage is right for your goals.
Purchase Investment Property
Investment properties provide passive income to your growing financial portfolio. More than 25 percent of Americans say real estate is the best way to invest money you may not need for the next 10 years.⁵ While many people flip houses to make money—that is, they buy a home at a low price, fix it up and sell it quickly—others purchase multifamily properties to create monthly cash flow to save or to reinvest in other properties.
The longer you own a property, the better investment it becomes as you’ll continue to build equity. While rental costs rise with inflation, your mortgage will remain the same. The best part? Once you pay off the mortgage, your cash flow will increase. Remember to create a budget for maintenance each month, between 10 to 20 percent of the rent you receive, or more if the home is older. This will help you save more money in the long run and allow you to prepare for unexpected repairs.
There are tax benefits to owning investment property as well. You may be able to claim deductions for depreciation, as long as it fits within the guidelines; repairs, travel expenses, interest and more. If you’re thinking of purchasing investment property, talk to your tax professional to get the details.
Achieve More Wealth by Creating Financial Goals
Setting a goal will help you achieve your desired level of wealth. Once you achieve one goal, reassess and set the bar higher.

1. What is your idea of wealth? Your idea of wealth will change as you earn more money. That’s why it’s vital to set goals along the way. What do you want your net worth to be in 5 years, in 10 years and in 20 years?

2. Write down your short-term and long-term goals. Once you have determined your goals, write them down. This is the first step towards getting your desires out of your mind and into motion and it will be easier to refer to them later on.

3. Develop a budget to help you reach these goals. A budget not only helps you understand where your money goes each month, it may also prevent you from overspending. That way you can have more money to save and invest.

Your Budget

Income
Earned	$
Investments	+ $
Total Income	= $
Daily Expenses	–       $
Monthly Bills	–       $
Total Available for Investment	=

To increase the amount you can invest, make adjustments to your daily spending and monthly bills, if possible. Look for opportunities to save money and transfer that savings into your accounts.
It’s never too late to begin building your family’s wealth. Whether you’re interested in buying a first home, upgrading to a larger home or are thinking of renovating, we have you covered. Give us a call and we’ll answer all of your real estate questions and offer suggestions to help you increase the value of your home.
Sources: 1. BankRate.com

2. Pulsenomics, Home Price Expectation Survey Q4 2016
3. Statistic Brain, August 1, 2016
4. National Association of REALTORS, Economists’ Outlook, September 8, 2014
5. The Motley Fool, July 30, 2016

• For more information on growing wealth , contact me