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.

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.

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

Good News ! Alberta Mortgage Arrears decrasing in 2016

   When I originally wrote this article in 2012, Canada had come out of the 2008 recession and the economy was running on all cylinders. Mortgage arrears had started to move down to their traditional are of.30  of 1%. While most of Canada is doing well, Alberta is not. Of the 100,000 layoffs in the oil and gas industry, 59,000 of those layoffs have been in Alberta. However, despite the uptick in bankruptcies, mortgage arrears have not gone up! They  actually dropped in 2014 to 27% but they have started to go up as of January 2015. and sit at .30% which is where the rest of the country usually is when there isn't a recession and the economy is doing well. This is proof that mortgage underwriting is prudent and takes into account downturns in the economy. amd it's  good news for the housing industry in particular and Canada as a whole. 
(My 2012 article starts here)
Mortgage arrears data came out today. A very reassuring trend is developing. Mortgage arrears are decreasing. Arrears is when you are behind on your mortgage payments by 3 or more months. This is usually a sign of financial distress. Illness, loss of a job , or losing your overtime hours can all create stresses in a familiy's finances.
    The graph here shows that while Alberta enjoyed low mortgage arrears in 2008 of .30% or 1/2 of 1% , this number "rocketed" up to .84% during the past couple of years. Down arrears are trending downward. This is a good sign of a recovering economy. People are back to paying their bills and mortgages on time. One thing that is helping is that people are renewing their mortgages are much lower rates today. If you would like to explore the option of renewing your mortgage early contact me to discuss the different ways I can help you.

Woman almost loses her home due to bank oversight.

 There's a reason why people go to mortgage brokers to get home financing. That's all a broker does 40 hours a week, process loans. However, many people still feel tied to their banks and credit unions for all their financial transactions. The difference is that when you go to a bank, Tom, the teller, may be opening bank accounts, transacting RRSP orders, helping people with their safe deposit boxes and you are his first mortgage in several weeks.
     In the attached article, it turns out that the lady fell ill and was off work. She couldn't make her mortgage payments and was in danger of losing her house. As an important part of arranging a mortgage, I always offer life and disability insurance to my clients. If something happens to them, I can refer back to the file and tell them that they are covered. It turns out that this woman had coverage but no one at the bank knew.
   Remember this the next time your mortgage comes up for renewal or you are considering buying a home. The article can be found here.
 David Cooke is a Calgary mortgage broker serving the province of Alberta. His website is http://davidcooke.ca

What's happening to the Calgary Spring Home Buying Market?

The newspapers have been telling us that it is now more difficult to qualify for a mortgage. Housing sales have dropped by 20% in Vancouver. So, what's happening in Calgary?  Many homes are now receiving competing offers from purchasers. Why is this? 

Well if you check with the Calgary Real Estate Board, (CREB) website you will see that the number of active listings for this time of year are down 20% from last year. As a result the most desireable homes are selling quickly. What does that leave for you if you missed the house of your dreams?

   Make another home , the house of your dreams with the Purchase Plus Improvements  program from CMHC and Genworth Financial. These are the people who insure your mortgage against default and they want you to have a nice house. 

     How does this work? If you find a house in an older neighbourhood you may love the location but not care too much for the house. You know the place, it's right across the street from a school and a park, within walking distance of public transportation but it was built 40 years ago and it has lime green wall to wall carpeting combined with a basement with fake wood paneling. 

   If you think that you will have nightmares waking up to this 70's creation, don't worry.
 Take a trip to a home renovation store like Home Depot and get a quote on new Burber carpeting.
Make an offer on the house and then have your mortgage broker submit your offer with the new carpeting quote to a mortgage lender under the Purchase Plus Improvements program.
 If it is approved your real estate lawyer will receive 2 cheques. One for the purchase of the home and a second one to cover the renovations. When they are complete, the lawyer will pay out the renovations. Sound simple? It is . If you want more information on the program you can check it out here. If you want to know if you would qualify for this program contact me at my website.

David Cooke is a Calgary mortgage broker with Dominion Lending Centres Westcor in Calgary Alberta.

Mortgage Wars 2012

July 9th , Canada's finance minister changed the rules for getting and renewing mortgages for the 4th time in 4 years. We are now back to where we were before he changed the rules in 2006. What has happened each time he changed the rules was he cut out more potential home buyers and this resulted in a dip in mortgage applications. Moving from a 30 year amortization to a 25 year amortization made the monthly payments for a $300,000 home go up by $157. per month. It's not a huge amount but it took some buyers out of the market and meant that other buyers could not afford as much house as they could have bought in June.

   As Europe looks like its going to be suffering for some time to come, and China's economy is slowing down as well, the world economy looks like it will take some time to recover. Canada's mortgage lenders are responding to the economic slowdown and the mortgage rule changes by lowering mortgage rates again.. Will this mean another mortgage rate war?

 As of this week, the 5 year fixed rate mortgage has dropped with some lenders from 3.09% to 2.99%. This means that a mortgage for $300,000 with a 25 year amortization would have monthly payments of $1418. instead of $1433. What is even more interesting is the variable rate mortgage.
For the past year, rates have been at prime or slightly above it. Many lenders are at Prime + .20% or 3.20% . As of yesterday one lender has dropped their 5 year variable rate mortgage to Prime - .35% !
 This translates into a 2.65% rate which is amazing.
 

These are not big changes but they may result in lenders competing for market share . The one to benefit from mortgage wars will be you, the borrower. If you want to discuss how these  changes affect you, contact me through my website or call me at 403-836-1201.

   

More Canadians locking into low interest rates

An article in the Vancouver Province newspaper highlighted some changes going on in the Canadian mortgage market. People are slowly moving away from variable rate mortgages. At this time 29% of homeowners have variable rate mortgages but over time, they switch to fixed rates. Why? Interest rates are at all time lows, where will they be going? Up , of course. Another interesting trend is how people are taking advantage of pre-payment privileges. 23% of mortgage holders are increasing their monthly payments, and 19% of making lump sum payments. Is there an incentive behind this? Yes, every dollar that you pay down saves you $3. In interest over the term of the mortgage. Put down an extra $1000 from your Christmas bonus and save $3000. Canadians have also been bombarded by news reports about how average household debt is increasing. This is how many people are reacting. Personally I think that you should start with your high interest debts. Pay off your credit cards at 19% , follow that up with your car payments at 6-8% and then tackle your mortgage. You may wonder where you can come up with the money. Well, it's the time of year when we all get our tax refunds. Instead of spending it on sometime we don't need why not spend it on paying down debt and saving huge amounts of interest. That can be very rewarding and gratifying. Try it now and see how much more money you will have next year at this time. For more information on mortgages and credit visit visit your favourite Calgary mortgage broker at my website.

Choosing a mortgage broker over a bank

Why should you use a mortgage broker instead of a bank. It brings it all down to 3 points

1. best rates – banks only offer you their best rates not their competitors. We have access to banks, mortgage companies, trust companies and private lenders. When a bank decides to increase its market share by offering extraordinarily low interest rates are exceptional terms a mortgage broker can offer you that. While banks can offer you their 5 or 6 different mortgages or HELOCS, I have access to 40 lenders and roughly 150 different mortgages and HELOCS>

2. customized products. – we carry products that banks can’t offer due to banking regulations ie: private lenders with interest only products, stated income products,one year open mortgages,New to Canada or even one for people who do not have employment.

3. customer service- as we rely so heavily on referrals we go above and beyond in our service, meeting clients at night, weekends, accompanying them to their branch to get their RRSP’s cashed. When a client comes to me with credit issues, I will work with that person to improve their credit and when they are credit worthy, I'll get them into their own home. When was the last time a bank offered to help you re-build your credit? Never!

If you want a savings account, a RRSP go to a bank. If you want a mortgage, go see a mortgage broker. You'll do much better with a broker.