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.  

What are Credit Unions ?

What are Credit Unions?

We’ve all seen credit unions or advertisements for them, but do you know what a credit union is? What’s the difference between banks and credit unions?  How did we end up with credit unions in Canada?

 What is a Credit Union? -  it is a  non for profit money cooperative. Members pool their money to lend to other members for car loans, consumer loans and mortgages. The profits are not paid out to stock holders but they are returned as dividends to the members.

 How did this cooperative system enter the Canadian financial system?

 In 1900 Alphonse Desjardins read about a man in Toronto who borrowed $150 and ended up having to pay $5000 in interest to pay is loan off.  At the time, banks were for well off people and your average working class individual had to borrow from loan sharks .  Desjardins studied the cooperative banks in Europe and opened his first branch in the Quebec City suburb of Levis that year. At the time of his death in 1920 there were 163 branches in Quebec and 18 in Ontario.

    The first credit union branch opened Alberta in Edmonton in 1938. Credit unions can now be found in all provinces and territories.

    Why do mortgage brokers use credit unions?  They do not fall under the rules of the Canada Bank Act and sometimes we can get better terms for a client that is not available from a bank or other lending institution.  Credit unions often  tend to follow the guidelines set out for banks but sometimes they can be more understanding as the lending decisions are made locally and not in an office in Toronto.

 Next time you need a mortgage or a line of credit speak to your favourite mortgage broker. A credit union might have the right product for your particular needs.

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Calgary home sales jump from record lows

Home sales in the Calgary market have jumped from their record lows of a year ago but remain well below the longer-term average.

Calgary Real Estate Board says that sales for January totaled 924 units, up 24 per cent from a year earlier but 21 per cent below the 10-year averages for the month.

"Conditions have improved over last year, but people need to remember that last year's market was one of the weakest on record,” said CREB chief economist Ann-Marie Lurie. “Despite the appearance of a major shift in activity, the transition in the housing market is going to be a slow process."

The improvement from a year earlier was driven by detached home sales which increased from 466 in January 2015 to 584 last month.

Inventory tightened to 4,112 units, 18 per cent lower than a year earlier and was equal to just 3.2 months of supply. This has helped price decreases ease and although the city-wide benchmark was down 2.82 per cent year-over-year to $437,400, the month-over-month decline was 0.16 per cent.

"While housing conditions continue to favour buyers, a slow transition toward more balanced conditions is helping to ease downward pressure on home prices," Lurie added.

CREB president David P. Brown says that the recent history shows that the market never stands still.

"The market isn't expected to be as unpredictable in 2017, but it's early in the year and there are still lots of unknowns that will shape decision-making for consumers," Brown said.

This article was first published in Mortgage Brokernews. For more information contact David Cooke, your Calgary mortgage broker . 

Are the New Mortgage Changes Good or Bad for Canadians?

On October 3^rd ,Finance Minister Bill Morneau announced changes to the rules for mortgages insured by CMHC.  Everyone expected that these changes would address the problems with runaway prices and predatory practices in the Vancouver housing market. What came as a big surprise to many was the other changes announced for October 17^th.

  The biggest and most profound change was the use of the Bank of Canada benchmark rate to qualify for a 5 year fixed rate mortgage. The 1- 4 year fixed rate and the variable rate mortgage are already qualified at this rate. 5 year fixed and great terms were exempt.

     My first thought was why would anyone do this? This will devastate out housing market.  First time home buyers would not be able to qualify. I looked at a preapproval I had for a client who is presently looking for his first home. In August, I was able to qualify him for $330,000 . This would allow him to buy a small starter home.  When I tried to re-qualify him using the benchmark rate at 4.64% I found the most he could afford would be a $270,000 purchase. This would put starter homes out of range and leave him with a townhome or an apartment. Both of these options tend to be condos so I put the $300 average condo fee into the equation and now all he could afford was a $245,000 condo apartment.  This is frustrating considering we are using a fictional rate and not the rate we could lock him into for 5 years.

    I thought about this and then I realized that while I know interest rates will go up . When I purchased my first home in 1986 my mortgage interest rate was 9.98%. I was so happy to be paying less than double digits..  I’ve been in this business for over 11 years and I remember in 2010 the best rate I could get clients was 5.79%.  While I don’t expect rates to jump into the double digits, 2010 was only 6 years ago and rates could go up to 5.79% within the next 5 years.

I realized that I wasn’t asking myself an important question. Will my client be able to continue making payments in 5 years if mortgage interest rates go up to historical normal levels?  I was betting on my clients income going up quite a bit in the next 5 years.  As the focus of my business is helping people I started to think that I may be putting people in a bad situation. Perhaps this higher qualification rate is the prudent thing to do.

      Another item that did not make headlines was the fact that CMHC would no longer insure mortgages over $1 Million dollars.  While there had been a scaling back on insurance over $1 Million, now this is completely gone. As a result, lenders who back end insure such as monoline mortgage companies will now not be able to offer mortgages to these clients. The only place to get a mortgage will be the big banks.  I know that from previous experience that when banks do not have to compete they use their bank posted rates. We have seen this with mortgages for mobile homes.  I expect the same thing will happen with Million dollar plus mortgages in the future.

     As you can see, the changes are a mixed bag, there’s some prudence but also the possibility of higher interest rates in the future.  The jury is still out as to whether these are good changes or bad. 

Contact me or visit my website for more information on mortgages in Canada. 

 

The Bank of Canada maintains its Interest Rate

More good news today for people who have variable rate mortgages or lines of credit tied to the Bank of Canada rate. The rate will stay firm once again. 

Here’s the statement from the Bank of Canada rate decision on Wednesday, July 13:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

The Bank of Canada kept its key interest rate today at 0.5 per cent. 

Inflation in Canada is on track to return to 2 per cent in 2017 as the complex adjustment underway in Canada’s economy proceeds. The fundamentals remain in place for a pickup in growth over the projection horizon, albeit in a climate of heightened uncertainty.

In this context, the forecast for the global economy has been marked down slightly from the Bank’s April Monetary Policy Report (MPR). Global GDP growth is projected to be 2.9 per cent in 2016, 3.3 per cent in 2017, and 3.5 per cent in 2018. In particular, after a weak start to 2016 the US economy is showing signs of a rebound, with a healthy labour market and solid consumption growth. In the wake of Brexit, global markets have materially re-priced a number of asset classes. Financial conditions, already accommodative, have become even more so.

In Canada, the quarterly pattern of growth has been uneven. Real GDP grew by 2.4 per cent in the first quarter but is estimated to have contracted by 1 per cent in the second quarter, pulled down by volatile trade flows, uneven consumer spending, and the Alberta wildfires. A pick-up to 3 1/2 per cent is expected in the third quarter as oil production resumes and rebuilding begins in Fort McMurray. Consumer spending will also get a boost from the Canada Child Benefit.

While the fundamental elements of the Bank’s projection are similar to those presented in April, the forecast has been revised down in light of a weaker outlook for business investment and a lower profile for exports, reflecting a downward adjustment to US investment spending. Real GDP is expected to grow by 1.3 per cent in 2016, 2.2 per cent in 2017, and 2.1 per cent in 2018. The Bank projects above-potential growth from the second half of 2016, lifted by rising US demand and supported by accommodative monetary and financial conditions. Federal infrastructure spending and other fiscal measures announced in the March budget will also contribute to growth.  Despite recent volatility, the Bank expects the underlying trend of export growth to continue, leading to a pick-up in business investment. Higher global oil prices are helping to stabilize Canada’s energy sector and household spending is expected to increase moderately.

The Bank forecasts that the output gap will close somewhat later than estimated in April, towards the end of 2017. Underlying this judgement is the downward revision to business investment, which lowers the profile for both real GDP and, to a lesser extent, potential output.  

While inflation has recently been a little higher than anticipated, largely due to higher consumer energy prices, it is still in the lower half of the Bank’s inflation-control range. Most measures of core inflation remain close to 2 per cent but would be lower without the impact of past exchange rate depreciation. The temporary effects of exchange-rate pass-through and past declines in consumer energy prices are expected to dissipate in late 2016, and the Bank projects that inflation will average close to 2 per cent throughout 2017 as the output gap narrows.

Overall, the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast. At the same time, financial vulnerabilities are elevated and rising, particularly in the greater Vancouver and Toronto areas. The Bank’s Governing Council judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 1/2 per cent.

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.