Helping you get a headstart on homeownership

Not all lenders are created equal Just as no two clients are the same, not all lenders are created equal. For the majority of clients getting the best interest rate is their primary concern. For me as a broker it is as important to find a lender that provides a smooth process from start to finish and excellent customer service once a mortgage has finalized. What do I mean by this? When new lenders pop into the mortgage market they often offer low interest rates or better compensation to encourage mortgage brokers to send files their way. Sometimes these new lenders are amazing, and sometimes not as much. Once in a while more established lenders will offer brilliant rates in order to increase the number of mortgages they have on the go. We see lenders float in and out of the competitive rate market based on how much money they have available to lend at any given time. While this can be great for clients, it can also be a nightmare. If a lender does offer rates much lower than other lenders they end up flooded with applications. They may or may not have the staff / staff with expertise to handle larger volumes and increased time pressures. If we are working on a refinance with flexible dates this isn’t necessarily a problem. If we are working on a purchase application with deadlines this can become stressful for all involved. On top of that lenders have different processes for handling the legal paperwork that goes to your lawyer’s office. Some lenders handle everything in-house and have very responsive teams to handle getting the documents to your lawyer and addressing any changes that need to be made. Other lenders hire third-party service providers to produce their documents and this adds an extra day or two to the process. As a broker I try to learn about my clients’ longer term plans and find the right fit lender-wise. I look at lenders’ policies for portability, pre-payment options, flexibility with respect to their guidelines, broker support, and equally as important client service experience after the mortgage finalizes. Does the lender have a portal? Will they allow me as a broker to help my clients or do they require clients to work with them directly for any changes? We sent applications to two newer lenders over the last month because they had fantastic rate specials available. Both files ended up being very stressful as we were down to the wire waiting for mortgage instructions to be sent to the clients’ respective lawyers. I prefer not to have to deal with last-minute stress on my files.  Rate is of course incredibly important to your long-term financial health. In my mind a smooth process before and after your purchase or refinance is also important. There are many considerations that go into choosing the right package for our clients. My recommendation one day may change the next depending on both your situation and what I am seeing behind the scenes with various lenders. I hope you had a beautiful Easter weekend!!

In an ideal situation I have some time upfront to work with clients on their pre-approval. I like to go over what to expect in terms of both the process and what to expect in terms of closing costs when they have an accepted offer on a home. We usually talk about potential expenses like property transfer tax, an appraisal, a home inspection, home insurance, and legal fees. This time of year we also talk about upcoming property taxes for anything they are purchasing before July 1st. I think human nature is that we want to minimize our expenses and make sure we are getting the most bang for our buck. There are a few areas of cross-over where I anticipate the clients’ realtor will be speaking to them about items like the requirement to organize home insurance and the importance of a home inspection. In practice I think most realtors encourage their buyers to move forward with a home inspection because they want to ensure clients are not buying any surprises that will create headaches down the road. Sometimes clients are buying privately and are not represented. In those cases I always urge them to include a home inspection as one of their conditions. I have had clients question the need for a home inspection, particularly if they are buying a condo or a new build. Two recent examples have popped up that reinforce for me the importance of a home inspection: - We are working with a lovely first-time home buyer in the lower mainland. Her budget isn’t huge so she has been waiting and watching for the right property to come up, and for her offer to be the one chosen. The stars aligned for her last week. Her financing was approved and all of the financing conditions were signed off by the lender. We were doing a happy dance for her and had a rude awakening the day she did her home inspection. The home inspector found an ongoing leak in the kitchen that has created a soft wall which is indicative of a bigger problem. On a surface level the kitchen is beautiful and relatively recently updated. As a first-time home buyer with no family nearby our client was thrilled by the aesthetics of this condo, then devastated by the potentially expensive work needed to repair / rectify the damage. - The second situation really caught us by surprise. We have clients on Vancouver Island who have an accepted offer on a brand-new home that has never been lived in. They did choose to invest in a home inspection and we are so glad they did. It turns out that somehow some of the larger windows were installed incorrectly and this has created damage to the windows and a leak in one corner. Again, with a new build the temptation would often be to skip the home inspection. Yes, any issues with this home will be covered by warranty. Having the home inspection done and being aware of the issues upfront gives them a lot more power with respect to having these defects repaired quickly. Now that I’ve driven that point home, its important to know that not all home inspectors are created equal. Do your due diligence – look at reviews, look at the home inspector’s qualifications and length of time / experience doing home inspections. Going with the cheapest option is not always the best option.  Buying a home is the biggest investment you will likely make. Trying to save a few hundred dollars upfront may end up costing you thousands of dollars and sleepless nights down the road. Save yourself the pain and aggravation of hidden issues in your home.

Annnnnnnd …. Its on!  Spring has arrived and with it comes a significant drop in mortgage interest rates. Over the last few months when I’ve chatted with clients who are renewing or planning to buy in the spring market I have said in almost every conversation that by mid-March rate wars tend to start. Regardless of what is happening in the interest rate environment as a whole it seems by the third week of March lenders start sharpening their pencils. Over the last two weeks we started to see lender bulletins trickle in advertising quick- close rate specials (ie: for mortgages finalizing within 60 days) and rate drops across the board. Today I have had updates from six different lenders and its only noon. Why is this important to you? Not all lenders have the same policies with respect to dropping their rates once your mortgage has been approved. When you go into a holding pattern after your mortgage has been approved but before it has finalized rates can change. If they go up, you are covered by the rate you have in place. If they go down, how does your lender deal with your file? Some lenders won’t drop your rate. Some lenders will drop it once. Some maybe twice. There are a few lenders that will drop your rate an unlimited number of times up to a few days before your mortgage finalizes. When I am choosing a lender for my clients this is absolutely one of the most important things I consider. All things being equal, if I can place a mortgage with a lender that offers unlimited rate float downs I will. I watch my calendar of upcoming closings and proactively reach out to those lenders to request better rates for my clients. It’s a win to be able to get the benefit of falling interest rates without having to change lenders. If you are buying a home, renewing your mortgage, or looking to refinance this is a key question you should ask your mortgage person. Find out whether they will adjust the rate on your mortgage and what the process is (do you have to request this?). At the same time, find out how many times they are able to reduce the rate for you. Regardless of the answer I suggest touching base with your mortgage person or lender periodically up to the time your finalize your mortgage to confirm you are receiving the lowest rate they have available for you.

Read the Fine Print After a few recent escapades with condo purchases I think I’d like to talk a bit about doing your homework when purchasing a strata property. Strata properties can offer the convenience of shared maintenance costs, security, benefits like pools and workout rooms, and in some cases a more attractive price point. For people with busy schedules that don’t have the desire to spend time on yard work (or shoveling!) strata properties can be a great fit. Strata properties are usually managed by strata councils. There are legal requirements with respect to meetings, finances and insurance, record keeping, maintenance and upkeep, as well as bylaws and rules. Not all strata properties are created equal. People don’t realize the importance of taking the time to read through the strata documents when they are considering buying a strata property. From a financing perspective there are several pieces that lenders look for. Lenders and insurers (CMHC, Genworth, Canada Guaranty) will read through strata documents, particularly meeting minutes, financials, and depreciation reports. They are looking to see if the building(s) have been well maintained, and if there are adequate funds in the strata’s contingency reserve fund (CRF) to cover any upcoming projects or unexpected issues. They will look to see if the strata has planned and budgeted for ongoing maintenance and updates to ensure the buildings stay in marketable condition. Lenders look to see if there is a rental pool or if there are rental restrictions. They are looking to see if there are any age restrictions. So how does this affect you as a potential buyer? If buildings have not been properly maintained or have had significant structural issues, they are sometimes flagged by mortgage default insurers. This means that those insurers won’t cover new mortgages for people trying to build into the complexes until those issues have been rectified or remediated. If the building has been flagged, it can mean that you are unable to find mortgage financing to purchase a unit in that building. This can also mean increased strata fees to cover big repairs. This may also lead to special assessments. Special assessments are used by stratas to raise significant funds relatively quickly to deal with major expenses. Over the last year I’ve talked to clients that have had to deal with special assessments of $23,000 and $10,000 respectively. Neither of these clients were in the position to come up with the cash, so they are both on payment plans. In both situations this additional monthly payment has created financial distress. Increased strata fees and special assessments can happen in any strata complex, but if you are looking at purchasing a unit in a complex that has ongoing issues or minimal funds in the contingency reserve fund you need to think about what that may look like down the road for your finances. Having said that, just because a building has had issues in the past does not mean you should cross it off your list of potential purchases. Do your homework. Check to see if the strata has dealt with any outstanding issues, and if they have documentation to confirm that. We were recently able to obtain approval in a complex that the insurers had flagged. For over two years the building had been flagged due to maintenance issues. In this case any units that sold were sold to cash buyers as lenders wouldn’t touch the complex. Major work was done and an engineer’s report was ordered to confirm the damage had been dealt with. Both the lender and the insurer went through all of the documents and approved the financing because all issues had been dealt with and the strata has taken steps to rebuild their contingency fund and ensure necessary maintenance is planned for in the future. This felt a bit cautionary. The intent of this information is not to scare you off of purchasing a specific property, but rather to encourage you to do your homework and learn about the strata you are buying into. Your realtor will be able to help you find answers to your questions, and it is important to have your lawyer or notary review the strata documents before you move forward with your purchase. The spring market feels to be picking up. If you are looking to get into the housing market, a strata property might be the ideal fit!

Part of what we do as mortgage brokers is explore options for clients.  Recently I worked with two families whose financing had been declined by their banks as the numbers didn’t work. In both cases, the families had already sold their existing homes and written offers to purchase new homes. Both had done well on their sales and had significant equity to work with. They were shocked to learn they didn’t qualify for similar size mortgages. Sometimes a fresh perspective makes all the difference. When I reviewed the first application I took a look at what the outstanding debt. Since they bought their previous home they had purchased two vehicles and were carrying about $12,000.00 on an unsecured line of credit. The vehicle payments were $457 and $692 respectively. For context here, your mortgage borrowing power decreases by about $100,000 for every $475 you have in payments for consumer credit (loans, credit lines, credit cards, etc). Looking at this family’s situation, I suggested using some of the equity from the sale to pay off their truck loan and line of credit. This reduced their monthly payments by $1,052 ($360 towards the credit line plus $692 for the truck) and meant that the numbers work for them to move forward with their purchase. This was a small tweak but made all the difference. My preference is that people put their equity back into a new purchase as opposed to paying off consumer debt. However, this decision needs to be made carefully by the clients as they are the ones ultimately responsible for paying the bills each month. In some cases this is the only way to qualify for a new mortgage. The second family’s application involved a slightly different tweak. When I calculated the funds they had available for their down payment and closing costs, it looked like they had $100,000 available for their down payment. The purchase price on their new home was $549,000. We discussed increasing their down payment to $109,800 which is twenty per cent of the purchase price. They spoke to her parents, and the parents agreed to gift them $10,000 to make up the difference. What this meant for the clients was that we were able to get an approval with a thirty-year amortization. With the increase in amortization and slight reduction in the mortgage amount (additional down payment + no default insurance fee), they qualified for the new mortgage they needed. Again, my preference is to see clients stick with shorter amortizations whenever possible. This family has chosen to have one parent stay at home while the children are young, so the smaller mortgage payments are a good solution for the short term. We talked about options for increasing their payments once the children are in school and the dad is back to work. Each family and situation is different, and often we are able to look for creative options to help find the right mortgage. Sometimes a second set of eyes is all it takes.