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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.
This week I had a panicked call from a realtor I work with on a regular basis. One of her sellers had a sale that looked like it was going to collapse. He was counting on the sale of that home for the down payment of his next home. She called mid-day Wednesday. The sale was supposed to complete on Friday. She asked if I could talk to the purchaser and potentially arrange financing for her. Before you read the next part, this is not intended to single out any particular bank or mortgage person. It could just as easily be a mortgage broker or a branch employee. The back story is that the purchaser had been working with a mortgage specialist from one of the chartered banks since mid-December. The specialist gave the client the go-ahead to remove her financing subject January 17th. The specialist then said they needed to extend the closing date by a week. Then by another week. Then she told the client she would have to come up with twenty per cent for her down payment. The client scrambled and came up with the additional money needed for her financing to be approved. I might not have believed this story except I did see the email chain. So what actually happened? My guess is that the mortgage specialist did not have an approval in place with the insurer or her bank when she gave the client the ok to remove her financing. The client had not seen nor signed any mortgage paperwork before removing her financing subject; she was trusting that her mortgage person had things well in hand being as she was told she was approved and things were fine. The buyer in this case is a first-time home buyer and did not know any different. I have pulled off the odd miracle in my days but I had serious doubts about being able to help this client in one day, especially being as she was buying in a smaller remote community so we had fewer options. We were working on her application and 6:00 pm Wednesday evening had word that the bank she was originally working with had come through and would be sending mortgage instructions to the lawyer the following morning (we are now at the day prior to closing). When you are purchasing a home and applying for mortgage financing, I feel it is so important to work with a team of professionals that have your back. As someone who has never bought a home before or maybe hasn’t done so in many years its important to do your homework and understand the process. If you think things are going sideways with your financing please make sure you ask questions to better understand what’s happening. If you have a feeling that something is really wrong, don’t wait until you have no other options. When you choose a mortgage professional to work with (and realtor for that matter) do a bit of homework. Ask your friends who they have used and what their experience was like. Buying a home is stressful enough on a good day, but what this poor client has been through could have been avoided had she had a better idea of what the home-buying process was supposed to look like.
The easy fix isn’t always the right fix. I’ve been wondering how long it would take to see the fallout as clients who have been paying really low interest rates come up for renewal. We have all experienced a steep increase in the cost of living. Even though rates now are sitting where most clients qualified with the stress test when they originally got their mortgages, for many people life has happened in the meantime. What do I mean by that? Often clients are having to push right to the top of what they qualify for just to get into the housing market. As we are going through the mortgage approval process we talk about keeping big consumer purchases (financing a car or furniture as an example) to a minimum as additional loan payments reduce borrowing power. Once clients are into a home life does indeed happen. The older car dies and a new car is necessary. Little ones come along and that can affect family income and add a daycare bill to the bottom line. Property taxes increase. Grocery prices skyrocket. You know the list. Balances start creeping up on credit cards or lines of credit. There are lots of different mortgage products to help with consolidation of debt. Lately the challenge has been that even if clients have significant equity in their homes with the increased interest rates they may not qualify with traditional lenders. Alternative lenders and private lenders come into play as options in this case. I’ll leave the alternative lenders to another day because I have a cautionary tale about private lenders. Not all private lenders are created equal. I have several that I work with when my clients need a solution in the private world. There is a time and a place where a private mortgage is the ideal fit. As long as you have an exit strategy (a plan as to how it will be paid out in a relatively short time frame ie: one year) this can be a great option for clients. Then there is the private lender that hurts my heart. Heavy catchy marketing bombards us from multiple venues. Their jingle is running through my head as I write this. For them the bottom line is that if you have adequate equity in your home you are approved. Cool. That fixes the immediate problem. However, more times than I like to think about, this lender creates far bigger problems for people. Despite the fact that you have equity in your home you still have to make the payments on these private mortgages. Interest rates are usually around the 14% mark so payments are high and you are not making any headway with paying down the mortgage. If there is no significant increase in your income you struggle and find yourself in a financial bind again. They set up another mortgage with an even higher rate. When you sign on for a private mortgage your are responsible for covering your legal fees, the lender’s legal fees, and there is also a lender fee that is included. Even a small private mortgage can end up costing almost $10,000 to put in place. If you couldn’t cover expenses with your first mortgage (at reasonable rates) guess what happens when you start adding in more and bigger payments on top of your normal expenses? For most people the only out at this point is selling their home. That is a very hard conversation for me to have with clients, especially when they’ve been in their home for many years. If you are finding that there is more month than money, sitting down and reviewing your expenses is the first step to take. Are there any areas that you are able to cut back? Do you have any options for increasing your income? If the answer is no, talking to a mortgage professional sooner rather than later may help identify some options before you end up in a never-ending cycle of sleepless nights and missed payments.
As we close out 2024 and prepare to ring in 2025 today’s column will be short and sweet. Well, short in any case. I think many of us tough out difficult financial situations until we are through the holidays. We put on a brave face and do our best to make everyone’s holiday season fun and festive. January hits as does reality when we look at our bills and our account balances. If you are feeling overwhelmed with your financial commitments and don’t know where to start, a conversation with your mortgage professional might be a good place to start. If you have equity in your home it may make more sense to remortgage and consolidate your consumer debt. My advice is to try not to do that if you can avoid it, but feeling like you shouldn’t then falling behind with your credit cards and other loans will do more damage to your financial health in the long run. Credit counselling organizations are already advertising heavily to this target audience. Clients sometimes think (or are led to believe) that this is an easy solution and better for their credit long-term. Not all credit counselling agencies are created equal and I can’t count how many clients are still dealing with the fallout from these arrangements years down the road. If you have tried to refinance in the past and been told no, it may be worth taking another look at this approach. Lenders change their policies and your situation likely has changed as well. Going into January can feel a bit heavy after the holiday celebrations and I encourage you to take a close look at your finances and set yourself up for a successful year.
Navigating Bridge Financing When Selling and Buying a Home When clients are selling one home to buy another, realtors strive to align the sale date of the current home with the purchase date of the new one. However, when clients need a few days or even months to transition between homes, bridge financing may be a viable option. What is Bridge Financing? Bridge financing allows clients to buy a new home before selling their current one. Depending on the lender, arranging bridge financing can be straightforward, but not all lenders offer this service. In such cases, private bridge financing might be necessary. Key Considerations Before You Begin Before agreeing on dates with your realtor, it’s crucial to explore your options: Traditional Banks & Monoline Lenders : Bridge financing is usually simple to organize, with an administrative fee (around $250) and daily interest on the borrowed funds. Strategic Timing : In some instances, bridge financing might not be an option, requiring careful coordination of sale and purchase dates. When Bridge Financing Might Not Work Your lender doesn’t offer bridge financing. The cost of bridge financing seems excessive. Your current home is on First Nations land (terms of lease agreements often preclude bridge loans). Private bridge financing costs far outweigh the benefits. Alternative Solutions If bridge financing isn’t feasible, there are alternatives: Shipping Containers : Companies like Securite or Big Steel Box can provide a container for temporary storage. It’s delivered to your home before the sale, stored securely, and then transported to your new home on possession day. This approach might involve a hotel stay or staying with friends or family. For example, a recent cost-benefit analysis showed clients saving approximately $4,500 by opting for a shipping container over private bridge financing—even after accounting for hotel stays and dining out. When Bridge Financing Works For those able to use bridge financing through a monoline lender, the process is simple and cost-effective. One client paid a $250 fee and approximately $650 in interest for a week, giving them the flexibility to clean both homes and move at a relaxed pace. Plan Ahead If you’re planning to have sale and completion dates on different days, consult your mortgage professional before finalizing contract dates. Thank You for a Wonderful Year As we head into the new year, I want to express my gratitude for your trust and support. Wishing you and your family warmth and happiness in the year ahead!
Last Minute Mortgages Do your homework. Be prepared. Make good decisions. Don’t gamble on an outcome. Maybe most importantly don’t rush. These are lessons that can be applied to almost every aspect of our lives. This week I jumped in to help another broker. A client of his had written an offer on a new home priced at $1,000,000. The client’s current home was owned free and clear (no mortgage outstanding) but was worth slightly less than that. The broker had a mortgage arranged to cover the difference between the purchase price and the anticipated sale proceeds of the current home. The client removed all of the subjects on his purchase before his current home was sold – basically rolling the dice and assuming it would sell. I bet you already know where this is going. There is a plot twist though. As it turns out, the other broker is unexpectedly away dealing with a health emergency. The client’s original home has not yet sold. He has to complete the purchase on his new home by the end of next week. We scrambled this week to line up private financing to cover the shortfall needed to complete the purchase of the new home. The broker had urged the client not to remove subjects on the purchase until the other home was sold. I have seen the email. The client decided to move forward regardless. This client is fortunate that he still qualifies for the new mortgage even with the current home not sold. The client will, however, be covering some unanticipated expenses. Between fees for the private loan and additional legal fees the client will be paying over $10,000 at closing on top of the expected closing costs for the purchase. As well, the monthly payment on the private loan is approximately $4500 per month so we are all hoping an offer comes in soon. The thing about houses is that they make them every day. Maybe not everyday but certainly new homes come onto the market all the time. Its hard if you are emotionally attached to the idea of a shiny new home, but I lean to the conservative side and encourage my clients to look at the long term outcome should all the pieces not fall into place. As we move into (what we expect to be) a busy spring market, I encourage you to make thoughtful decisions and not put your financial well-being at risk by jumping into something you shouldn’t.
Time is of the essence. Whether you are looking for a mortgage preapproval, have an accepted offer on a home, or are in the middle of a refinance, we are generally working towards meeting a deadline whether it is a financing subject removal date or an upcoming renewal date. I feel like mortgage professionals all have their individual styles and processes as to how they work with their clients. One of the things I’ve learned over the years is the importance of gathering my clients’ documents upfront and reviewing them thoroughly. There are times when a client calls with an accepted offer so we are starting a little behind with respect to document collection. Another of the things I’ve learned over the years is that regardless of how thorough I try to be when collecting and submitting clients’ documents to lenders there are often additional requests for clarification that come from the lender. Hands-down I feel like organizing and sending your paperwork to your mortgage person is the most frustrating part of the process for clients. So what can you do to make this smoother? First, if you receive a list of required documents please provide them all. Take a minute to confirm that your documents clearly show your name and account number if applicable. Send all pages of the documents; don’t guess at the pages you think the lender needs. There are reasons lenders need specific documents and information. They are doing their due diligence to do their best to avoid mortgage or identity fraud. They want to make sure you truly have the capacity to make your mortgage payments. Most days I spend time explaining to my clients why we need particular information and documents and help them access and submit them. If paperwork is not your forte I completely understand the frustration as you do your best to send your information. Even if paperwork is your forte I get your frustration. Why is there such a high level of due diligence on our parts? I recently had a chat with a friend that works at a TD branch. Because of the three billion dollar fine that TD was handed in the US their mortgage rates are suddenly a wee bit higher and they don’t have the same wiggle room they did earlier in the year. This is also due to the mortgage interest rate environment overall. However, when huge fines like this cut into profitability the loss has to be covered from somewhere. Thorough document review and multiple ways to verify information feel like a pain but if these steps help identify potential money laundering or fraud this will save us all as consumers from higher interest rates and even stricter lending guidelines. It's important to understand when you feel like the paperwork is driving you crazy. If you are having troubles finding the necessary paperwork, pick up the phone and speak to your mortgage professional. There may be alternate ways to access or confirm the same information. The more organized you can be with your paperwork, the smoother your mortgage approval will be.
Things are picking up. I have seen a significant increase in the number of purchases I am working on with clients. I’ve done an informal poll of some of my realtor and broker friends and we are all seeing the same increase in activity. This week I attended a learning session about the recent and upcoming changes to mortgage rules. This year it has felt like changes have been rolled out so often that its hard to stay on top of new policies. I thought it might be good to go over some of these changes as they will benefit many homeowners and homebuyers. Please note that this is a quick explanation and you may have questions or need clarification on some of what follows so please make sure you speak with your mortgage professional before moving forward with a purchase. In the order the changes were discussed in our session, here is a high-level overview for you. Effective August 1, 2024 first-time home buyers (FTHB) were able to purchase a newly built home using a thirty year amortization with a minimum down payment. Prior to this change the maximum amortization allowed for buyers with less than twenty percent down was twenty-five years. Key to note here is that the definition of a FTHB for purchasing homes is based on the CRA explanation of home buyers starting out or starting over; this includes buyers who have not owned their primary residence (nor lived in a home owned by their significant other) for the last four years. It also includes buyers who are recently separated or divorced. Also key to note is that only one of the borrowers must qualify as a FTHB for these rules to apply. For the purposes of Land Transfer Tax in BC, even if clients are considered FTHB under mortgage rules, they will still have to pay Land Transfer Tax if they have ever owned a home anywhere in the world. There is a small increase to the insurance premium (,2 per cent) if borrowers elect to use the thirty year amortization. Effective December 15, 2024 the price cap for insured mortgages will be increased from $1,000,000 to $1,500,000. Clients will be able to purchase a home up to this price with a minimum down payment of five per cent of the first $500,000 and ten per cent of any balance over that and up to $1,500,000. For the full $1,500,000 the minimum down payment will now be $125,000 as compared to the previous minimum down payment of $300,000. Trying to come up with the required twenty per cent down payment has been a barrier for many borrowers. The changes coming into effect December 15 also include the ability for repeat buyers to new builds with a thirty year amortization. As well, all FTHB will be eligible to qualify based on a thirty year amortization regardless of whether they are buying a newly built home or an existing home. For these guidelines to apply mortgage applications must be submitted AFTER December 15. The final change I’m going to touch on today rolls out effective January 15, 2025. Existing homeowners will be able to refinance their homes up to ninety per cent of the as-improved value of their home if they are pulling equity to create a secondary suite in their home using a thirty year amortization. What does “as-improved value” mean? With these applications we will need to order an appraisal which shows the current value of the home as well as the value of the home once the proposed work is completed. Current rules limit refinances to eighty per cent of the value of the home so I see this as a significant benefit for clients who are maybe newer to the housing market and can really use the income from a secondary suite. There are of course requirements for this program including: Either the borrower or close family member must live in one unit of the property You can add more than one unit to the home (up to a total of four) providing zoning allows for this Units must be completely self-contained Financing limit cannot exceed actual costs of the work Is your head spinning yet? Mine certainly is, trying to keep all of these changes straight. Many lenders are still determining their own policies as to how they choose to incorporate these rule changes into the mortgages they offer. It is important to speak with a mortgage professional to see how these changes may impact your borrowing power. As I mentioned we are already seeing a definite increase in purchase activity. It will very interesting to see if there is a flurry of activity following the implementation of the December 15 changes as well.
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Contact Information
Tracy Head
Mortgage Broker
Phone: 250-826-5857
Email: tracy@headstartmortgages.com
Headstart Mortgage Architects
Serving clients throughout Alberta and BC from my home office in Kelowna, BC.