Monday, October 3rd, 2016 (blissfully ignorant at a cabin without internet that morning #timing) was the day that the Government of Canada announced sweeping changes to their mortgage lending requirements. I’ve been relatively quiet about it up to this point, waiting for updates from my brokerage who are, in turn, waiting for the unusually silent lenders to react to how the new rules will affect them directly.
It’s still premature to give my final word on the situation, but I do think it’s time to start acclimatizing to inevitable, albeit drastic, changes. Leave panic at the door, move forward, and follow the rules like they have been there all along. Easy, right?
QUALIFYING FOR A MORTGAGE
Without going into too many of the gory details - and there are a LOT - HOW you qualify and WHO will accept your qualifications (insert the lender here) rest in newly altered positions of power.
BEFORE MONDAY, I would have sorted out your numbers, established your maximum qualifying budget, and THEN investigated which lender would serve you best in your situation. There are always hiccups, but, the basic qualifying info remained relatively the same, regardless of the lender.
AFTER MONDAY, the BIG BANKS and the smaller MONO-LENDERS (who I prefer, actually) will not be following the same rules so, neither will your file. Automatically, the WHO (the lender) in your life will play an even bigger part in your qualifying process than ever before.
In short: some lenders will be allowed to qualify you at a lower contract rate (ie: 2.44%) on conventional deals, which gives you more buying power, and some lenders will only be allowed to qualify you at the higher benchmark rate (4.64) no matter WHAT your down payment , conventional or high ratio.
I know, it’s a bit much, really.
LET’S PRESS THE PAUSE BUTTON
Conventional Mortgages: if you are qualifying with your NET income, and you have a 20% down payment, you avoid the whopping insurance premium attached to your mortgage. If you are qualifying with your GROSS income, Conventional now refers to someone who has a 35% down payment before you avoid the insurance premium.
High Ratio Mortgages: if you are qualifying with your NET income, and you have LESS than a 20% down payment, you will require an insurance premium to be added to your mortgage. If you are qualifying with your GROSS income, then it signals that you have LESS than a 35% down payment, and will also require an insurance premium to be added.
As we currently understand it, with the new rules, if you are a High Ratio file: less than 20%down (using NET income to qualify) or less than 35% down (using GROSS income to qualify) you will have to qualify at the benchmark rate of 4.64 instead of the lower, and more advantageous contract rate of, for example, 2.44% that we used BEFORE MONDAY’s announcement.
Starting on October 17th, unless you already have a signed commitment in place on a property; no matter the lender, no matter who you are, no matter how many chocolate chip cookies you try to bribe me with (and you can TRY!) the days of qualifying at the contract rate for a fixed, high ratio mortgage are gone.
If High Ratio sounds like your situation: save more, deduct less, get a co-signer, change your budget, change your desired location, and repeat. Or talk to me.
Let’s say you DO have a Conventional file; you have 20% down, qualifying with your NET income; or 35% down, qualifying with your GROSS income - good for you!!! But, there is something about that property (maybe a small bachelor condo with only 400 sq. feet) or something about your file personally (a gift, low credit score, changed jobs, changed industries) that, overall, will only be accepted by lender X.
If lender X happens to be a mono - lender, your slam dunk down payment could be moot, and you will have to qualify at a higher benchmark rate (4.64%) eliminating your previous qualifying power at the lower contract rate, not because you don’t have enough cash, but because the lender is being held to a different standard than one of the other lenders, and passes that limitation along to you. Plot twist 101.
Well, then, why don’t I choose one of the BIG BANKS in my broker channel if they have been granted more flexible rules? Because the BIG BANKS might not accept self employed, or gifts, or you need a minimum square footage, or you need to personally guarantee that Donald Trump won’t win the American election. There are SO many boxes that need to be checked off for all lenders, I can’t just say, “let’s put you with THIS lender” because THAT lender might have a condition that you simply can’t meet. It’s a little like snakes and ladders: move ahead 5, go up the ladder, roll again, and you’re sliding back to the start. GAH!
*insert going to the fridge to see if there’s any pumpkin pie left over*
I hope the pie helped, because there’s a more detailed cause and effect summary
via First National.
My story telling scenario (before your eyes glaze over and you unfollow me on Twitter and Facebook) touches on the more obvious, basic implications for the average Canadian (artist) home buyer.
If you fall into the other categories (foreign buyer, rentals vs. owner occupied, capitol gains tax implications, low ratio mortgage insurance, refinancing, 30 year amortizations...) we may need more than a meeting in a coffee shop to get us through the rules.
Thanks for reading...and sharing...and tweeting!
note: all opinions expressed on this blog are
my own entirely, and do not express the opinions or
views of Mortgage Brokers City.
This blog is intended to educate via the entertainment forum of a blog.
For your own, unique financial situation, contact me directly.
“Oh God...you’re going to write about us in your blog, aren’t you?”
As a matter of fact, I am! But, fear not, awesome artist, it won’t really be about you, it’ll be about MEEEEEEEEEEEEE and the inevitable bossy banter clients can expect to hear, regardless of who they are, where they’ve come from, or where they’re going. Because while everyone’s situation is unique, and every file takes on its own personality, there are some things that you can ALL count on me asking, telling, or insisting upon when we get the mortgage ball rolling. (See? Bossy).
To lighten the mortgage mood - apparently I can be edgy in my delivery, *sigh* - remember to read this with Tina Fey’s voice as Sarah Palin in mind because that’s how it sounds in my head. You’re welcome. : D
- HOW MUCH MONEY DO YOU HAVE? Please know your numbers (Income, Down payment) to the penny. $50,000 sounds great, but if in actual fact it’s only $46,500, that missing $3500 at the last second can make or break your qualifying power. Don’t fret, I’ll point you in the right direction.
- WHERE IS YOUR MONEY? Is it CASH, RRSPs, TFSAs, a GIFT, an INHERITANCE etc.? Is it in your name? Everything needs an explanation, on paper, and not all forms of money are alike. Best not to assume that you are allowed to use your RRSPs or a GIFT, you might learn too late that you’re out of luck. As well, avoid focussing on money you hope to make in the future. An exact breakdown of where your money is at right NOW will be the best way to help me help you.
- DON’T MOVE YOUR MONEY AROUND - Initially I wrote a long paragraph about why I don’t want you to move your money around (DOWN PAYMENT, RRSPs, GIFTS, INVESTMENTS etc.) until I give you the green light, but it’s that important, I’m going for the less is more approach and just sticking with: Don’t move your money around. xox Me
- HOW MUCH CAN YOU AFFORD? This is a tricky one at the very start of our conversation.I don’t expect you to know the first thing about mortgages but you’ll feel much more in charge if you have calculated how much you can afford for rent (mortgage +property taxes) and we can take it from there. I’ve been exactly where you are right now and will never encourage you spend more than you can afford. Ask any of my clients. I’m a fiercely protective (and a bit scary) when it comes to your money.
- DON’T GO HOUSE HUNTING, YET. Until I have all of the details of your finances, and we have decided upon your absolute maximum budget, don’t employ a real estate agent to go house hunting. I know, that ruins all of the fun (my job: party pooper extraordinaire) but your real estate agent will work 10x harder for you if you know your budget to the penny, and are in a position to bid immediately. You’ll be happier, too. Also, it’s a kind courtesy to the real estate agent. They don’t get paid unless you are actually in a position to buy. That simple consideration will generate the good real estate karma that you really, really, really want.
- DON’T LIST, IF IT DOESN’T EXIST. As artists, we live in the world of pending contracts, future gigs, and a lot of ifs and maybes. Unfortunately, unless you’re salaried, there are no future projections allowed on your file. All I can use to qualify you is what you have earned in the PAST two years, not the money that might be on the horizon. Pretty frustrating, right? But you know as well as I do how quickly a gig or contract can vanish for any number of reasons. Take it from me, you don’t want a mortgage based on the income you have yet to earn....amen.
- HOW MUCH DEBT DO YOU HAVE? Nobody likes to talk about debt, but it is a necessary evil to a successful mortgage approval if you give me all the facts up front...psssst... it’ll show up on your credit bureau, regardless. No judgement, gang. I’m here to help. Full transparency is the best way to get you on the right path.
- DO NOT TAKE ON NEW DEBT. If you are about to apply for a mortgage, please, PLEASE do not take on new debt during our qualifying process. Your new car, line of credit, or credit card will not help you. NOOOOOOOOO. First, your credit gets pulled (and lowered), and all the mortgage lender will see is the perfect reason not to give you money.
- A PRE-APPROVAL IS NOT AN APPROVAL. Ok...*pause*... Go back and read that one over again: A pre-approval is NOT an approval. It is a RATE HOLD. That’s it. It holds the rate for you if, in fact, you are approved within the next 120 days at that particular lender. It is based on information that I put into the system, not info that I prove. It’s when we submit for an approval on a live deal (the house you just bid on) that we will have to PROVE everything. I’ll stop there because this particular topic could be a blog unto itself. Just don’t get too comfy with that piece of paper. It’s only the beginning....
- PUT A 5 BUSINESS DAY FINANCING CLAUSE IN YOUR OFFER. This is a tricky one, especially in Toronto or Vancouver, because often it is a restriction the seller doesn’t want to deal with in a hot market. But, you take on a lot of risk (your deposit, namely) when you give up the time to prove your conditions (taxes, income, down payment, etc...). It’s up to you. I’ve only felt comfortable with one client doing that because they were salaried, had a LOT of cash for their down payment, and nothing unusual about their file. Even then, it was a risk, and I cannot legally guarantee anything. Self employed folks, I’ll wrestle you to the ground if you try to sign off your 5 day financing clause before I give you the green light. (Yep, still bossy.)
I think that’s enough of my bossy banter, but you have to admit, it’s much better using Tina Fey’s voice in your head. There’s more, MUCH more to discuss, and I’m sure my clients would even say,
“You forgot one.”
Ha! I probably did. I’m bossy, not perfect! : )
Thanks for reading, gang!
note: all opinions expressed on this blog are
my own entirely, and do not express the opinions or
views of Mortgage Brokers City.
I knew what cheques were. I saw that when you wrote one you received things in return. I had a bank account. I had a piggy bank. What I didn’t have was a conversation, an allowance, or anything consistent or concrete that taught me anything GOOD about money...other than the fact that it was GOOD to have it.
I don’t know whether it was a generational or gender issue in my house, I suspect it was a bit of both, but the overall vibe was that money was something that happened TO YOU, like a fairly tale or tragedy, not something that you DID, MANAGED, SAVED, CONTROLLED or to which you would pay the least bit of ATTENTION.
By the time I was 8 or 9, wandering down to the ATM on a Saturday to get cash for my mom (yep, I did) I quickly saw the correlation between my mother’s mood and the remaining balance, which was always too low, and a surprise, EVERY - SINGLE - TIME. My mom was a well educated, well paid spender whose financial plan was based on HOPE. Hoping that she still had some room on the overdraft. Hoping that a cheque hadn’t gone through so this face to face purchase would not go awry. In her defence, she did the only thing that she knew how to do. That’s all parents can do, I think. I see that now, at least. That was how she functioned, and that was how (more or less) I learned about money as a kid.
I have thought about many ways to address talking to kids about money but, as I’m not a parent, WHO AM I to give advice? I have no idea how parents manage to do all that they do on any given day, let alone talk to their kids about money. Being a former nanny, I know that success in a day with a toddler can sometimes only be measured by how many healthy things you were able to sneak into a smoothie because they won’t eat anything else!!!! (*exhale....5...4...3...2...1....)
So, instead of trying to come up with a master plan, I’m sharing this brief post that showed up on FaceBook from Humans of New York. It sums up what, in my mind, will instil the basic money tools that kids need to learn before anxiety ridden emotions, and real, adulthood consequences attach themselves to the almighty dollar.
“Every week I get one dollar for allowance. Then I get to choose the section where I put my dollar. There are four sections: spend, save, donate, and invest. If I put a dollar in the ‘invest section,' my parents give me two extra pennies at the end of every month. I’ve only used my 'spend section' twice! I have way over $10 in my 'invest section.' I used to have more but I took some money out and put it in my 'donate section.' We used to it to buy food for people who don’t have much money in their 'spend section.'”
One paragraph (from the voice of a child) that can turn financial confidence and compassion into a habit.
Thank you for reading!
I grew up as a city girl who knew more about jewelry and fine clothing than your average 7 year old, so it never ceases to amaze me how buying a house has turned my “Holt Renfrew Tendencies” into “Home Depot Domination.”
Growing up, I don’t recall anyone in my household doing repairs or touchups in the house...well...unless you include the pink surgical tape holding up the subway tiles in the corner of our shower. It was not done, taught, or expected. What I know of my grandfather, a well dressed officer turned business man, he wasn’t doing the repairs either and was happy to pay a professional to get the work done.
These days, my weekends usually include some form of improvement around our fixer upper. Thanks to TV, magazines, and let’s face it, Martha Stewart, I am less and less intimidated by projects around the house, and I have the pink, steel toed boots to prove it.
(yes, my tool “kit” is a shower caddy - don’t judge)
Now, would I be a home reno diva if I didn’t have a handy dandy hubby?
Probably not...or at least not as much.
But, by being a home owner (sorry, let me rephrase that: Being the payor of a mortgage) you quickly realize that learning how to do “stuff” might not be such a bad idea. We’ve done the math and if we had paid my husband and his team to do all of the labour in our home (not including materials) we would be in the high $$, $$$ range.
(this is why I suck at Twitter...talk talk talk...)
You’re never too old - or too fancy - to become a Depot Diva or Divo.
- Renovation + Garden shows
- You Tube “how to” videos
- Friends, Neighbours, and relatives
There are endless FREE ways to learn a new skill that you never imagined for your self and, if I can do it, you can do it too!
I’m not saying you should learn how to do it ALL (ie: electrical, plumbing or gas work) but, if you can learn how to do one thing really well, just ONE THING, you’ll feel like a million bucks every time you look at your miraculous handy work. Your wallet will feel a lot better too.
Thanks for reading!
I am 42.
My husband is 50.
We have a 21 year mortgage on which we have 13.5 years left to pay it off.
At that time I will be 55ish, and my husband will be 64ish.
(Knock on wood, fingers crossed, throw salt over your shoulder, live on a street named after salt.)
Our home value has almost doubled in 7 years by virtue of its detached existence in Toronto.
SO? WHO CARES?
Well, we do. And depending on your age, and how close you are to retirement as you read this,
you might care too.
We want to retire. No, we want to retire comfortably, without worry, so we continue to put everything we can into our home (instead of clothes or gadgets) because, so far, it has been the most reliable and lucrative saving vehicle we have ridden thus far. When an investment property opportunity popped up, we faced it head on.
It was a rental bachelor suite that we (ironically) renovated for a client who is now planning to sell. I asked them to give me a week or two to put an offer together, and broker my own deal. They were gracious and on board with our offer if we could make the numbers work. No bidding war. Just a straight up sale. Sweet, right?
The plan was simple:
- get a separate home equity loan for the down payment
- have the renter pay off the new mortgage
- pretend that there won’t be any obstacles in our way
- laugh all the way home to count our money, jiggity jigg!
The NOT so simple parts of the plan:
- for a rental purchase you need to use your NET income to qualify
- since we are self employed we have low NET incomes, mine in particular, was obstacle #1.
- we already HAVE a property/mortgage
- we needed a minimum 20% down payment for a rental property...possibly 25% depending on the lender
- we needed more cash than that because of the approximate $4000 in closing costs , $6000 refinance penalty at the current lender, 1-2% B lender fees ($2000-$4000) for the new mortgage (because we only *almost* qualified for a B lender with our self employed GROSS income.
- our current property (however) needs a new roof and driveway and, when I say need, I mean NEED, so the refi was getting bigger and bigger by the second.
- we would have to pay a CMHC insurance premium on the additional funds (around $3000.00) because our original mortgage was insured and a full refi (instead of a line of credit) was the only scenario that brought us in line.
- THIS WAS SUPPOSED TO BE SIMPLE!
- we were limited by B lenders who might not fund a condo that was shy of 500sq.ft. This is hard enough in A lending because the Toronto market is becoming overwhelmed with mini condos, let alone open space bachelor pads without a separate bedroom. I did it for a client, but our financial scenario was making it difficult for us.
- and then (!!!) we would be left with a NEW 30 year mortgage, larger than the original one on our first property, that we wouldn’t have paid off until ages 72 and 80.
- after all that, our ratios were still not entirely in line to qualify fully (there is always the option to beg directly with the business district manager)
- due to the higher interest rate of the B lender (4.25%), we would have to charge rent higher than market value which would make it harder to find/keep a tenant.
- our own monthly expenses would increase outside of our comfort zone due to the new, LARGER mortgage on our first property and no room for the unexpected.
- also, if we ever needed to live off of the equity in our current home in a reverse mortgage, a large portion would be eaten up by this new refinanced scenario.
We had all of this equity, but in the end the numbers said, this is not going to happen today. Our retirement vehicle #2 would have to stay in the show room for a little bit longer.
I’m frustrated that I was not prepared enough for this perfect opportunity.
I’m frustrated that I have not saved enough for another down payment.
I’m frustrated that I haven’t (yet) invested in a new retirement vehicle.
I’m supposed to be f*$king rocking this property thing!!!!!!
But the risks, the list of penalties and costs, our ages, our fluctuating incomes, TWO 30 year amortizations on TWO properties, however, out weighed the gains in this moment.
In other words:
We would not sleep at night with this financial frame work swirling around us.
I wanted it to work, and the fact that I was able to convince my husband to keep the conversation going longer than a day was what I thought was the sign form the universe that this was going to happen!
IT SHOULD HAVE HAPPENED.
What WOULD have made it work?
A CASH down payment.
Higher NET income (for me)
If we had had that CASH down payment, or if my NET income was higher, we would have narrowly qualified in a way that would create a more manageable scenario. We would not have had to refinance the same way, we would not have incurred fees, we *might* not have had to go to the B side with higher rates, our renter would have paid off everything at market value, AND our current property vehicle would not have been jeopardized. Ironically, the money we put into our current house is also why we have so much equity in the first place. There’s a little bit of chicken & egg scenario going on here.
The NEW plan?
- Don’t give up
- DO keep swearing like a trucker about this for a little bit longer
My goal is to write a happier ending in about 3 years, but until then, I encourage my readers to continue to seek out financial success stories and keep ME posted on how YOU plan to get ahead.
Thanks for reading and sharing!
note: all opinions expressed on this blog are
solely my own and do not express the opinions or
views of Mortgage Brokers City.