A & B Lenders and Private Mortgages

A & B Lenders

 

Andrew Young from Community Mortgage Movement here. What’s the deal with A & B Lenders and Private Mortgages?

Today we are going to be going over what is an A Lender, B Lender and a Private Mortgage. But first here is a little more info on what mortgage agents and mortgage brokers do. I myself am a mortgage broker and can not only deliver a lot of different options and a lot of choices because we deal with different types of lenders. So, what’s the deal with these lenders?

A Lenders:

Also known as traditional lenders, refer to banks or credit unions that traditionally cater to customers with good credit scores and have a reliable income – These are considered “A” Clientele.

Institutions servicing an “A” clientele include Canada’s major banks — e.g., BMO, CIBC, National Bank of Canada, Scotiabank, RBC, and TD. These banks are subject to federal regulation, which means that you’ll be stress tested when you apply for a mortgage.

 

B Lenders:
These institutions offer a lower barrier of entry to qualifying for their products but can offset that with higher interest rates. In short, they cater to people who may not qualify for say, a mortgage or a credit card at one of Canada’s six big banks, because they lack either a strong credit history, or a guaranteed income (recent immigrants, or the self employed, for instance).

 

Private Lenders:

These are the lenders that can help fill the gaps between the A & B lenders. These lenders are not just for people in a really bad financial situation, it could also be for people who are looking to build something that is a little more unique, as the banks might not understand or the banks don’t have the hunger for.

Mortgage Rates and Why They Rise and Fall

Mortgage Rates Rise and Fall

There are many factors that influence the overall health of the Canadian economy; unemployment, inflation, consumer confidence and the housing market, just to name a small few.

 

Factors affecting the Fixed Mortgage Rates

 

One of the main factors that affects fixed mortgage rates is the Government of Canada Bond Yields. Fixed mortgage rates normally move in alignment with the Government of Canada Bond Yields.

 

Bond Prices and Bond Yields

There is a negative relationship between bond yields and the price of bonds. Meaning that when bond prices increase, the bond yields decrease and when bond prices decreases, the bond yield increases. Bonds are historically safer than stocks, especially Government issued bonds and due to this bond prices for Government bonds decrease when the market is booming and increase when the market is dipping

 

Bond Yields and fixed rates generally have a positive relationship. Meaning that when bond yields increase, fixed rate also increases.

 

Stock Market

When the Stock Market is booming, investors are more likely to make a higher return on investment equities than investing in bonds. This means that the demand for bonds decreases and as such the bond price decreases and the bond yield increases and this will lead to an increase in the fixed rate. On the other hand, when the stock market is dipping, and stocks do not look as enticing, investors are more likely to invest in safer investments, such as bonds. As such the fixed rate will likely decrease due to the price of bonds increasing, the demand for bonds increasing and the yield of bonds decreases.

 

Factors affecting the Variable Mortgage Rates

 

The bank of Canada is responsible for changes to variable mortgage rates because they determine the target overnight lending rate.

 

Variable Rates and Overnight Rate

The overnight rate changes the cost of lending/borrowing short term funds and therefore influences the prime rate. Meaning when the prime rate goes up, so will your variable rate and monthly payments, as prime rates are linked to variable mortgage rates.

 

Prime -/+

Variable mortgage rates are normally advertised as Prime plus or minus (insert rate here), which means the interest you pay is directly related to the Prime Rate and will fluctuate whenever these change. Let’s say the current overnight rate is 0.5% and the major banks prime rate is 2%, and at that time the variable mortgage rate is – 0.50% (thus 1.5%). If the Bank of Canada increases the overnight rate from 0.5% to 0.75% (an increase of 0.25%), the banks will likely follow suit and increase their prime rate by the same 0.25% to 2.25%. Your variable mortgage rate will thus also change due to this increase in the prime rate, making your new variable mortgage rate 2.75% – 0.50% = 1.75%.

Gifted Down Payments

Gifted Down Payments

The latest stats from Mortgage Professionals Canada show down payment gifts from parents have doubled since 2000 — going from seven per cent in 2000 to 15 per cent for homes purchased between 2014 and 2016.

 

One of the first rules when it comes to gifted down payments is that it must come from an immediate relative. It also should be noted that this gifted down payment is supposed to be a genuine gift that should not have to be repaid to the family member giving it.

 

The family member gifting the money maybe required to sign a letter confirming that. The lender might also verify bank records of the amount that is being transferred to the buyer.

 

Self Employed

 

For Self employed applicants that are stating their income, at least 5% of the minimum 10% down payment must come from the buyer’s own resources. Another thing to consider is that even with a gifted down payment, a lender will always look at the prospective borrower’s financial picture.

 

Gift of Equity

 

This is a legitimate form of a down payment on a house. How a gift of equity works: let’s say you wish to buy a home they are living in or wish to move into. The house is in a mom or dad’s name or it is a close relative and the borrower does not have money for a down payment. If the owner of the home is willing to gift you the equity of the home, this amount can be used as a down payment on the home.

 

An example of this might be a family wants to purchase a home, the price of the home is $100,000 and is agreed upon. A gift of equity can be 5% or more, depending on the borrower’s application and current financial situation. Let’s say the home owner/family member completes a “gift” letter, stating equity is a gift, not owed back. For the example let’s say the gift of equity is 5%.

 

Example

$100,000 – $5,000 (5%) = $95,000 + 2,755 (CMHC) = $97,755 mortgage amounts [seller receives $95,000 at closing]

 

Instead of your family handing you a gift of cash for down payment they hand you equity and still receive the same amount of money on closing day.

Down Payment and the Next Steps

Down Payment

So, you’ve finally got the money the need to make a down payment on your house, congrats! So, what are some of the next steps in this process?

 

Confirm the details

 

To fulfill the conditions of your mortgage approval, you’ll need to document almost everything you do. This is required by all lenders to ensure that you are not borrowing against your down payment and to help protect against fraud.

 

Here’s what you will need:

 

A 3 Month History

You will need a 3-month history of any bank accounts that you have been using to get your down payment. One of the most important parts of this is that your name is linked to the account, as some printouts do not show a name. Talk to your mortgage advisor about this if you have any concerns

 

If You Had Large Deposits

If you had any large deposits within the last 3 months, you will need to show where they came from. An example of this might be if you sold a car, make sure to keep the bill of sale or if you transferred money into the account, make sure to bring the records.

 

If It Is a Gift

Gifted funds can only come from immediate family members (parents, grandparents, siblings). There must also be a signed gift letter and a bank statement from the giver to verify the funds.

 

If You are using money from your RRSP

If you are withdrawing under the Home Buyer’s Plan, the funds must have been in the account for 90 days.  Also make sure you budget enough time (about 30 days) to make sure your funds can be transferred out in time. You will also need to show a 3-month history of your RRSP

 

If You are Getting money from Outside of Canada

It is important to get the money into the country at least 30 days before funding. Some lenders might ask that the money must have been in a Canadian account for more than 90 days, so make sure to ask about this early!

 

Regularly Deposit Cash into Your Accounts

As stated above lenders do not like to see giant deposits into your accounts and they especially don’t want to hear that you’ve been stockpiling your money and not depositing it into a bank.

 

If the Down payment is coming from the sale of your existing house

It is important to provide a firm purchase and sale agreement, and the current mortgage statement. Some lenders will also ask for the real estate lawyer’s letter of disbursements, to see how the proceeds of the sale will be divided up.

New Mortgage Rules and Their Effects

Mortgage Rules

The Canadian Government announced that it would be changing the rules regarding mortgages for Canadians. This new rule would came into effect on January 1, 2018 and how Canadians are approved for mortgage loans for houses.

 

Rules for Insured Purchasers

Currently anyone who purchases a home with less than a 20% down payment is required to pay a one-time insurance fee to the bank. This fee is simply just reassurance to the bank, in the case that a mortgage payment cannot be made. However, under the new regulations, buyers will still have to pay the insurance fee, but they will also have to be pre-approved for a higher interest rate. This rate will be at least 2% higher than the initial mortgage rate that they negotiated. First time home buyers will need a higher amount for a down payment and prove they can attain that extra 2%.

 

Rules for Uninsured Purchases

Under the current rules anyone who purchases a house and puts a down payment of 20% or greater of the mortgage is not required to purchase insurance from a bank. However, with the new legislation, even those who hold a down payment of 20% or greater will be required to pass a “stress test,” now meaning they will have to qualify for a rate 2% greater than what they had initially negotiated.

 

Effects for Current Homeowners

Under the new regulations, current homeowners will be exempt from the stress test, but this is only if they choose to stay with their current institution. Implementation of this regulation means that when homeowners are eligible to renew their mortgage, current homeowners will be restricted from discovering new lower rates.

 

Effects for First Time Home Buyers

The changes to regulations have caused some changes in the real estate market. First time home buyers with 20%. This means that more homes are now being purchased a little more quickly than before and the new regulations will not affect these buyers. It can be difficult to plan, especially for first time buyers.

Keep Your Credit Score High While Shopping for a Mortgage

Here is a breakdown of common credit score terms and a few tips to help you improve your credit score before you apply for a mortgage.

 

Credit scores in Canada are used to measure a borrower’s credit risk based on their financial history. This includes details with credit cards, loans, mortgages, credit and payment history. The higher your credit score, the lower the interest rate will be. Having a favourable credit score is a factor in this and it also makes it easier for individuals to get credit cards and loans on favourable terms. It is wise to start working on that credit score early, so you can reap the benefits of it later.

 

There are three private agencies that generate credit scores – Equifax, Trans Union and Experian. all 3 bureaus offer FICO (Fair Isaac Credit Organization) credit scores using the formula developed by Fair and Isaac.

 

Tips on keeping your credit in check

 

Review your credit report at least once a year.

 

Contact your creditors or send letters to the credit reporting agency to have errors on your credit profile corrected.

 

Apply for credit only when you need it.

 

Keep balances below 50% on your credit cards.

 

Pay off non-mortgage debt on time as quickly as possible. If your debt levels are high, try to set up some sort of payment plan to reduce your balances or look to consolidate this debt.

 

Remember to not close accounts, even if they are not used – you can lose valuable points by doing this in the current evaluation system.

 

Do Inquiries hurt my credit score?

This is a common misconception, that every time you check your credit score the score will drop. Inquiries may have an impact on those with very limited credit history and on late payments.

Community Mortgage Movement Charity Highlight: Growing Chefs

Growing Chefs

Growing Chefs! Ontario is a registered charity based out of London, Ontario. They unite chefs, growers, educators and community members in children’s food education projects.

Growing Chefs! Was founded by Merri Schwartz, a professional pastry chef in September 2006 in Vancouver, British Columbia. She founded Growing Chefs! as a tool to connect those chefs and growers to local communities, using a fun, empowering, educational program to do so. After getting involved with the program, restaurant manager Andrew Fleet began the pilot for the second chapter of Growing Chefs! in London Ontario.

For 10 years Growing Chefs has been working in the London, Ontario community to help get kids excited about cooking, preparing and sharing healthy food together. The charity has been running programs within schools for about 10 years, as well as several community agencies in London.

One of Growing Chefs’ main goals is to help provide an avenue for chefs and growers to get more involved in the community and help with supporting food education. They also look to provide children in the community with the knowledge and confidence to grow, prepare good and healthy cuisine.

One of the programs that they offer is a hot lunch program for several of the schools within the London, Ontario community. Through the use of their commercial kitchen – the Beet Cafe They prepare and deliver over 27,000 lunches hot and healthy lunches each year. They also offer recipes and educational classes for children

They host a variety of Food Education Projects and each month they offer events their own signature meals. These events are open to the public and the menu for these events are carefully crafted, with fresh local ingredients.

Remember that Growing Chefs is a grassroot organization and would not be able to function without the help of the community and volunteers. If you are looking to volunteer your time be sure to head over to their volunteer page and see the available volunteer positions.

Community Mortgage Movement Supports Local Businesses

Shop Local Community Mortgage Movement

Everyone can make an impact on their community by helping to shop local and supporting local businesses. While small businesses generate new jobs and they’re also an asset to the local community. Here are some ways that small businesses help to improve the community:

Shop Local

Shopping local is great for the community. Local businesses are the backbone of the economy and community. Two or three times as much money spent stays in the local community when you buy locally made goods or services rather than chain stores.

Community Identity

Take a stroll down the main street of your city and town and you’ll most likely notice that each community has its own unique and local charm. All types of small businesses help to contribute to a community’s identity. Many municipalities and tourism boards have prioritized preserving the unique character a vibrant small business community creates– transforming that character into an advantage.

Create Local Jobs

When you shop at and invest in your local business you create more jobs in the local community. Small businesses are local job creators and most of the jobs are local. This of course is better than having to commute to a different city, employees can work closer to home. When a community has a vibrant commercial centre, it helps to create an ample opportunity for these workers to shop at local businesses. For example, an employee might take a lunch break or grab a drink from a local bar. This keeps the money local and further creates a tight knit community.

Diverse, Locally Made Products and Services

One of a kind and locally made products can attract customers to a community,

Locally made goods are also very attractive to residents of the city that want to lower their carbon footprint, support local businesses and make sure that their tax dollars are kept closer to home.

Community Involvement

Small businesses are an integral part of the community they live and work in. Therefore, they tend to be aware of how their decisions will impact the community. In addition, local shops tend to be involved in the community and may help to sponsor local events or local sports team, even help with volunteering throughout the city.

These of course are just a few examples of how small businesses are important and help the local communities they are a part of.

These establishments help to benefit our local economy, personal relationships and help with building the local community. So why not join in and help with #SmallBusinessSaturday and shop local, while supporting the London community!

Closing Costs and Estimates

Closing Costs and Estimates

Several first-time home buyers are often shocked when they see the total cost of their home purchase. This blog will go over some of the closing costs of the home as well as a few “hidden” expenditures you might expect to pay

 

Land Survey

Even though most lenders may agree to the existing property survey, some might have a land survey done again, depending on the last time a survey was done.

 

Home Inspection

Majority of lenders will request a home inspection, but even if they don’t it is always something that should be done.

 

Insurance

If you are planning on putting a down payment of less than 20% of the purchase price, your lender will require that you purchase mortgage default insurance. While the cost varies widely depending on the home you buy, where it’s located and the type of coverage you require, expect to pay at least $800 per year for coverage.

 

Adjustment Costs

These are costs the seller prepaid and can include property taxes, utility bills, heating oil, lawn care or property maintenance services as well as other annual contracts. For metered services, such as hydro, gas or water, the meters are read on closing day (the day the house changes ownership), to verify down to the last cent what the seller and buyer owes.

 

Legal Fees

Your lawyer will do a title search, register and prepare your low mortgage rate and prepare the title deed of the house.

 

Land Transfer Tax

Land Transfer tax must be paid by everyone who purchases property in Canada. For first time homebuyers they can be exempt from this tax.

 

HST

Harmonized Sales Tax (HST) was put into effect on July of 2010 in Ontario and is applied to the purchase of all new homes.

 

Appraisal

Your lender will only lend you a percentage of either the appraised market value of your home, or the home’s purchase price– often, the lesser of the two.

 

Unsure about these additional costs and how they will impact buying your home? Make sure to contact me about these costs or if you have any questions about your mortgage.

 

7 Tips to Set Up an Office Nook

Home office tips

Have you decided to work at home on occasion, but don’t have a room that can be used as office? There is a solution to this problem, you can transform a quiet corner of your house into an office nook. Here are seven tips to set up an office nook.

 

Determine Your Needs

Before choosing where to install your office, think about how much time you will be spending in your home office, the number of people who will use it and the equipment and accessories you will need. The idea is to create a practical work environment that is pleasant.

 

Choose the Spot

Don’t have a room that you can use as an office? Why not use your bedroom, living room or entranceway? If you have a staircase you can also use this space by arranging your work area underneath it. The kitchen could also be a perfect place for your computer. While you are working you can keep an eye on the stove or cooking pots. What it narrows down to is what spot provides the most functionality and works for you.

 

Create a Zone

With this you want to create a separate work area, you can do this by painting an area, or cover a wall in materials like cork, slate or wood. You can also use a screen or curtain to create a zone. An area rug can also help to visually separate the room and the office.

 

Choose the Desk

Before you choose the desk style, ask yourself if the desk will be an extension of the room. Will it just be used for dealing with household documents or will it be a real workplace? Will you be using a laptop or a desktop? What are your storage limitations?

 

Organize

Do you need to organize your workspace? If the space is limited, consider using a floating desk. You can also install shelves or cabinets on the walls to save space on the floor. The use of drawers, boxes or file cabinets can all also be used to help with storage of documents.

 

Customize

After you have set up your workplace, give your office a little personal touch. If you are thinking about adding colour, go with blue or green, as these colours help with promoting concentration. Try to add a touch of nature by adding one or two plants into your space.

 

Make it Comfortable

Nothing improves efficiency more than a comfortable office space. Good lighting is also essential in your work area, so make use of natural light as much as possible.

 

When it comes to a functional work area, it really isn’t that complicated.