3 POINTS YOU NEED TO CONSIDER

In hot real estate markets, it’s common for both buyers and agents to consider having no subjects to financing when making a purchase offer.

It’s important to realize, however, that no professional is in a position to legally advise you to enter into a real estate transaction with no subjects, especially no subject to financing.

This is a personal choice that you must carefully consider. Understanding the risks involved will help you make an informed decision.

Keep these three points in mind when making the choice with which you will be most comfortable:

1. Regardless of whether you have secured a rate hold / pre-approval, the lender has the right at any time to decline the property. This can occur for a number of reasons including but not limited to: value, condition, wiring, tanks, strata documents, zoning, work completed without permits, full fix completed without proper documentation, rental components or remaining economic life. Lenders only review property details once an accepted offer is in place – not when you’re simply considering making an offer or during the time you’re going back and forth as part of the negotiating process. They then review the contract, property disclosure statement (PDS) and anything else accordingly.

2. Even if a lender has approved you based on credit and income, if your scenario has since changed and they request further documentation (eg, you haven’t received enough overtime, you spent more on your credit cards, your employment/credit has changed or there was something you may have forgotten to disclose), they have the right to alter or cancel the approval. All lenders only do a full review of your credit and income once you have an accepted offer in place. They only view an application for rate hold or pre-approval purposes and verify once an accepted offer is in place with the right reserved to disregard the pre-approval, or even an approval at any time for the above reasons while doing their due diligence, right up until closing.

3. Who is in the best position to go into a purchase with no subjects? Borrowers who:

– Are overqualified for the purchase

– Can afford a higher payment if the original plan doesn’t work out with any of the above points

– Have their own cash (not a gift pending qualifications) far in excess of what was intended

– Have income that far surpasses what is required

As Accredited Mortgage Professionals, it’s our responsibility / fiduciary duty to be honest and transparent, and give you the power of choice with clarity on all the considerations to anticipate scenarios that may arise, so you can make the best choices for your family. It would be much easier to be a yes person and cross our fingers that none of this comes up, but it’s not how a professional should guide you, as you come to trust in our clarity, knowledge and experience. When you have this expertise coupled with the right real estate agent, they too will ensure you take the emotion out of the purchase, and protect you accordingly with subjects you’re comfortable with for your personal circumstances so your choice is calculated, clear and comfortable long term.

ANGELA CALLA, Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/thinking-about-a-no-subject-to-financing-offer-3-points-you-need-to-consider/

Broker: ‘Every deal is a documentation nightmare’

It seems to be the complaint of the season, as brokers continue to struggle with last minute requests from lenders.
 
“On this particular deal, the lender was so busy they didn’t make the call [requesting follow-up documentation] to rectify the situation until the last minute,” Layth Matthews, a broker with Rate Miser, told MortgageBrokerNews.ca. “I had to scramble to verify pension income in addition to the employment income; the employment income wasn’t as high as originally thought.”
 
According to Matthews, he received an “urgent” email on the morning of closing, saying the “verbal income verification came in light” and the lender required more documentation.
 
“I don’t really want to criticize the lender because you don’t know what led to it,” Matthews said. “The employer could have been sluggish in providing income details.”
 
Still, Matthews is echoing a growing number of brokers who charge that every deal is a documentation nightmare these days. “Condition requirements have become painstaking and nitpicky; underwriters have very little flexibility,” he said.
 
An alarming number of brokers complained about the same issues late in the mortgage origination process this summer. They point specifically to last minute audits throughout the summer, many the result of lender understaffing issues.
 
One former lender recently confirmed that challenge and its contributions to delays.
 
“There is often another level of review after the underwriter signs off on a deal before it gets funded; the underwriters sometimes miss something and it’s a function of underwriters being overwhelmed,” Tim Hill of Dominion Lending Centres Primex Mortgages told MortgageBrokerNews.ca in September. “Volumes for lenders are also as high as they’ve ever been, and a lot of documents are being looked at very late in the process.”

by Justin da Rosa | 28 Oct 2015

http://www.mortgagebrokernews.ca/news/broker-every-deal-is-a-documentation-nightmare-198561.aspx

There are many things that can affect the market value of a property, ranging from interest rates to home improvements to the mood of the seller.  Below are some of the key dynamics that tend to have the largest influence on home values that every homeowner or aspiring homeowner should be aware of.  These factors are often gauged by sophisticated Real Estate investors before they decide to invest in an area:  

1. Increase in Disposable Incomes

This is one of the most important indicators. If a town’s average disposable income is increasing faster than the national average, real estate prices are poised to follow suit.  Key indicators: a) increased average income; b) decreasing income tax rates; c) increasing retail sales.  Be wary of towns where demand is driving values upward while the average income is remaining flat. 

2. Job Growth & Migration

It pays to read the news regularly in the town you would like to invest in or have invested in.  Be on the lookout for announcements of new jobs, major expansions, or new employers. Ideally you can purchase in areas where the population is growing faster than the provincial average and where the reputation of the town, city or region is strong.

3. Political Climate

Business friendly politicians generally equal real estate friendly investment areas.  Look for regions where development is wanted, not shunned.  Look for areas with forward-looking economic development offices where they sell the area to potential employers. Progressive towns attract business while other towns lose it. 

4. Infrastructure Expansion

Here’s another reason why reading local news in areas that you plan to invest in can pay off for you big time.  Look for planes, trains, highways, sewers, land annexation or expansion plans.  Don’t buy until the construction begins or until plans have been completely firmed up, it can be dangerous to buy based on rumors alone.  Trains and rapid transport are huge opportunities (towers that spring up at subway stops as an example). To enjoy a nice price increase relative to other areas of the town, city or region not affected by the infrastructure enhancement, try to buy within 800 meters of the station, or exit/entrance etc. 

5. Areas Of Renewal

If chosen correctly this consistently provides the biggest bang for investment dollars.  This is best defined as areas that are moving up from one economic class to the next, often described as “tough, yet funky”.  In these areas, you’ll witness a mix of run down to well-kept, recently fixed up properties.  Often you’ll see these areas mentioned in the news, every city and most towns have areas like this.  The local perception is the hardest to change, so often locals miss the opportunity.

6. Mortgage Interest Rates

Low interest rates allow a greater proportion of renters to become homeowners, which in turn can lead to an increase in home sales and therefore push prices higher.  That said they don’t significantly increase mortgage costs (on a $100K mortgage a quarter % increase in rates only increases the payments by about $14). With interest rates historically low for the past several years, this is less of a factor now than it would be when rates first dropped.

7. Maximizing Value and Zoning Opportunities

Sophisticated real estate investors look first at a properties physical attributes, and then they examine how they may be able to change the property to optimize profit way beyond just renovations. As an example, an old hotel that is converted into loft apartments (advanced), or taking a single family home and converting it to a duplex (less advanced but still can be tricky).  You need to know zoning bylaws and tenant regulations to make the transition successful. A small percentage of properties will have this potential, but make sure you have the required finances and expertise before taking this on, or find a partner. 

8. Buy Wholesale; Sell Retail

You can buy properties at wholesale any day of the week in any town across the country, there are many investors across Canada who make their entire livings this way. This can include buying rundown properties and fixing them up, developing raw land or buying properties that are going to foreclosure.  In Canada, accessing foreclosure properties is tougher than in other countries such as the US.  The best opportunity for this in Canada is the pre-foreclosure market, some investors will advertise targeting distressed homeowners and then provide them with a much needed opportunity to sell.

9. Stand Out

Quality marketing is a real estate investor’s best kept secret.  You must be proficient to get above market rents and values for your properties. An example of this would be how two incredibly similar houses in the same neighbourhood can easily sell or rent for a 5-10% variance from each other. Matching your message to your prospective target in a compelling way is critical.  

10. Renovations and Sweat Equity

Areas in transition are great sources for homes that need improvements.  Look for well-built but neglected homes.  Keep the work simple and in line with what a renter or owner is looking for. Remember, smaller aesthetic investments such as in paint, flooring or carpeting can provide the biggest bang for your buck.  Landscaping and exterior work also typically provide a solid return.

Versus (vs) – as compared to or as one of two choices; in contrast with.

At least once a day I get asked, what’s the difference between ‘this’ and ‘that’? With this in mind I put together some content that will hopefully provide some clarity in regards to  a few of the more commonly asked questions.

LAWYER VS NOTARY

Most real estate deals are fairly straightforward, both a lawyer and notary can and will prepare the documents for you. If you are buying a home, they will: conduct a title search, obtain tax information and any additional information to prepare the Statement of Adjustments. Then they will prepare closing documents, including a title transfer, mortgage, property transfer tax forms and forward them to the seller’s lawyer/notary for execution. After you sign your papers, the lawyer or notary will register the transfer, mortgage documents and transfer funds to the seller’s lawyer/notary. Sometimes there are more complicated transactions, at this point one would need to decide LAWYER or NOTARY?

If something were to go wrong with your transaction, a notary cannot represent you in court of law, unlike a lawyer. Nor can the notaries represent and guide you through a dispute process. Notary also cannot advise you on legal matters, for example, if you go to a notary to convey a real estate file and you were to ask a legal question, such as, “I think my neighbour’s fence is on my land, what should I do?” the notary cannot give you advice on what your recourse is.

With regard to the fee structure, there isn’t much of a different these days. If you are unsure of which one to use, it’s always a good idea to phone a notary and a lawyer to describe the services you need and then decide from there.

GUARANTOR VS CO-SIGNER

A co-signer is a co-owner that is registered on the title and is equally accountable for payments, while a guarantor personally guarantees the payments will be made if the original applicant defaults. However, the guarantor has no claim to the property as they’re not registered on the title. Typically a co-signer is added to a mortgage application to increase the income, which will assist with reducing the debt service ratios. Whereas a guarantor will be utilized if the applicant(s) has received past credit blemishes and needs to strengthen the file.

TITLE INSURANCE VS SURVEY CERTIFICATE

These two are slightly different but work in conjunction with one another. Title insurance is an assurance as to the state of title of any given property. In practical terms, it protects lenders and purchasers against loss or damage suffered due to survey problems, defects in title and other matters relating to title fraud. A survey certificate will typically show the lot boundaries, improvement locations and often the locations of any rights of ways or easements registered against the property. This will also assist a purchaser in determining whether any of the improvements on the property encroach on a neighbouring property or if there are improvements from an adjacent property that encroach on the subject property.

JOINT TENANT VS TENANT IN COMMON

When a property is held in joint tenancy, the situation is what I refer to as “the last man standing.” When one joint tenant dies, the entire property belongs to the remaining, surviving joint tenant(s). Only that last person can use his or her Will to give the property to someone else. Tenants in common is a different story. In this arrangement, each person owns a percentage that is registered in their name. They can then leave their share to someone in their Will or sell it (never mind the logistical problems of trying to sell one third of a house).

SWITCH/TRANSFER VS RE-FINANCE

To switch/transfer one’s mortgage, it involves moving your current mortgage from one lender to another without changing anything except for the term and interest rate, amortization remains the same. If switching lenders within the term, there will likely be a penalty for breaking the mortgage, though often the savings in moving to another lender with a better rate will substantially outweigh the penalty. Doing a switch at the end of your mortgage term will allow you to completely avoid the penalty.

In re-financing a mortgage, the borrower is also likely taking advantage of lower rates whilst at the same time accessing equity. The reasons for this could range from; debt consolidation, renovation, purchasing a vacation home, post-secondary education, investment planning and so on… Two other major differences are when one wants to re-finance, the maximum loan is 80% of the market value whereas a switch/transfer lender can surpass the 80% mark as the mortgage amount does not change. And finally, with re-financing the mortgage will need to be disbursed and re-registered with the lender (or new lender) therefore a fee will be charged. With a switch/transfer, there is a possibility that there will be no extra fees charged.

ACCELERATED BI-WEEKLY VS BI-WEEKLY PAYMENT FREQUENCY

Nobody wants a mortgage and everyone that has one wants to pay it off faster, or at least they should. Payments are income streams that lenders blend a principal and interest amount into one payment with the goal to pay more principal than interest. As one gets further through the term the inevitable shift happens from paying more interest to paying more principal (P&I).

The bi-weekly payment is basically 12 monthly payments spread out over 26 installments or every other week. For example, if your monthly payment is $2,000 your total yearly mortgage payment will be $24,000. The bi-weekly or 26 payment equivalent is $923.08 ($24,000.08), the net amount remaining unchanged. To speed up the inevitable P&I shift, one might want to opt for accelerated bi-weekly payment frequency. This is the key to shortening or reducing the life of the mortgage (amortization). The accelerated repayment plan takes a 24 payment cycle and adds on 2 more payments of the same size, for a total of 26 payments or 1 extra payment every 12 months to total 13 payments. So you are paying slightly more each year, thus reducing the life of the mortgage. Using the same example from above, if your monthly payment was $2,000, adding two extra payments to the grand total, one’s yearly mortgage payment would be $28,000, with each payment now being $1,076.92.

Obviously if you have questions, we here at Dominion Lending Centres would love to answer them for you.

MICHAEL HALLETT
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/this-vs-that/