On several occasions we have had people ask us at Dominion Lending Centres about construction mortgages. Every lender has their own guidelines and rules when it comes to construction mortgages. That’s because there are many details involved in the process of construction, let alone the mortgage that actually funds it! Below is part 1 of 2 of what a construction mortgage entails and what you need to know when tackling this complex mortgage.

Construction Mortgages almost always start with raw land

Raw land usually comes in 2 forms: service lots and un-serviced lots*

Serviced Lots are defined as having:

• Portable water-water that is safe enough for drinking and food preparation
• Septic/sewer services-city connected sewers or a septic field
• Access-a driveway, as rough or refined as it is
• Hydro-connected to power
• Natural gas (if applicable)
• Need 25% to 35% down

Un-serviced Lots are defined as having:

• Portable water-needs to be available
• Septic/sewer services-not applicable
• Access-(other) or not typical such as water access
• Hydro-not applicable
• Natural Gas-not applicable
• No Agricultural Land Reserve**
• Need 35% to 50% down

*guidelines depend on the lender
**land that is reserved for agricultural activity (ie. Farms)

Rates and terms of purchasing raw land

Serviced Lots usually have:

• Maximum Mortgage Amount, depending on the lender
• Maximum Mortgage Amortization, depending on the lender
• Rates are usually a little higher than discounted rates (ie best discounted fixed rate plus 1%), but not always
• Fees – usually a lender/broker fee, but not always
• Terms – usually 1 thru 5 years

Un-Serviced Lots are defined as having

• Maximum Mortgage Amount, depending on the lender
• Maximum Mortgage Amortization, lesser maximum amortization compared to serviced lots
• Rates are usually a little higher than discounted rates and higher than serviced lots (ie best discounted fixed rate plus 2%), but not always
• Fees – usually a lender/broker fee and usually higher than serviced lots, but not always
• Terms – usually 1 thru 5 years

How do you qualify?

• You need to complete a mortgage application
• You need to provide credit bureaus and income documents showing that you qualify for the amount of money you wish to borrow.
• You need to provide a detailed construction budget.
• You need to provide a title search (through your mortgage broker or lawyer)
• You need to submit a copy of the purchase agreement, including all addendums and amendments.
• Builder information and resume (if requested) and project contract
• Full set of legible construction drawings scaled to legal size paper or smaller
• HPO registration (Home Owner Protection forms or registration of new home)
• You base the amount to be borrowed on the appraisal based on a completed project

You may need to also provide….

• Copy of all construction contracts
• Corporate financial statements (if applicable)
• You need to submit a detailed summary of the deal, including how you are expecting to move out of the higher interest rate construction mortgage into a “normal” mortgage, depending on the lender
• Copy of purchase agreement for the land purchase

These are the first steps to setting up and understanding a construction mortgage. There are unique traits to this type of mortgage as with any other mortgage. Remember, you should always consider calling a mortgage broker to help walk you through this complex process!

Stay tuned for Part 2 nwhich will cover the budget, the loan, and key take points.

Geoff Lee
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/construction-mortgage-part-1-serviced-vs-unserviced-lots/

Avoid these 5 common mistakes, and you will have no problem getting your mortgage faster, more efficiently, and with a clear understanding of the process:

1. Thinking banks are the first and best place to go for a mortgage

Mortgage brokers can often beat the bank rates by using different lending institutions. The bank is limited to one lender, but if you use a mortgage broker, they have the option to shop for you with multiple lenders to find you the best product.

2. Not knowing your credit score

Your credit score is a HUGE factor in your mortgage application. The first thing lenders look at is your history and your score—then from there they build your file.

You should know where you stand because so much of your lending availability is tied to your credit score. In mere minutes, a mortgage broker can help you obtain a copy of your credit report, and go through it to ensure the information is correct.

3. Shopping with too many lenders

When you shop from institution to institution you will have your credit score pulled multiple times. Lenders typically frown upon this and it may interfere with your mortgage application. If you go to a mortgage broker though, your score is pulled ONE time only.

4. Not keeping your taxes up-to-date

Plain and simple: If you are self employed or the mortgage application is requiring a 2 year income average to qualify (utilizing overtime wages and/or bonuses) and you haven’t filed your taxes and kept them up to date, you cannot get a mortgage. Lenders will ask for your notice of assessment if your tax filings are not up to date, and you will not get your mortgage until they are filed properly and a Notice of Adjustment from the latest year it is received.

5. Not understanding that the real estate market you qualify in TODAY will adjust in the future.

Rates may be at an all time low right now, but new rules, government regulation, and changes when you are up for renewal can change the circumstances. You must be able to carry your mortgage payment at a higher rate or with new laws imposed.

Remember, securing a mortgage isn’t always about getting the best deal. It’s about getting a home you want and establishing yourself as a homeowner. That means not overextending yourself and taking your qualifying amount to the maximum. Leave some breathing room because no one knows what the future may hold!

But one thing’s for sure – you should contact a mortgage professional at Dominion Lending Centres!

GEOFF LEE
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/5-common-mistakes-avoid-shopping-mortgage/

A recent BMO study shows that the number of Canadians withdrawing money from their RRSP increased to 38% from 34% last year, and on average these Canadians are taking out larger sums of money.

The government requires RRSPs to be converted to a RRIF when a Canadian turns 71. After 71, withdrawals begin and they are taxed as income. Annual minimum withdrawal begins at 7.48% for those aged 71 and rise annually to a maximum of 20% for Canadians 94 and older.

Retirees often resort to tapping into RRIFs to access large sums. For some, RRIFS are viewed as their savings and emergency fund. For others, a RRIF withdrawal is their preferred solution over borrowing money, so that they can avoid monthly loan payments.

A RRIF withdrawal is a common solution, and the financial implications can be severe for seniors.

Let’s look at an example

Background: A retired widow living in B.C. has a modest pension income and only a little over $100,000 in her RRIF.

Goal: Financially help a family member by withdrawing $40,000 out of her RRIF.

Reality: Client discovers at her bank that she has an immediate withholding tax that she must pay because she is withdrawing from a registered investment. Because of this, she must take out an additional $12,000 to cover the withholding tax, which is considerably more than planned. In April, income taxes are due and the full amount of her RRIF withdrawal is added to her income, which increases her income considerably and moves her up a tax bracket. As we know, more income = more taxes. And now she owes an additional $18,000 in income taxes. Where would she find the money to pay her income taxes?

In addition, the savings she intended to use to support herself through retirement decreased substantially and won’t go as far for her as planned. Also, because of her decision to draw the excess amount from her RRIF, she experiences government clawbacks on her income pensions such as, Old Age Security (OAS), Guaranteed Income Supplement (GIS) and other benefits and she now has an increase in her quarterly tax installments. To make matters worse, she is no longer eligible for her provincial health care assistance, and is responsible for the full monthly premium payments herself.

Alternate solution:

By using her home equity with a reverse mortgage, her retirement savings could have been fully preserved. Income could have remained the same because funds from a reverse mortgage are tax-free and do not get added to her income. Best of all, there would have been no tax implications and she could have prevented her pension and her provincial health care assistance from being affected.

This is a true story.

We met this client when her $18,000 income tax bill was due. She was able to use her home and a reverse mortgage to help her in this situation.

Dominion Lending Centres mortgage brokers and advisors see it all the time.

Life events happen. If you know a retiree looking for a financial solution to help a family member or to cover sudden life expenses, recommend they take the time to consider the tax implications that an extra RRIF withdrawal may have on their financial situation.

Then the question really becomes: Which asset should I use? My RRIF or my home?

A reverse mortgage provides a tax-efficient solution, helps clients keep their savings to support retirement and requires no monthly payments (including interest payments).

If this client had a conversation with her DLC mortgage broker to consider all options, she would have been left in a much better financial position for years to come.

Every homebuyer eagerly anticipates closing day. With the home purchase process completed, ownership of the property transfers from the seller to the buyer – you!

Closing date is negotiated as a condition of sale. You’ll typically have several weeks between the date that your agreement to purchase (sales contract) is signed and your closing date.

During that time, you and your real estate team will work to ensure that all the conditions of the sale are met so you can take possession on the agreed-upon date.

But what happens if a home sale falls through and you are unable to close?

Reasons why a home sale could fall through

It’s worth noting that the vast majority of purchase agreements close as expected. But the most common reasons why a sale may fall through are the following:

• The homebuyer fails to qualify for a mortgage.
• The homebuyer makes an offer to purchase a home based on the condition that they can sell their existing property first – and fails to do so.
• The homebuyer’s lender appraises the property at a value significantly lower than the agreed-upon purchase price. If the buyer can’t make up the shortfall from savings or the seller won’t lower the price, the buyer can no longer afford the property.
• There are title insurance or home inspection surprises. If a title report shows claims against the property or if a home inspection reveals serious flaws, it will jeopardize the sale.
• The homebuyer gets cold feet, changing his or her mind for any reason.

TIP: The best way to reduce the odds of failing to close on a home you want is to get mortgage pre-approval from the mortgage professionals at Dominion Lending Centres before you start house hunting.

Avoid making an offer on a potential money pit by scheduling a pre-sale inspection.

Your home sale falls through. Now what?

If you ever experience a sobering “it’s just not gonna happen” moment, contact your REALTOR® immediately.

If appropriate, they will send the seller’s agent a mutual release form, which releases both parties from the purchase agreement. As the buyer, you will endeavor to get your sales deposit back, and the seller is free to sell the home to someone else.

Problems arise if the seller refuses to sign the mutual release form.

Who gets the deposit?

If the seller refuses to sign the mutual release form, your deposit, which is held in a trust account, remains in trust until it is released by court order.

A disgruntled seller may decide to sue for damages that result from the failed purchase agreement. For example, they may end up selling the property to another buyer for less, resulting in a financial loss.

Or let’s say they purchased a home conditional on the sale of their existing home, and because you backed out, they either fail to close on that home or they must take out bridge financing to save the sale. They’ll probably want compensation for the extra costs and hassle.

While failure to close is an uncommon occurrence, it causes headaches for both buyers and sellers. Try avoiding it by getting mortgage pre-approval before you start house hunting, and by booking a pre-sale home inspection.

Most important, hire a real estate team. These experts can use their experience and professionalism to guide you through your sale, managing any bumps along the way.

MARC SHENDALE
Genworth Canada – Vice President Business Development
https://dominionlending.ca/news/happens-home-sale-falls/

 Are you thinking of buying your first home in 2017? If yes, contributing to your RRSP before the March 31 contribution deadline can help you increase your funds available for your purchase. Follow the 7 steps below so you can maximize your available funds to purchase your first home.

Step 1: Check to see if you fit all the Home Buyers’ Plan (HBP) requirements at www.cra-arc.gc.ca/hbp/. If you do continue to the next step.

Step 2: Consult with your Dominion Lending Centres Mortgage Broker to review your credit and plan ahead so you are mortgage ready. Your broker will help you figure out what you qualify for as well as help you navigate all the first-time home buyer programs such as the new BC Home Owners Mortgage and Equity Program.

Step 3: Contribute to your RRSP to top it up to $25,000 (check your contribution room to confirm the maximum you can contribute) for each buyer. Contribute to the highest income earners RRSP first to maximize your tax refund. If you don’t have the cash to contribute, then it may be beneficial to borrow funds to contribute to your RRSP but talk to your mortgage broker first to ensure your credit is in line to do so.

Step 4: Do your taxes as soon as possible so you can get your tax refund in your bank account.

Step 5: If you didn’t maximize your RRSP to $25,000 put your tax refund into your RRSP (highest income earner first) to help reduce your taxes next year.

Step 6: Now that your funds are in your accounts review your options with your mortgage broker and let your RRSP contributions stay in your account for 90 days for the withdrawal to qualify under the HBP.

Step 7: Begin searching for your first home. Be sure to plan the closing date to be after the minimum 90 days required for the funds to be in your RRSP and allow time for funds to transfer out of your account.

Important 2017 Dates:

March 1 – the 2016 RRSP Contribution Deadline

February 20 – the first day you can file your 2016 income taxes

May 1 – the deadline to file your taxes if you are not self-employed

April 30 – all income taxes must be paid to CRA by all tax payers

June 15 – the deadline to file if you are self-employed

Good to Knows about the Home Buyers’ Plan:

• Funds withdrawn from your RRSP before they have been in your account for 90 days are not eligible under the HBP and income tax will be withheld from the withdrawal
• You can use your RRSP withdrawal for anything from you down payment, paying off debts, moving costs and more as long as you’re in a contract to purchase your first home
• You must repay the withdrawal amount over 15 years starting the year following your withdrawal or pay tax on 1/15th of the amount withdrawn in tax years you do not pay it back.

Your Dominion Lending Centres Mortgage Professional will help you plan to buy your first home. It’s never too early to start your mortgage application. Contact us today to get started!

KATHLEEN DEDILUKE
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/buying-first-home-2017-7-steps-maximize-rrsp-payment/

December 15th, the B.C. Provincial Government shared that it will begin offering financial assistance to B.C. first-time home buyers in regards to their down payment. They estimate that 42,000 new first-time home buyers will take advantage of this program over the next three years.

What the B.C. Government Will Provide: 

– A matched loan only to be used as funds for making a down payment on an eligible home

– Maximum available funds will be $37,500 or 5% of a home’s purchase price

-Maximum 25 years to repay

– 5 years of no required payments (includes no principal payments and no interest payments)

– This loan will be registered as a second mortgage on the newly purchased home

When This Program Begins:

– January 16th, 2017 applications will be accepted and this program expires March 31, 2020

To Qualify for This Program:

– Must reside in the home – Must be a First-Time Home Buyer (click here to see those qualifications)

– Property must remain principal residence for 5 years

– Property must cost less than $750,000 and not be used as a recreational or rental property

– Have resided in BC for at least 1 year

– Have a combined gross income of less than $150,000

– Have saved half the minimum down payment (2.5% of property’s purchase price)

– Have been pre-approved for a 1st mortgage before applying

Privileges of This Program:

– No prepayment fees (make lump sum payments or pay entire debt early at any time)

– No interest will begin accumulating until after the first 5 years have expired

Example:

Without this program, if you wanted to buy a $500,000 home for example, you would need a minimum down payment of $25,000 (5%) plus 1.5% for closing costs. With this program, the government will match a first-time home buyer’s down payment, up to 5% of the property’s value. So your $25,000 down payment can now be $12,500 because the government will lend you the remaining $12,500 (you still need 1.5% for closing costs).

If you originally wanted to make a 20% down payment and avoid insurance premiums, you can now do this with 15% of your own money down as the government will lend you the remaining 5%.

It is unclear the significance this program will have on housing prices and how it will affect demand here in BC- only time will tell us that. For right now though, future first-time home buyers can begin to feel very optimistic as the BC government has opened a door of opportunities for them, 3 months after CMHC’s news from October 2016 where they announced changes to qualifying requirements- affecting the majority of future first-time home buyers.

Below is a chart showing the steps a first-time home buyer must complete in order to successfully use this program in their future purchase. In order to become pre-approved with a lender, please contact your Dominion Lending Centres mortgage professional so we can begin that process (which is free).

RYAN OAKE
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/optimism-future-first-time-homebuyers/

What is a mortgage renewal you ask?

Each mortgage has a set term which can vary from 1-10 years. Just before the end of your term you will receive an offer from your current lender and you have 3 options:

1. Sign and send back as is.
2. Check the market to make sure you are getting the best rate and renegotiate with your current lender
3. Move the mortgage to a new lender.

Option 1 is not a very good idea in my opinion. The onus is on you to make sure you are being offered the best rate. Banks are a business like any other and they are seeking to make the highest profits they are able as to keep their shareholders happy. There is nothing wrong with that. That does mean however that you as a savvy consumer should take a few minutes to ensure you are being offered the best possible rate you can get.

Think of it as the sticker price on a vehicle at a dealership. The rate you are being offered is a starting point for discussion, not the final price. Let’s look at an example:

• Mortgage of $300,000 with an amortization of 25 years.
• Your offer is for 3.19% for a 5 year fixed = $1449.14/month and you will owe $257,353.34 at the end of the term
• Best rate is 2.59% for a 5 year fixed = $1357.38/month and you will owe $254,372.59 at the end of the term

You would pay $91.76 less each month or $5505.60 over all 60 months and still owe $2,980.75 less.

So you need to ask yourself if you are OK handing that money over to the mortgage provider or if you would prefer to keep it yourself and I am pretty sure I know what your answer will be.

So here are the steps I mentioned to save yourself all that money.

1. Receive the offer from the mortgage lender and actually look at ASAP so that you have enough time to make an informed decision.
2. Research via the internet and phone calls to find out what the best rate even is.
3. Phone your current lender and negotiate! OK, you are going to have to get downright assertive and that may be uncomfortable but when you compare your comfort to the thousands of dollars you could save, you will see that it’s worth it.
4. If said lender will not offer you the rate then move the mortgage. You will have to provide paperwork and complete the application but if you keep in mind the example from above then I repeat, it’s worth it.
5. Take a look at your budget and see if you can increase the payments to decrease the mortgage and save yourself even more as the overall interest costs decrease.

Keep in mind when that renewal notice arrives that you literally have the power to save yourself money and you are not obligated to accept the first offer which is presented to you and I truly hope you do not. If you need some more information, please do not hesitate to contact your Dominion Lending Centres mortgage professional.

PAM PIKKERT
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/reading-save-thousands-dollars-aka-renew-mortgage-5-easy-steps/

It is forever in discussion in the Lower Mainland – is a former grow-op home a good investment? Prices are often much lower than similar properties so at first glance it seems so. But the stigma will follow the property in perpetuity, unless it’s razed to the studs and rebuilt. If it’s been remediated that means it’s perfectly fine now, right? Not to the banks.

This is an era where lenders are being very conservative with the Office of the Superintendent of Financial Institutions (OSFI) clamping down on policies. Prior to the sweeping mortgage rule changes that came into effect in July 2012 there were at least a dozen lenders with products for remediated grow-ops. That list has now been whittled down to about 5 credit unions in BC and a handful of private lenders.

What you can expect from these offerings is that no matter how much you can put down or equity you have the credit unions are requiring mortgage insurance (CMHC or Genworth) so you will have the premium added to your mortgage and you can expect a 0.50-1.00% bonus added to the interest rate – not to mention an additional lender fee on top of all that in some cases.

While the price of that home may be much lower than comparable properties without the stigma it can cost you in other ways.

Lenders are being conservative with a view to the re-sale marketability factor. If the stigma will stay with that home forever, will there be many people willing to buy it if you decide to sell – or if that bank needs to foreclose and sell the house itself. Not to mention, with so few and costly financing options how many potential buyers will brave that process.

Buyers that acquired remediated grow-ops prior to July 2012 who are now coming up for renewal are finding themselves with very few options. A recent client was hoping to secure a better rate, consolidate some credit debt and lower their payments was forced to simply renew with their existing lender at a higher rate than the rest of the market and it was just too expensive to tap into his equity.

KRISTIN WOOLARD
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/remediated-grow-op-good-investment/

When bad things happen to good people sometimes the reality is they just can’t keep up with their mortgage payments. While Canadian mortgage defaults are amongst the lowest in the world at just 0.31%, foreclosure still happens.

In BC, if a lender forecloses on a homeowner they are required to give the borrower a 6-month Redemption Period – time granted to bring their mortgage up to date or find another lender. If at the end of this period the borrower is unsuccessful the foreclosing lender can ask for a Court-Ordered Sale. Once granted the property will be appraised and then listed by a realtor for sale at a price that will get the bank their money back in a reasonable amount of time. This usually translates into a lower asking price than if the seller that could hold out for the best the market has to offer.

If you have found a property in foreclosure listed at a great price there are a few things to consider before submitting an offer.

First, as soon as an offer is made and accepted a court date is set for about two weeks after. At court other parties can attend and make their offers and it can turn into a bidding war with the Court approving what they feel is the best offer.

Another point to consider is that you have to come to court with basically a condition-free offer. This means if you need financing to buy it you can only have one condition left on the mortgage approval – the Court accepting the offer. If you have less than 20% down and need mortgage insurance (CMHC) some lenders won’t take it to the insurer before your offer is accepted so your options may be limited somewhat. You have a much stronger bid if you have more than 20% to put down.

The rest of the financing conditions are pretty much exactly what to expect but again, all conditions need to be satisfied before presenting an offer. This means the cost of an appraisal and house inspection are upfront costs that may be a waste of money if you don’t get the property in the end.

Once the Court approves your offer the completion date is set usually for two weeks after that so you had also better be prepared for a hasty move if that proves necessary.

The last thing to note is that once the sale completes at lower than true market value you have now effectively established a new value for your place. Over the next 6-months or more likely a year an appraisal on this property will have its own sale price factored into its appraised value so if flipping is your game you could have a longer than normal investment period before seeing it’s true market value reflected.

Buying a foreclosure is a step up in the complexity of buying real estate so always seek the professional advice of a Dominion Lending Centres agent before jumping in.

KRISTIN WOOLARD
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/things-to-consider-when-deciding-to-buy-a-foreclosure/ 

There seems to be some confusion about what it actually means to co-sign on a mortgage and you know that where there is confusion, your trusted mortgage professional seeks to offer clarity. Let’s take a quick look at why you may be asked to co-sign and what you need to know before, during, and after the co-signing process.

So why are you being asked? Last year there were two sets of changes made to the mortgage world which can likely explain why you are receiving this request in the first place.

The first occurred early in 2016 whereby the overall lending standards were increased in regards to an individual’s management of their credit and the resulting responsibility of Canada’s financial institutions to ensure they are lending prudently. We have seen an increase in requests for co-borrowers to help strengthen applications when credit or job stability is an issue.

The second happened just in October. A new ‘stress test’ rate applies which has especially impacted borrowers with less than 20% down. They must qualify at a rate of 4.64% though their actual interest rate is much lower. This has decreased affordability for many which means they could be looking for a co-borrower to increase how much home they can qualify for.

If it was me, I would ask questions as to exactly why the applicant needs a co-borrower. If it is a credit issue then you need to assess if that an acceptable risk. If it is a matter of not enough income, you need to assess that instead. What is the exit strategy for you all from this joint mortgage?

What can you expect? You will be required to complete an application and have your credit pulled. As you are now a borrower the banks will ask you for all the documentation that the main applicant has already provided. This can include but will not be limited to:

• Letter of employment
• Paystubs
• 2 years Notice of Assessments, Financial Statements and complete T1 Generals
• Mortgage statements on all properties you own
• Bank statements if helping with the down payment
• Property tax bills
• Lease agreements
• Divorce/separation agreement

So you get the idea. You are now a full applicant and will be asked for a whole bunch of paperwork. It is not just a matter of saying yes. Once the application is complete and all conditions have been met with the mortgage, you will have to meet with the lawyer as well.

What do you need to be aware of?

1. This is now a monthly liability according to the world. You will have to disclose this debt on all your own applications going forward. It can affect your ability to borrow in the future
2. Each lender is different in their policy as to how soon you can come off the mortgage. Familiarize yourself with this. Are you committing to this indefinitely or only for a couple of years?
3. Mortgages report on the credit bureaus so you could be adversely affected if there are late payments
4. If the main applicant cannot make the payment for whatever reason, you are saying that you will. Make sure your budget can handle that for a few months.

A few things you may want to consider if you do agree to co-sign:

• Ask for an annual statement to be sent to you as well on both the mortgage and the property taxes.
• Consider a joint account for mortgage payments so that you can check in every so often to ensure all payments are being made on time
• Talk about life insurance! If the worst occurs, then at least have enough of a policy in effect, with yourself as the beneficiary, to cover a year of mortgage, taxes and bills so that you are not hit with an unexpected series of expenses until the property sells.

So though you just want to help your loved one into their dream home, you are all better served if you know exactly what you are getting into and are prepared for the contingencies. We here at Dominion Lending Centres are ready to help!

PAM PIKKERT
Dominion Lending Centres – Accredited Mortgage Professional
https://dominionlending.ca/news/actually-mean-co-sign-mortgage/