Tag Archive for mortgage qualification

Laurin Jeffrey | April 13, 2011
No comments

Securing a mortgage is more complex when self-employed

By Helen Morris, Postmedia News

Securing a great mortgage deal can take a bit of work and planning, but if you are a salaried employee then you will be taking a well-trodden path. Experts and friends and family alike will all be there to offer advice and tell you about their experiences.

However, if you are self-employed, the process can be more complex.

The most straightforward way to qualify for a mortgage as a self-employed individual is for the lender to look at the income on your Canada Revenue Agency notice of assessment for the past two years and see if you qualify for a loan in much the same way as an employee would.

“The first thing I make sure is that the tax filings and financial statements are in order so we can see the track record of their earnings,” says Rob Regan-Pollock, senior consultant at Invis mortgage brokerage in Vancouver. “If the last two years of earnings are sufficient to qualify for the mortgage that they’re looking to take out, then they are a regular-income-qualified file and can put as little as five per cent down.”

Insurers such as the Canada Mortgage and Housing Corp. (CMHC) will allow self-employed individuals to increase the income on their notice of assessment by 15 per cent for the purposes of mortgage qualification. This is a generally accepted increase to compensate for non-cash items such as business use of the home.

Their website gives a full rundown of the requirements for self-employed borrowers (cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Self-Employed.pdf).

“Consistency in income is your best bet (in order to secure a mortgage),” says Carol Bezaire, vice-president, tax and estate planning, at Mackenzie Financial. “If you are thinking about going for a mortgage, make sure that over the last two or three years you are consistent in how much income you are bringing in.”

In order to determine your income, CMHC will average your income from the past two years, but if your income has been rising each year for the past four years or more, they will use the most recent year for their calculations.

However, in order to take advantage of certain tax strategies, many self-employed individuals may keep money in their business rather than generating income. If you are unable to qualify based on your verifiable income you can still obtain insured mortgage finance, but CMHC will charge you a higher premium. Since April this year, CMHC only permits you to state your own income if you have been in business for less than three years.

Ranjit Dhaliwal, a mortgage broker with Mortgage Intelligence in Brampton, Ont., encourages clients to register their business, as the licence or article of incorporation can show if they have been in operation for less than three years.

Dhaliwal says to get the best rates when stating your own income, many lenders will be looking for mortgage loan insurance unless you can put down a deposit of more than 35 per cent.

The insurers also recommend that lenders demand higher minimum credit scores from borrowers stating their own incomes.

“It’s absolutely essential that they have a good credit score,” says Dhaliwal. “Self-employed individuals tend to have higher balances on their credit cards, lines of credit and so on because they are using that for their business. If they’re planning on purchasing a house or refinancing a house, maybe bring these balances down a few months before going to see a mortgage broker.”

The early years of self-employment can be a time of financial uncertainty while you establish your business and build up a reputation with customers.

Financial advisers say look before you leap into anymore debt at this time.

“Once you’ve checked your finances and you’ve looked at your credit score and everything else, it may not be the time to buy,” says Bezaire. “Maybe it’s the time to rent for a little bit, until you get firmer ground under your feet.”

————————————————————————————————————–

Contact the Jeffrey Team for more information  -  416-388-1960

————————————————————————————————————–

Category: Ajax Real Estate, Buying Real Estate, Finances, Pickering Real Estate | Tags: , , , , , , , , , , , , , , , , , , , , ,
Laurin Jeffrey | August 9, 2010
No comments

10 worst first-time homebuyer mistakes

These errors could wind up costing you more than the coveted key to your first home

Amy Fontinelle – Investopedia.com

Are you gearing up to buy your first place? Shopping for a home is exciting, exhausting and a little bit scary. In the end, your aim is to end up with a home you love at a price you can afford. Sounds simple enough, right? Unfortunately, many people make mistakes the prevent them from achieving this simple dream. Arm yourself with these tips to get the most out of your purchase and avoid making 10 of the most costly mistakes that could put a hold on that sold sign.

1. Not Knowing What You Can Afford

As we’ve all learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don’t already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings and so on. Don’t forget major expenses that only occur once a year, like any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay and you’ll know how much you can spend on your new home each month.

If you end up looking at homes that are outside your price range, you’ll end up lusting after something you can’t afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can’t afford the type or size of home that you desire and that you need to work on reducing your monthly expenses and/or increasing your income before you even start looking.

2. Skipping Mortgage Qualification

What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to get pre-approved for a loan before placing an offer on a home. If you don’t, you’ll be wasting the seller’s time, the seller’s agent’s time, and your agent’s time if you sign a contract and then discover later that the bank won’t lend you what you need, or that it’s only willing to give you a mortgage that you find unacceptable.

Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score, like finance a car purchase. If you cause the deal to fall through, you may have to forfeit the several thousand dollars that you put up when you went under contract.

3. Failing to Consider Additional Expenses

Once you’re a homeowner, you’ll have additional expenses on top of your monthly payment. Unlike when you were a renter, you’ll be responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs (which will occasionally include expensive items like a new roof or a new furnace).

If you’re interested in purchasing a condo, you’ll have to pay maintenance costs monthly regardless of whether anything needs fixing because you’ll be part of a homeowner’s association, which collects a couple hundred dollars a month from the owners of each unit in the building in the form of condominium fees.

4. Being Too Picky

Go ahead and put everything you can think of on your new home wish list, but don’t be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated decor, make some repairs to the home, or forgo that extra bedroom. Of course, you can always choose to continue renting until you can afford everything on your list – you’ll just have to decide how important it is for you to become a homeowner now rather than in a couple of years.

5. Lacking Vision

Even if you can’t afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home otherwise meets your needs in terms of the big things that are difficult to change, such as location and size, don’t let physical imperfections turn you away. Besides, doing home upgrades yourself, even when you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you.

6. Being Swept Away

Minor upgrades and cosmetic fixes are inexpensive tricks that are a seller’s dream for playing on your emotions and eliciting a much higher price tag. Sellers may pay $2,000 for minimal upgrades or staging that you’ll end up paying $40,000 for. If you’re on a budget, look for homes whose full potential have yet to be realized. Also, first-time homebuyers should always look for a house they can add value to, as this ensures a bump in equity to help you up the property ladder.

7. Compromising on the Important Things

Don’t get a two-bedroom home when you know you’re planning to have kids and will want three bedrooms. By the same token, don’t buy a condo just because it’s cheaper when one of the main reasons you’re over apartment life is because you hate sharing walls with neighbours. It’s true that you’ll probably have to make some compromises to be able to afford your first home, but don’t make a compromise that will be a major strain.

8. Neglecting to Inspect

It’s tempting to think that you’re a homeowner the moment you go into escrow, but not so fast – before you close on the sale, you need to know what kind of shape the house is in. You don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house’s physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.

9. Not Choosing to Hire an Agent or Using the Seller’s Agent

Once you’re seriously shopping for a home, don’t walk into an open house without having an agent (or at least being prepared to throw out a name of someone you’re supposedly working with). Agents are held to the ethical rule that they must act in both the seller and the buyer parties’ best interests, but you can see how that might not work in your best interest if you start dealing with a seller’s agent before contacting one of your own.

10. Not Thinking About the Future

It’s impossible to perfectly predict the future of your chosen neighbourhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.

Some questions you should ask about your prospective property include:

• What kind of development plans are in the works for your neighbourhood in the future?

• Is your street likely to become a major street or a popular rush-hour shortcut?

• Will a highway be built in your backyard in five years?

• What are the zoning laws in your area?

• If there is a lot of undeveloped land, what is likely to get built there?

• Have home values in the neighbourhood been declining?

If you’re happy with the answers to these questions, then your house’s location can keep its rose-coloured lustre.

————————————————————————————————————–

Contact the Jeffrey Team for more information  -  416-388-1960

————————————————————————————————————–

Category: Ajax Real Estate, Buying Real Estate, First Time Buyers, General Real Estate, Mortgages, Pickering Real Estate | Tags: , , , , , , , , , , ,
Laurin Jeffrey | April 26, 2010
No comments

As mortgage rates rise, is it time to lock in?

Rob Ferguson – Yourhome.ca

Like many homeowners, Sarbjit Kaur has been riding the knife edge of record low mortgage rates for well over a year, waiting for the right time to lock in as cheaply as possible for a longer term.

“I keep watching,” says the young mother and owner of Kaur Communications in Mississauga.

And for good reason. Experts warn rates are creeping up as bond markets react to concerns about high international debt levels and expectations the Bank of Canada will raise rates soon to quell inflation as the economy improves.

“The big question is where will mortgage rates be in five years and what could my payment be then?” says Kevin Moffatt, vice-president and mobile mortgage specialist with TD Canada Trust.

Another issue facing buyers is the new mortgage qualification rules designed by the federal government to cool the housing market and make home shoppers more realistic about what they can afford.

Taking effect Monday, April 19, the rules set tougher criteria for lenders assessing a borrower’s ability to carry loans insured by the Canada Mortgage and Housing Corporation, in cases where the down payment is below 20% of a home’s price.

The new standard is the ability to repay the five-year fixed mortgage rate, now posted at 5.85%, instead of the three-year rate, now at 4.35%, meaning many buyers will need higher incomes, larger down payments or have to opt for cheaper properties. As a rule of thumb, banks say mortgage payments shouldn’t exceed one-third of a family’s gross income.

“There are people who will not be able to buy a house,” says Pauline Aunger, president of the Ontario Real Estate Association. “If you were on the edge before, you’re below now.”

Amid concerns that low rates have encouraged Canadians to take on too much debt, Moffat has lost count of how many customers have been enjoying variable-rate mortgages around the tempting 2% mark.

“That just isn’t realistic long-term,” he says, urging both home owners and new home buyers to do some “what if” calculations to chart out how their mortgage payments could change depending on how high rates go.

“You have to be very careful,” adds Aunger, a real estate agent in Smiths Falls, near Ottawa.

As a single parent of two young girls, Kaur has one eye on her budget and the other on the mortgage scene. Rates for fixed terms of more than three years rose six-tenths of a%age point a couple of weeks ago.

At some point, perhaps this summer, she’s set to trade the advantages of her low variable rate mortgage for the peace of mind that comes with the lowest fixed rate she can get. It will be higher than she’s been paying, but she wants financial predictability.

“I would like to save money as long as I can,” says the former communications director for a Queen’s Park cabinet minister, noting falling interest rates have put an extra $200 in her pocket monthly.

Moffat says the hardest people to convince that historically low interest rates won’t be around forever are home buyers in their 20s or 30s, who’ve lived their adult years in a period of steadily declining and reasonable rates since the late 1990s.

“I tell young people today that my first mortgage, in 1988, was 11.5%. They almost fall over dead,” he quips. “I don’t think we’ll see rates like that, obviously, but the 6 to 8% range is possible one day.”

The difference in payments between a 2% rate and 6% is astounding.

For example, a $400,000 mortgage at 2% costs $391 weekly, rising to $485 weekly at 4% and $591 a week at 6%. Adding it all up, the difference between 2 and 6% is an extra $865 a month out of the household budget.

The message is, don’t buy more house than you can afford. And if it looks like higher rates could create a household financial crunch, try to pay as much down on the mortgage as possible before the renewal date to reduce borrowing costs. In the first years of a mortgage, most of the payments go to interest, not paying down the principal.

Experts note that over a 25-year amortization, the interest paid can easily equal the amount borrowed. On a $400,000 mortgage at 2%, total interest costs over 25 years are $108,141. But at 6%, that rises to $367,766.

————————————————————————————————————

Contact the Jeffrey Team for more information  -  416-388-1960

————————————————————————————————————

Incoming search terms for the article:

Category: Buying Real Estate, Mortgages | Tags: , , , , , , , , , , ,
« Older Entries