Transcript of Video Blog:

Hi everybody, it’s Rowan Smith with The Mortgage Centre. I’m going to do a little top five list. These are top five things not to do once you’ve written an offer.

OK, so number one. Do not write an offer and leave on vacation. Now there’s a couple of catches to this, OK?

You can do it. But during the subject removal period I’m going to need you here. Your Realtor is going to need you here to sign things, review documents.

So don’t write an offer and expect to be able to leave town during the subject removal period. Especially do not be gone during the closing period.

Because you have to be here to sign in front of a lawyer, especially if you’re buying property in British Columbia. So you’ve got to be here.

Now if you’ve got two months from the time you write an offer to the time your completion is, feel free to be out of town for part of that time.

I mean everyone’s got work and business obligations. And they may want to take a vacation. That’s fine. But just keep those vacations coordinated with the home buying process. It’s a big item. So vacations are a very important thing.

Number four. Do not transfer your dollars around for your down payments. People will often be in an effort to be helpful to me, they will transfer dollars from their ING account into their CIBC checking. From that TD savings into their CIBC checking. From their RSP into their checking.

The problem is, then I get a copy of that checking account statement, and it looks like you got a whole bunch of money just flew into the account.

So what I end up having to do is document every large deposit on there. That means I have to get the ING, the TD account, the RSP account, and the CIBC checking account. I’ve got to get it all to track where every dollar is. It’s a lot easier to just leave the funds where they are.

And once we’ve got the down payment accepted by the lender, then you can move them around.

Number three is, do not buy lots of new things, especially on credit. And I’m referring to people that will gloat and they’ll get excited about buying their home. And so they’ll go to The Brick and they’ll buy a whole bunch of furniture on a “do not pay plan.”

And then they’ll go to Best Buy and they’ll buy appliances and all this type of thing. Do not do that.

Wait until you’re in the home. If you incur additional debt before the closing date and the bank finds out about it, they can pull that approval. Because you may not qualify even though you can afford, you may not qualify for that new debt in addition to the debts you already had.

Now this is even if those debts are going to be paid out prior to the completion with the sale of an old home. Just check with me first. Be very careful about buying new items.

Number two. And this is the most common one that I see of buying new items, is do not buy a new vehicle. Those vehicles, especially vehicle leases, have massive payments, or can have massive payments. And it can throw the debt servicing and your ability to qualify for the mortgage. Again, completely out of line.

So before you go do that, get your mortgage completely finalized. Have the approval ready. Have it instructed to the lawyer’s office, and then you can start shopping for a new vehicle. I still don’t recommend buying it until after you’ve purchased the new place, just to avoid any challenges.

And lastly, the number one that I consistently get that blows me away is, do not quit your job. From the time you write that offer until the time you move in you have to be prepared to stay in your line of work.

Now things happen. Sometime companies sell off divisions. You get transferred. Other times you may just get fired. That’s life.

But the reality is that you also will have a lot of choice in these cases many times. And there’s no need to quit your job right during that period of time.

So from the time you write that offer to the time you complete, stay on your job. Stay the course. What you do after you’re in the property is up to you. And life takes many changes and it’s unpredictable.

So there is no way that anybody can fault you if you lose your job two months down the road. Or you quit and transfer into a new role to get a pay increase or whatnot.

So there it is. The top five things not to do when you’re buying a home.

For The Mortgage Centre, I’m Rowan Smith.

Transcript of Video Blog:

Hey everybody, it’s Rowan Smith of the Mortgage Center. I’m here today to talk about appraisals. There seems to be a lot of confusion as to when appraisals are ordered, when they’re not ordered.

This blog today is going to detail in what circumstances it’s going to be needed. It’s a little counter intuitive. You see there’s typically an appraisal or some assessment of value 100 percent of the time. Does that mean that they go through the property and take pictures every single time? No.

So, I’m going to divide this into three categories, less than 20 percent down, 50 to 20 percent down and greater than 50 percent down. Those are the three main categories. You can argue with me a little bit on this, but that’s the three general guidelines.

Now, less than 20 percent down, the bank’s going to want to make sure they know the value of the property, but do they require an appraisal? The typical answer is not usual. The reason being is less than 20 percent down are insured by either CMHC, Genworth and Canada guarantee. It’s mortgage insurance. That’s that big insurance premium you hear about.

Now, in those circumstances those lenders typically, though not always, have a internal modeling software that looks at sales in the area and the last prices, listings, et cetera. And as long as you’re within a range of normalcy, not wildly above or below, they’re going to accept that value.

Now, there’s times when even when you’ve got the mortgage insurance, they still ask for appraisals. And that’s sometimes when there’s a rental component to the property or it’s particularly unique or a high-end home or for whatever reason that they don’t support the lending value of the home. So, that’s if there is less than 20 percent down, they typically don’t need appraisals. But, again, an assessment of value is always being done.

Now, from 50 to 20 percent down, you will almost need an appraisal 100 percent of the time. Now, some banks, a social bank, has an internal property assessment tool that they use, and they will do similar to those systems through the mortgage insurers.

They’ll do like an electronic appraisal, but they have some guidelines there. The property can’t be more than a certain value and all those eligible for homes beyond a certain age, size or whatnot. Usually, those electronic systems are only allowed in a major urban setting, whatnot.

So, most times 50 to 20 percent down payment, you’re going to require an appraisal. It costs about $250 to $300, depending on where the property is located. This is assuming it’s a general, normal transaction.

The appraiser will go to the property, takes some photos and walk through it and then prepare a report of anywhere from 40 to 70 pages, depending on the complexity and depending on the lending requirements. It outlines everything about the property and makes an assessment of value, based on other comparable sales.

Now, you may think to yourself. OK, well, if I’m putting 20 percent down or more, why do they want an appraisal. When I put less than 20 percent down, they don’t want an appraisal. And the answer is that when you’re putting 20 percent or more that bank is absorbing the full risk of that mortgage.

If you default on it or the property values fall and you walk away, they eat the loss versus the mortgage insurers are the ones that take the loss in the event that you’re putting less than 20 percent down. So, the bank leaves it up to them because they ultimately will be the one at risk to make an assessment of value.

So, less than 20 percent down, probably not an appraisal but you may have to, depending on the property. 50 to 20 percent down in that range, you’re going to need an appraisal of some kind, whether it’s an electronic one or whether it’s a walk-through.

Typically, it’s a walk-through. 50 percent or more down, we can often use tax assessed values because it is such a low amount of financing. It’s a very low risk to the lending institutions.

Some banks unequivocally demand appraisals 100 percent of the time. Other ones will use a property assessment tool if you have that much down the desktop or drive-by appraisals which are less costly and quicker to get. But it will still provide with some comfort.

Those are the situations where an appraisal will be required. If you’re being asked for one and you don’t understand why, just give me a call. I’ll give you an explanation for it.

I’m Rowan Smith from the Mortgage Center.

Transcript of Video Blog:

Hey, everyone. Rowan Smith with The Mortgage Centre, here today to talk about maternity leave and mortgages, because this is a big thing that comes up. People oftentimes end up going on maternity leave and then realizing the house is too small. They go to qualify for their mortgage and the bank tells them, “Sorry, you can’t qualify. You can’t afford it.” And they go, “But I’ve got a job I’m going back to, where I’m going to make $100,000 a year.” And they say, “Well, you might go back.”

Statistically, a very large percentage of women that take maternity leave don’t go back. So the bank has to hedge its bets. It has to look at, “Can you afford this now, with your reduced income? Can you afford it if you don’t have that income?” Most times, people come to me with maternity-leave questions, and there’s six months or three months left, and they’ve realized, “I’ve got to get into a bigger place. I’ve had my second or third child,” or whatever the case is. And, “I need more space.” The husband’s income maybe doesn’t qualify a loan, so the wife comes and starts the application process. Very common problem. They’re told no at most institutions.

Now, I have lenders that will treat maternity leave a little more favorably. If you’re going back to a decent job, and you’ve got a letter from your employer confirming that the position awaits you and the salary awaits you, we can generally use it. We can typically get around it if you’re otherwise strong clients with clean credit and if the income otherwise makes sense. If you’ve just gone on mat leave, and you’ve got a full year ahead of you, it’s a little harder, because that’s an extended period of time where you’re going to be forced to make payments that you would qualify with on your normal income on the EI or the government-subsidized maternity-leave portion.

Now, some companies are very good. Some companies actually offer women a top-up. So if you’re only going to get 60 percent of your income throughout the year when you’re on maternity leave… The companies, these are good employers, will pay a top-up to bring you back up to 100 percent of what you’d be earning. In those circumstances, we can definitely use it. But again, certain banks have just hard-and-fast policies where, “If you’re on mat leave, we can’t help you, ” and it doesn’t go much further than that in the discussion.

Well, I can help you. If you’re on maternity leave and you’re looking to find out if you can get a mortgage, yes, please give me a call. It’s Rowan Smith from The Mortgage Centre.

In this video I cover the 5 major steps in arranging financing on your home. Enjoy!

Transcription of Video:

Hi, everybody. It’s Rowan Smith at the Mortgage Centre. I’m going to cover today the five simple steps that you’re going to go through when you’re purchasing a home. There are many, many steps, and each of these steps has a sub step. But I think it’s important just to explain what you should be doing first. Now before you go looking at homes, before you go taking a Realtor and having them spend time driving you around, first you need to be pre approved. That’s number one.

During that pre approval process, what I’m going to do is work to get you the best rate held I can. I’m also going to let you know what documentation and paperwork you’re going to require in order to actually get a final approval.

A pre approval is just that, it’s a pre approval. You can’t rely 100 percent that that mortgage will be there. All that it really is doing is holding your rate, and the bank is saying if your financing documents show what you tell us, then you’re approved and we’ve got the rate sitting here for you. Step one, pre approval.

Step two is find a good Realtor. Now if you’re looking around, and you don’t know a Realtor in your area, usually I can point you in the direction of someone if you’re in the Vancouver/Greater Vancouver area.

However, I caution you against what we call DNA Realtors, which is a Realtor you’re dealing with just because of a blood relation. You’re going to want to get somebody that knows the market. Number two, get a good Realtor.

Number three, you want to start looking at homes at this point. Now you can start touring around. If you’re looking at condos or you’re looking at properties that you would call as unique properties, you’re
going to want to bounce them off the person that gave you that pre approval.

Many banks don’t finance certain types of property. Some banks aren’t doing rentals right now. Other properties aren’t doing rental condominiums. It depends on who your bank is and who you’re dealing with. Your mortgage broker can help you in that matter.

Step four, write an offer. Once you’ve got that offer accepted, that’s when the real process begins. That’s where I have to sit down with you now and provide all that documentation.

Hopefully, you’ve given it to me. I’ll have asked for it up front so I can review it ahead of time. But I’ll ask you for all that paperwork which we submit to the lender.

During that time, they’re going to give you an approval. Once you’ve got that approval, then you can remove your subjects. Your subjects are the “if” clauses in your contract, that your offer is, say, $400,000 subject if you get financing.

So those are the steps; find a good mortgage broker, find a Realtor, start looking at homes, write an offer, and remove subjects. Those are the five big things where the stress, and the time crunch, and the pressure is going to be more extreme.

Now after that period of time, there’s usually a period of waiting until you close at the lawyer’s office, but that comes much, much later.

If you have any questions or you want to know more about the process for your unique situation, please give me a call. It’s Rowan Smith from the Mortgage Centre.

In this post I look at CMHC fees:

What are they?
How are they calculated?
If you paid them once, do you pay them again?
Is there a way to avoid them or pay a reduced amount on your next home purchase?

Enjoy!

Video Transcription:

Hi, everyone. Rowan Smith at the Mortgage Centre. I want to talk today about CMHC fees. Specifically, when they apply, what they are, and if there are ways to avoid them on the next purchase.

First off, what is it? CMHC: Canada Mortgage Housing Corporation. It’s a government organization that’s set up, and it governs the lending to Canadians for mortgages in excess of 80 percent financing.

So if you have less than 20 percent down, you will face CMHC fees. These fees are a sliding scale. They can range from 1.5 percent up to 3.5 percent of the mortgage amount, depending on how much you’re putting down. So the more you put down, the less your fee is going to be.

Now these fees are nonnegotiable. They’re at every single institution. There’s no way to go around them. It doesn’t matter if you’ve had a 30-year banking relationship with your institution or not, they will be charged. The government’s mandated that way.

If you’re going to buy one property, let’s say it’s a $400,000 home, and you put five percent down. You’re a first-time home buyer. You want to take the maximum amortization. That’s going to have a 3.15 percent CMHC premium. On that amount, you’re looking at $11,000 or $12,000 added to the mortgage.

You don’t have to write that check up front. You don’t have to be able to write a $12,000 check. It gets added into the mortgage, and you pay it back over the life of the mortgage. However, you still pay it. You pay it one way, when you sell the house or whatever.

Now if you move from one house and decide to move to another one and upgrade in five years’ time — if you don’t need any additional dollars — you can port your mortgage over to that home and not pay any additional CMHC fees.

However, if you have already paid CMHC fees and you need more money, it’s going to be the lesser of. There’s a calculation, but you only pay CMHC fees on the new dollars that you borrow.

If you’re going from a $400,000 home with five percent down to a $550,000 home with five percent down, you would be borrowing that difference between your old mortgage and what you need on the new one. You’re going to get CMHC premiums on that amount added again to the mortgage.

Now, if you go sell that home and then subsequently six months later go and buy another one, you can apply for some sort of a rebate through CMHC. How they calculate that rebate is not really precise.

It’s something where I’ve had to send it in to them, and they’ve come to an agreement. But if you’ve already paid CMHCs before, you should be able to get either a rebate or a reduction.

I’ve got a client right now who’s in a situation where they’re selling a place, moving to a new home, and they’re requiring a significant increase in the funds. But the bank would not let them port that mortgage over there.

It had to do with the type of product they had, the internal policies. It upset the client, so they came to me and said, “Can you do our mortgage instead?” I showed them. They said, “Well, wait. We’ve already paid CMHC fees. Why do we have to pay it again?”

Now if you’re going to port your mortgage from house one to house two, you can do that. The problem is that you have to retain the original amortization of that mortgage. If you had a 35-year mortgage, and you’re four years into it, and you decide to go to the new property, you’re going to have to retain that 31 years of amortization.

Now if you’re like many people in Vancouver, you need a full 35 years to qualify in order to get approved. If that’s the case, you’ll have to pay it off, pay the CMHC premiums all over again.

If, however, you can get qualified and approved without adjusting your amortization, then you can move it over there and not suffer the CMHC premiums.

Clear as mud. I’m sure it’s a complicated topic, but if you have a situation where you’re worried about paying CMHCs twice, please give me a call. I can run through your options. Rowan Smith for the Mortgage Centre.

In this video, I look at what fixed and variable mortgages are as a refresher for past viewers or of my first time buyers.

Transcription of Video Blog:

Hi, everybody. It’s Rowan Smith from the Mortgage Centre.

I want to talk today about fixed or variable. Specifically, I want to define what they are so that when someone is telling you they got a fixed rate at a certain percentage or variable rate at another that you understand what exactly they’re saying so that you can compare apples to apples.

A fixed-rate mortgage is just that. The rate is fixed for the life and the length of your term. If you got a three-year term, and it’s at 3.25, you pay 3.25 throughout the entire term. If it’s a five-year term, and it’s 4.25, you pay 4.25 for the entire term. It does not matter if interest rates go up or go down; your rate is fixed, and your payment is fixed.

A variable-rate mortgage, conversely, is one where the payment fluctuates according to some other interest rate, usually prime rate. Prime rate is dictated by the Bank of Canada and the banks that match or try to follow very closely their prime rate.

Now if you have a prime-rate mortgage, the best available in the market that I have today, it’s prime minus 0.55. Prime rate is 2.25; that means a net rate of 1.7. So 1.7% on a variable versus, say, 4.25 on a five-year fixed. So variable has a substantial savings. However, your payment can and will rise if prime rate goes up.

There are different types of variable. There’s variable capped, where there’s a limit to how high it can go. Before that, you won’t be get getting 1.7. You’ll probably be getting closer to 3% in today’s markets.

You’re going to give up something in terms if you want more security. Whether it be a fixed rate or a fixed payment, you’re going to pay a higher rate.

I’ve seen several ads, and I saw one institution run an ad where what they had was on their whiteboard out front of their institution. It said, “Five years, 1.75.” Of course, clients are calling me saying, “My bank’s advertising 1.75.”

What they don’t put on that sign is it’s a variable. Now you can guarantee that it’s going to be below the fixed rate that I’m quoting if you’re getting a variable rate, because variable rates are generally lower. But they do have that upside risk that your payment could rise.

So there it is: fixed and variable. For the Mortgage Centre, I’m Rowan Smith.

April 19th, 2010 is the date, and the new mortgage rule changes go into effect today.

Our office did a presentation to 50 realtors and clients last week, and below are the three videos that came from it where the changes are discussed at much, much greater length than previously.

Enjoy!

Transcription of Video Blogs (All 3)

PART 1

Wayne: I want to take this opportunity to welcome all of you to this presentation. As you are all aware, there have been multiple changes that have taken place in the mortgage financing business over the last couple of weeks and most of it is taking place this Monday. Thus, the reason for this seminar. From my point of view, these are probably the most changes in a very short period of time since I’ve been brokering, which is over 15 years now. We hope that this presentation will give you a better understanding of the changes so that you can modify your business plans accordingly, if necessary.
We are doing this presentation in three segments, but we encourage you, if you have any questions during the presentation to just raise your hand. I’ll bring the microphone over and you can ask your questions, rather than waiting until the end of the presentation.

At this time, I would like, if you haven’t, maybe to turn your cell phones to silent mode so that we don’t get interrupted. We’re ready to get started, and first up will be Maury. So Maury, take it away.

Maury: OK. Can everybody hear me without this? That sounds all right. Yeah. OK, so what the hell’s going on? Well, hopefully today we’ll try and address these questions. Today, what we’re going to cover is a quick into and just making sure we understand the difference between high ratio and conventional because that is going to kind of set up explaining the changes and making sure when you know the changes apply and don’t.

There is a set of government mandated changes that we’re going to be going over. That will be followed by the insurers that have some changes that they will be setting up for some of their programs, specifically, self employed and rental programs. That’s pretty much going to wrap it up.

We’re going to have questions at the end, but also, as we’re going through to try and make sure that we’re covering each topic and it’s clear. If you have a question, please ask it when you have it.
So starting out here. The high ratio conventional, by definition, when a deal is defined as high ratio, whenever there is less than 20 percent down payment going into the deal.
This is the same definition at all banks.

When there is less than 20 percent, the deal has to be insured. It can be insured by any one of the three insurance companies we have in Canada. CMHC is by far the largest one used, but Genworth is second, and there is also AIG.

The bank typically decides. The bank usually develops a relationship with one or two of the insurance companies. They typically choose where the deal will best fit at the insurance company. They are all pretty much the same. The fees are the same. It’s pretty much lying to the client, for all intents and purposes, but there are three in Canada.

Then, conventional is when there is more than 20 percent in the deal. So just to do a broad category of high ratio and conventional.

We wanted to set that up because, the government mandated changes, these apply to all deals, at all banks, at all insurance companies when there is less than 20 percent down.

The first change is there is a new maximum amount someone can refinance their property to. So we’ll go over that more in a second here.

The second change is to help the banks. Insurance companies are going to determine the amount someone can qualify for, the amount of the mortgage, so this is changing.

The third change is there is a new minimum down payment requirement for a non owner occupied rental property.

There is one common misconception that is commonly asked about the changes is the new minimum down payment. If somebody is going to live on the property, there is no change to this. So if someone is going to buy a house and they’re going to live in it, there is no change. They can still buy with as little as five percent down.

The first change, the maximum refinance amount, it is, the limit now is 90 percent. So if someone has had a house, they’ve had it for a while. Maybe they’ve done rentals, they want to take equity out. They can now only go to 90 percent of the property’s value at the time that they want to do it. Before, it was 95 percent they could go up to.

This was more put in place to address some problems we’ve seen in the States, more than in Canada, where the market took property values up. People just refinancing every year and they weren’t really doing anything with the property, but kind of treating that house like a bank account. So it is to discourage this.

But in Canada, this product was not really used, they were never really taking, they might have been refinancing, but they were never taking it out to the max, for the most part, 95 percent. A change, but probably something that won’t affect most people.

This is a more significant change. This is the rate that is going to be used to determine how much people can qualify for a mortgage. There’s a couple of situations, so this is the first one.
If someone is going to be taking, or would like to take, a fixed rate mortgage of less than five years, a term of less than five years, or if they wanted any variable rate mortgage, this is what they have to do.

They have to qualify for the amount that they want using the Government of Canada benchmark posted rate.
Right now, it’s 5.85.? So I put “versus 3.85″ there because before today, someone could qualify for a variable rate mortgage using a much lower rate than they’re going to be forced to now.

If they want to qualify for a $500,000 loan and they want a variable rate mortgage, they’re going to have to try to qualify for the mortgage using that higher rate.

We’ll go into an example in a second, and you can see some numbers. So that’s the second case.

If someone says “Well, just forget it, I’m just happy with a five year fixed term, ” or “I’m going to take any term longer than five years with a fixed rate.” Guess what? You can use the rate, that’s the contract rate, the discounted rate, the rate that they’re actually going to get for their mortgage.

So clearly, you can see here, the point of using this higher rate, even though someone might be using a product that gives a lower rate, the government really wants to make sure that someone is going to be able to afford their payment over a significant amount of time.

Everybody knows we had record low rates, variable rates, like bottom basement, right? They’re only going to go up and there kind of wants to be some assurances in place that people are going to be able to afford their mortgage if it goes up two percent on a variable or if they have to renew in a year and rates have gone up. That they have comfort that they know that they are going to be able to make their payments at time of renewal.

I’ll give you an example. In this example, what we’re going to use is that we’re going to use someone that has a gross annual income of $60,000 per year. I used average property taxes amount, and I’m assuming they have no other debts, car loans, student loans, stuff like that.

The old max, meaning that 3.85 rate, so if someone was taking a very low rate mortgage or something, yesterday this person, or these two people or whatever it is could have qualified for a mortgage amount, not just a purchase price, but a mortgage amount of $439,000.

So if this person today says, “I still want a variable rate mortgage but I have to qualify for this thing under the new guidelines of 5.85.” They’re only going to be able to qualify for a mortgage for $342,000.
They can still have a variable rate mortgage, but the amount that they can get if they want a variable or a term less than five years is much lower. But then, there is some saving grace there. That if you say, “Forget it, I’ll take a five year fixed because then I qualify for it at the rate I am going to get.” They can qualify for a mortgage of $396,000.

So clearly, especially in Vancouver, there’s going to be a pressure, a funnel, I would say, to more people maybe taking a five year fixed. In order to qualify for the amount they need. It may not be a huge deal for a lot of people, there is a clear preference in Canada for five year fixed, but we all know that everybody doesn’t take a five year fixed.
This has just been how the numbers line up with the qualifications, so any questions on this one? [pause] No?

OK, so the last…

PART 2:

Maury: So the last change is the minimum down payment for rental properties. The new minimum down payment is 20 percent, and it was previously five percent.

So someone, if they qualified, had enough income, had enough rental income coming from the property, they could buy it. There were programs available for as little as five percent down. They did have a hefty, hefty insurance premium because the deal, of course, was insured, but it could be done.

So if that property was $500,000 before, obviously $25,000 minimum, and there will be the insurance but now, obviously, 20 percent of 500 is 100, so if they’re going to rent it out, they are going to need a much larger down payment.

This does not apply to second homes. There is a category of non owner occupied properties which are deemed as second homes. So a true second home, meaning you cannot count any rental income coming from it, in order to qualify for the mortgage.

This is not affected by this, you can still buy those. You don’t need to put 20 percent down. But if you need the rental income generated to qualify then you will need 20 percent down.

That is it. So the next section here, I will just turn over to Rowan.

Rowan: All right, so Maury covered what a conventional mortgage is and all of these changes that apply, as we have been talking about high ratio so the government mandated changes apply to things, there are three different changes; the investments, refinance, and the amount of down payment that is required.

However, just because that only applies to 80 percent financing or more, that less than 20 percent down, there’s actually more banks that are going to follow that all the way down the road. It doesn’t matter if you have 35 or 40 or 50 percent down, a lot of banks are still going to follow these new guidelines.

The reason is kind of complicated and involves how the banks raise their money in the markets and whatnot. But if they’re going to be doing that, you can see that these changes and there’s a lot of lenders that are going to be following that. I would say half or more.

It’s going to have a lot of impact for any loans of value, even though the mandated change only applies to 20 percent down or less.

So rental income changes, in Vancouver, this is huge. As we’ve heard, the percentage of properties, especially the condo market, is rentals. It’s definitely the most dramatic change, and ironically, this one isn’t even mandated. This is simply something that come down through CMHC and then all the other insurers have jumped on board with similar policies, not identical.

We have three different insurers we talked about. We’re not going to get into the specifics of who does exactly what type of product. But I can say that the rental industry is treated far less valuably than it was in the past.

Now this includes rental income from multiple different sources. You’ve seen on purchases, you see mortgage helper, you see in-law suites, you see nanny suites, it doesn’t matter what you call it.

If it’s a secondary suite within the property, if there is a second kitchen and as a rate they are bringing in revenue for this property, than that income is going to be treated far less favorably than it was.

It used to be that you could take a certain percentage of that income, say 80 percent is the number. OK, and we would go “You have got $1,000 in rent, you’ve got $800 we’re allowed to use. How much mortgage does that support?” The answer was like $180,000 or something. So right away the person qualified for $180,000 more just by virtue of having that suite in the property.

Well in Vancouver, we’ve got the whole authorized/unauthorized suite issue, right? And if something is authorized, can we use it? If it is unauthorized, can we use it? And the answers vary from insurer to insurer, so that’s something where the brokers have to know every one of the guidelines and rules for the different institutions.

Let me give you an example of how the new rules are going to take effect. We’re going to take the same example, say $60,000 average cost, clean credit, et cetera. So this is assuming a $1,000 basement suite. 680 to 515, so the old approval amount. In Vancouver, if you can picture East Vancouver, almost every home has a basement suite.

Picture Surrey, all these different areas. All these basement suites that we were previously able to bring into the mix. We can, but at a much lesser and more constricted treatment. That’s a 24 percent decline or reduction in how much somebody can qualify for based on that income. 24 percent is going to translate into an effect on how many buyers can afford properties in a particular price.

Now rental income, I was just talking about suites there, but it comes from multiple sources including three different ways, the basement suite, then you’ve got your rental property.

You’re living in your home, maybe you have a rental condo and it’s rented out. This third one is really where the rules are murky. That is going to be interesting to see how that plays out. When someone owns a home, especially a first time home buyer, they own their property, they want to upgrade to a new property, but they don’t want to sell the first one.

Maybe they’ve been there five years, they’ve built up significant equity, maybe the property can rent for a specific amount. So they want to get out of that property and move into a home. In that circumstance, that is where the treatment of that income for the old property is not really clear, the reason being is that they don’t have it at this point in time.

So if somebody has a rental property and they’ve had it for an extended period of time, the new rules actually favor those, that treatment of that income over all else, as long as the people are declaring it to pay tax on it. Going forward it will be far, far harder to qualify.

So you should declare it anyway because then you can offset your interest with a possible mortgage, so it makes sense to declare it but a lot of people still aren’t doing it. Is there any questions on the rental income or how this affects suites being authorized or unauthorized? That’s the rental income section.

I’m going to pass it over to Leah who is going to cover self employed.

Leah: All right, so pretty much all of us in this room are self employed so you can probably relate to this section as to how this is going to affect you specifically. Definitely clients who I encounter in Vancouver, a lot of self employed people.

Up until now, there has been a program called the Stated Income Program. Now, it’s exactly that, you are stating your income. And the reason that they have this is because in businesses, if you are a mechanic, you’re getting a lot of cash jobs.

Like us, we write off our cars, our cell phones, even part of our homes, and our rents, and our mortgage amounts. So because of this, banks and lenders, the insurers, even they understand that there is bit of a grey area. What exactly are you making at the end of the day because you have all these write offs?

So what they’ve done is they invented a program called the Stated Income Program. They’ve had this for quite some time and with this, traditional income verification is not necessary. You don’t have to show your D4s, what you’re simply doing is “I make $60,000 a year,” or whatever sounds reasonable.

Now with this, it isn’t that good to be true because you are going to have higher premiums with this which of course is more costs. You can’t just say that you sell coins or you collect bottle caps and you make over $100,000 a year. It does have to be reasonable.

How do they deem reasonable? Well, there are various amounts of things that leads me into where the changes are. Before they were a lot more lenient on what was deemed reasonable. Now they’re really focusing on different websites and economic studies and they’re going to ask you first, “What do you think you make?”

And then they’re going to look at what their stats tell them. If that seems to fall within their realm, they will deem it reasonable and they will accept it. Now the other change, and again, this is only for the Stated Income Program, the down payment has changed.

It used to be you only have to put down five percent, but it is now going to be a minimum of 10 percent down payment. That’s not to say that if you are self employed that you automatically have to pay 10 percent. It’s only if you decide to use the Stated Income Program.

With that being said, proving your income is always going to obviously stand up stronger with the lenders. So if you are able to, if you are properly declaring how much you make, and you’re paying taxes on that, you might if you are self employed, whatever it shows on line 150 on your tax returns, you actually get to add 15 percent of that back, to account for write offs. So if you’re able to, use proven income rather than stated income. You’ll save on your premiums and you’ll be able to put down a lower down payment down if you like.

As well, like Rowan mentioned, each insurer is a little bit different and so their internal policies are varying based on the amount of years you’ve been in the industry and the amount of years that you’ve actually been in your own business.

So that again is where…

PART 3:

Leah: …two years and maybe they’ve done it in their own business for 25 years. That is going to depend, or we’re going to have to then look at different insurers and we can send it to one insurer, but we can’t send it to another. So they do have differences of opinions on that.

So, this is actually a really short and sweet presentation. So, again, at this point, I will actually stop. Does anyone have questions on the self-employed program or anything that we’ve covered up until now? Yes.

Audience Member: Can we get a list of incomes which they will use for assessment?

Leah: Oh, of what they’re going to use? I don’t know. Are there websites that they can go to?

Maury: You mean when they’re looking at the reasonability test? They don’t really disclose that info to us. They have their own internal guidelines.

Leah: Yeah, because they’re really just going to state something in that, right?

Man 1: Isn’t it public knowledge?

Maury: Not really. No, they use a number of different sites that they look at. Let’s say somebody is a contractor, there’s a “range of most contractors in Canada” file. They can look at that information.

If someone says $250,000, they can look at that site and go, “Well, you know, by this they only made $60,000 or $70,000″ and that’s the number they’ll use. But I don’t believe that we have access to this.

Leah: Yeah.

Guest 1: For the States, it’s available free.

[crosstalk]

Leah: Yeah here it’s not so much.

Guest 1: If you guys want to know what a lot of business are making, we use labor market information. So you have an LMI or BC or for your province and you’ll find it probably, LMI.

Leah: LMI. It’s also important to know as well, one of the — which is on [inaudible 01:36] here — having a mortgage broker that you can go to and using as a resource. Because we deal with these, we can literally call up any one of our lenders right now and have a one-on-one conversation with them.

There is grey area. If you do have a contractor and maybe he really does make a crazy amount of income because he has so many people working for him or so many projects on the go, we’re able to have that relationship to somewhat tell the real truth of the situation.

If there is a good argument for it, there is always that possibility of things happening as well. So that’s really important to have a good relationship with your broker. Because you do speak to the lenders one-on-one every single day. So, leaving that into the to-do list-is there any other questions before we get on?

All right. So, first thing on your to-do list is definitely knowing your mortgage broker, especially for the Realtors in the room. You’re spending all of this time with your clients and to just say, “Go to your bank and take care of it on your own.” Not what I would encourage because with the banks, they have very tight regulations.

They also are out to make as much of an interest rate as possible. So, maybe your client won’t qualify for as much, or whatever the case may be. We’re actually able to handhold your client and insure that it’s getting done. Plus, we’re able to call you and we can tag team with you on the client to make sure that they’re getting us the paperwork that we need in the certain amount of time. Make sure that you get your approval deadlines on time.

Now, full disclosure of income and sources, this is more for clients. For those of you who are getting a mortgage yourself, you have to fully disclose not just what you make, but where the sources are coming from. There is, again, a lot of grey area in terms of income.

So, if you think you make $80,000 a year, because that’s what you made last year, it might not be. You may only make $60,000 because of a two-year average or based on your commissions and bonuses that aren’t going to qualify, or things of that nature. So, you need to not only disclose your income, but always your sources.

Prepare your documents early. If you go into the bank and ask for a pre-approval — which is actually the next point on here — if you’re approved, you’ll go into your bank and they’ll say, “Well, how much do you make? Do you have any payments?” So they’re taking things for face value and they’re basically saying, “Well, based on what you tell us, if all that is true, then you qualify for X amount.”

You go to a mortgage broker, then they’re not only going to ask you those question and take you for face value, but then they’re going to follow up on you and say, “OK, let’s start doing that paperwork together.”

And essentially what they’re doing is they’re going through the full approval process for you so that when you as a Realtor take your client or as a client you find that home of your dreams, and then you go to get approved and you realize, “Well, I thought I made this much.”

Or, “Oh, I thought I could get my paperwork together.” Or, “I thought I had this down payment. You mean I can’t use my credit card for my down payment?” Or whatever the case may be, you’re not going to have that disappointment of losing the property. So, get your documents before even looking at properties, get everything in order.

Then, again, confirming the pre-approval of the appropriate paperwork, a mortgage broker should go through all that for you. If you’re unsure what paperwork you are going to need, ask, and they will definitely let you know.

So, with that being said, are there any questions? Because we’re pretty much — we’re there. We’ve gone through all the requirements. Yes.

Woman 1: Are you still giving 120 days guarantee on the rate?

Leah: It depends on the lender. Some of them are 60, some are 90, some are 120; it’s all internal policy. So, yeah, depending on what the rate is, your broker can let you know at that time what the rate hold will be.

That’s something to note as well. If you want to get pre-approved, a lot of us brokers in the room here, we can do that on the phone for you, we can give you pre-approval of an amount. If you want to get an actual rate hold, you need to let us know because that actually takes a bit more of a process to go through.

We have to start actually choosing which lender you’re going to go with, and pre-approve you and give you that rate hold of 90 or 120 days. But, in general, for your pre-approval, we can tell you a number and to get going, but it’s different than a rate block.

Any other questions? You guys are all awesome! You know what you’re talking about now? All right. I guess we can — do you want to go ahead and close this up?

Wayne: Sure. The final thing I wanted to say, I guess, is for the Realtors out here or people who are sending their clients to the bank. I plug the mortgage brokerage industry with these new financing rules and things like that.

You really should have a broker as a first choice, but definitely a broker as a second choice. Just as a second opinion. The reason is, we didn’t want to make this too technical, but as we showed in an earlier slide, there were three insurance companies.

Realistically, not all the banks use all three. For example, very few lending institutions use AIG. They’re probably going to be disappearing off the map. So, when you need, say, a basement suite income or a self-employed program, there are variances from not only the institutional internal guidelines, but also with the insurance company.

I’ll give you a classic example — Scotiabank does use Genworth and Genworth does do illegal basement suites, which is great for Vancouver, but Scotiabank does not. So if you send your client to Scotiabank and that’s their home bank, and they want to purchase something — they’re going to qualify, basically, only on their income without any rental income.

If they want to buy something a little bit more expensive, you want a second opinion. And, as a broker, that’s where we come in and we can mix and match between the insurers and the lenders, we know what each one does.

We could, in a sense, get them a little bit more money to get into that dream home in Vancouver rather than, say, moving out to Burnaby — which is not a bad thing.

[laughter]

Wayne: So, I think that I would encourage you to use brokers to begin with because there’s 40, 50 different lenders and there’s all mix and match. But more importantly, if the client says, “Oh, I’ve been to see my bank, this is what they qualified me for,” but it doesn’t line up with what their expectations are, at least give one of the brokers in this room a call. Get a second opinion. We may be able to get them that little bit extra to get them into the home that they want. OK?

Other than that, we will be around if you have any further questions. Thank you all for coming and best of luck in the spring market.

I took more calls today than I could count asking, “Is it too late to get in under the old rules?”

The short answer is: “YES”

The reality is that lenders are swamped with applications from people that got them in within the last 7 days. They’ve been working around the clock to the mortgages submitted.

However, the first question I ask when I get this request is, “Do the changes even apply to you?”

The changes primarily affect investors, variable rates, and rental or self employment income. If this isn’t you, then rest easy. Otherwise, watch this video blog that explains it in greater detail.

Transcription of Video:

Hi everyone, it’s Rowan Smith with the Mortgage Centre.

Today is Friday, April 16th and a lot of people have called me today and said, “am I too late to get in on the old mortgage rules?”

And the first question I always ask them is, “What mortgage rules are you afraid you will be missing out on?”

In many cases people say to me, “well I want to refinance my house and take out some equity,” or they say, “I want to buy a place.”

I say to them, the three changes only affect three things. I guess technically, four things.

One, self employed people that can’t prove their income.

Two, investment properties.

Three, qualifying for variable rate mortgages.

Four, refinancing to 95 percent.

If none of that is you, then you don’t have to worry about the changes. However, for those of you that do fit into those categories, chances are, YES, if you are watching this video it is after or on April 16th, and it is too late.

Even though the laws change on April 19th, our ability to get you realistically approved and reviewed by the relevant parties (in time) is slim to none.

If you do have somebody in this situation, and you want to at least explore the option of perhaps getting it put before CMHC or one of the other mortgage insurers on Monday, please give me a call over the weekend. I’ll make myself available.

My name is Rowan Smith, for the Mortgage Centre.

Large mortgages present unique challenges in the Canadian Mortgage Market. Sliding scales, director approval, multiple reviews, it all adds up to difficultly getting larger mortgages approved. If you’ve found getting approved for a large mortgage is causing you trouble, watch this video:

Transcription of Video Blog:

Hey everybody, Rowan Smith of the Mortgage Center. I want to talk about large mortgages. Different cities across the country face very different property values from Vancouver, Toronto, versus somewhere in Manitoba or what not could face a 10 fold price difference. So when someone’s buying a home in Vancouver, I often will hear people remark “Well, how did that person get that mortgage?

How did they get it approved?” They’re looking at a home that’s $1.8 million and they know the person only put $400,000 down so how did they get that $1.4 million mortgage?

Well, for starters they probably had a heck of a lot of income, a lot of job security and a lot of fallback position. That’s other assets, things like RSPs, shares in other companies, stocks, bonds, mutual funds, all the like stuff, that type of thing. So in the event that something goes south in the mortgage they can always go back to those fallback position resources to draw funds to make the mortgage payments.

So it’s more a financial debt. So if someone you’ve heard of has a $1.4 or just basically anything over $800,000 of mortgage, they probably are very financially sound and have very good income. Now, where this comes into play is when you’re looking to buy a high end home the rule is 5% down, so most borrowers think “Well, if I can put 4% down, then I should be able to qualify.”

When you get up that high and I’m talking a balance $800,000, $900,000 up over a million bucks, you’re not really just facing one person who has to approve that deal. At that level you’ve got to get managerial approval at the bank. You probably have to get approval at the insurer. If it’s CMAC insured, you’re definitely going to have to get managerial approval at that level. If it’s even a bigger mortgage $1.5 and $1.6 million it’s going to go to the national director.

So there’s a lot of hurdles to jump through. So if you’re looking to buy a larger or rather a higher end home, you’re going to want to get more days for subject approval. Typically I ask my borrowers for four to five business days. Saturdays and Sundays don’t help us because the banks aren’t working on those days.

So if you write the offer on a Tuesday, get until the following Monday in order remove your subjects. That’s for a standard purchase. If you’re purchasing something that’s a high end home where you’re going to need a mortgage in excess of $800,000 to $900,000. if that’s the situation you better get 10 business days.

Usually the sellers of those homes understand that putting financing together for a home of the magnitude you’re purchasing is more difficult. Giving longer subject removal periods of time, even in the hot market in Vancouver hasn’t been that difficult if it’s justified.

So if you have anybody looking for a high end home, I can help them arrange the financing. Sometimes we can dot our I’s and cross our T’s in advance of them actually writing the offer so there’s much smoother and a clear picture whether or not it’s going to go through in the first place.

For the Mortgage Center, I’m Rowan Smith.

A frequent question that made put out this blog:

Transcription of Video Blog:

Hi, everybody. It’s Rowan Smith at The Mortgage Center. I wanted to address a topic that’s come up a number of times, which is guarantors and co signers and really what a guarantor co signer is. For the most part, for a mortgage, if you’re asked by your broker or your lender to get a co signer, it’s because your income doesn’t really qualify you for the mortgage that you’re trying to get. It could also be that your down payment isn’t enough, but typically the reason has to do with income and whether or not you’re able to document it in a way that’s sufficient with the bank.

People say “Well, the co signer or guarantor, they’re just signing their name on it, right?” Well, not really. The whole point of a guarantor is to add strength to a deal. So, first off, what does a guarantor or a co signer need? I’m going to use those words interchangeably, because they realistically mean the same thing.

A guarantor or co signer needs to have either A; a whole lot of assets, like a clear title home in their name, so a parent or grandparent, or they’ve got to have a lot of income. When I say income, I don’t just mean they earn a lot. They have to earn a lot, but not also have a subsequent large amount of debt.

In my experience, people will say, “Oh, I’ve got my uncle. He makes a couple hundred thousand dollars a year.” Well, people that make a couple of hundred thousand dollars a year tend to have pretty large mortgage payments. If they don’t have large mortgage payments, then they tend to have a lot of other debts and line of credit facilities, car lease payments for tax purposes and all that.

So, just because they make a lot of money, it’s not enough. They also have to have what we call unencumbered income. That’s income that doesn’t require a lot of other payments and the like. So, when they signed on there, what are their responsibilities? Well, it’s what you call a contingent responsibility.

In the event that you, the primary applicant fail to make payment, they have the rights to go after your co signer. Now, how far does that right extend? Well, if they take a loss on the property, you and the co signer are both jointly and separately responsible for that debt or for that loss in the event there is a foreclosure and they subsequently take it.

They will go after that foreclosure as rigorously as they would go after you. So, if you skip town, or you leave, or you throw up your hands and say, “I just can’t afford the payments,” they will turn to your co signer and attempt to force a sale of some of their assets if it comes to that. It often doesn’t, and the co signer will often have to eat the brunt of the problems.

This is why we see a lot of people who have one damaged item on their credit and nine good ones. That’s because they’ve agreed to be a co signer for someone who really didn’t deserve it. So, if
someone’s asking you to be a co signer, don’t jump the gun and say, “Yes” just because they’re your friend.

You’ve got to do the smart thing, and you’ve got to look out for yourself. Make sure that you understand all of the risks and responsibilities. Go with that responsibility, being a co signer, and see what you’re getting out of the deal as well. Don’t hurt your own financial position just trying to better somebody else’s.

For The Mortgage Center, I’m Rowan Smith.