By this point, with the media blitz that has been underway, people have become aware that mortgage rates are on the rise. As I type this at 11:55pm at night, my last lender with low rates has moved them up. However, there are a number of permutations, variations, and specialty products that exist with the great older rates.

The first variation that exists is the Quick Close product. If you can close a mortgage in 30-45 days then special rates may apply to you as the lenders do not have to “hedge” for rates rising. That is 30 to 45 days from the date that your broker submits the deal, NOT since the offer was accepted (in the case of a purchase), nor is it from the date you and the broker talked about it. It is from the date he or she submits the deal to the lender. I have access to several lenders offering lower rates if you can close a mortgage quickly.

The next variation on a theme is the Jumbo Mortgage. These products are mortgages that exceed some lender-determined size and that qualify for a deeper discount as a result of their size. The most common point is $500,000 of mortgage amount. Any mortgage over $500,000 qualifies for a special deep discount. As of typing this email, 4.99% is still available for people with mortgages exceeding $500,000.

The last variation I’ll address is the Promotional Rate Offer. These are one-off products that have to fit certain size / closing date / applicant type. These are very specialized and you need to speak to a broker to see if there are products specially designed for an applicant in your unique position.

As I type this, I am able to give applicants the following promotional rates if they fit a specialized “box” regarding their employment, credit, financial situation, assets, income, and property:

5 Year Closed – 4.99%

5 Year Variable Closed Prime – 0.80% (Prime is presently 4.75% for a net rate of 3.95%

These rates are subject to change without notice, subject to the applicant meeting specific criteria, and are subject to closing in a specific time frame, but in either case, ask me if you qualify.

I get a lot of calls from potential “investors” who tell me they want to buy properties, fix them up, and flip them for a tidy profit. In principle, this is a good idea. The reality is that you have really got to be on top of your costs, know the closing and selling costs, and move quickly to preserve a profit. In many instances, in this current Spring market, it is very difficult to pull off for even highly qualified do-it-yourselfers or contractors.

A lot of people have asked me about buying a 2 bedroom in Kitsilano, fixing it up, and flipping it. As a 2 bedroom in that area (which is highly desirable and selling quickly) is worth around $475,000 – $525,000 depending on many factors such as location, view, size, etc… There are two bedroom places well up to a million dollars, but for the most part, they can be gotten for $500,000 so I will use that number as an example.

Further, I will assume that you are able to put a bit of money into it and sell it for $50,000 more at $550,000.

BUYING COSTS

The costs you need to content with when purchasing a place are the following:

1. Legal Costs
2. Appraisal Costs
3. Property Transfer Tax
4. Adjustments

LEGAL COSTS

These are the costs to purchase the property and register your purchase and mortgage with Land Titles. Generally, this can be done for around $850 – $1,200 depending on which lawyer you use, what level of service you demand, etc. However, that is a fair price, and for the sake of argument, we will take $1,000 as the legal costs.

APPRAISAL COSTS

When getting a mortgage (and I presume you will have a mortgage on that property, right?) you will need to get an appraisal done as part of the financing. If you use me, I will take care of it, but you an expect a bill of $250 approximately to get it done. This is the process of a neutral, licensed third party walking through the subject property and taking photos to confirm (for the bank and for yourself) that the price you are paying is fair market value. It also sets the lender at ease that the property is not a former (or God forbid CURRENT) grow op.

PROPERTY TRANSFER TAX

Even if you are a first time home buyer, you will still have to pay the property transfer tax (PTT) which is, in it’s most basic form, a tax for the pleasure of owning property in British Columbia. There is no way around this tax, and it is HUGE, so it is very important to build it into your plans.

The tax is calculated as follows and is based on purchase price. It is 1% of the first $200,000 of purchase price, and 2% of the balance. So for a $500,000 property, it would be:

1% of $200,000 = $2,000
2% of $300,000 = $6,000

FOR A TOTAL OF $8,000 of tax and this cannot be “just added to your mortgage” unless you are putting a significant amount of cash down (i.e. over 20%).

So far, just to purchase the property, and before you sink a single dollar into repairs and renovations, you are out:

$1,000 Legals
$250 Appraisal
$8,000 Property Transfer Tax
$9,250 TOTAL to acquire the property

SELLING COSTS

When selling a place, the costs you will need to take into account are:

1. Legal Costs
2. Realtor Costs
3. Mortgage Penalties (if applicable)

LEGAL COSTS

Usually a sale is about $500 for all inclusive. It can be as low as $150, but that is in rare situations so we will use $500 as that is standard in the business. This is the costs for the lawyer to clear title and remove you and your mortgage (if applicable) from the property.

REALTOR COSTS

The standard realtor commission (based on sale price) in Vancouver is 7% of the first $100,000 and 2.5% of the balance. So, if we assume you sold the place for a tidy $50,000 profit and got $550,000 for it after renovations, your realtor fees would be:

$7,000 7% of the first $100,000
$11,250 2.5% of the remaining $450,000
$18,250 TOTAL COMMISSIONS

Now, you could MAYBE get this cheaper through another real estate firm that advertises a flat rate – we all know who I am talking about – but YOU GET WHAT YOU PAY FOR. If you are paying your realtor next to nothing, then how are they going to market, advertise, print, and do all the good things to get you top dollar for your property? My opinion is that they cannot unless they charge you a decent commission. Also, this market is not like it was two years ago where it seemed like a monkey could put a sign on the street and get a sale. Marketing is back in Vancouver, and those that can market a property well will sell it faster and for a better price.

MORTGAGE PENALTIES (If Applicable)

These are not always applicable, and if you were dealing with me, I would ensure that you are in a fully open mortgage and that you have no penalty to pay off your mortgage. I am going to assume you DID get the mortgage through me, and ignore this cost item, although it could be as high as $10,000 depending on who did the mortgage and with what institution and product. Please talk to me about the mortgage before inking it with someone else.

So far we have the following costs to sell:

$500 Legal Fees
$18,250 Realtor Commissions
$18,750 TOTAL COSTS to Sell the Property

TOTAL COST TO FLIP THE PROPERTY

So after we analyze all costs we have the following:

$9,250 Costs to Buy the Property
$18,250 Costs to Sell the Property
$27,250 Cost to Flip the Property

So, without spending a DIME on renovations, and without taking into account a SINGLE mortgage payment, you would have to make spend $27,250 on the flip. If we assume you put $20,000 of renovations into a place (a very very low amount in ultra-expensive Vancouver even if you are doing the work yourself), you still only make $2,750 in profit. This is all WITHOUT TAKING INTO ACCOUNT MORTGAGE COSTS.

If you think you have a property that can net you a much larger profit, then by all means it is a good investment. However, too many people walk into a buy and flip scenario without understanding the true costs to buy and sell the property in BC and they end up taking a bath and losing money in the process.

If you are considering buying and flipping, a lot of money can be made, but you need to sit down and speak with me ahead of time to develop a business plan to see if it is feasible given the property, what you canp purchase it for, and what you ultimately hope to make. I can make sure that the closing and selling costs are very clear up front, and then all you have to worry about is your renovation / mortgage costs. For this reason, you will want to sell it and do the work as fast as you can to avoid mortgage interest piling up AND IT WILL! For example, if we assume you had put 20% down on the purchase to avoid CMHC fees, and had a mortgage for $400,000 (80%), and if we further assume it is interest-only. You would still face a monthly cost of $1,568 of just interest for every month that it took you to renovate and sell it. If you assume it takes 4 months, that is a further $6,272 that has to come out of your pocket during that time frame.

Having a game plan in place ahead of time is a good idea. Let me show you the true costs of your venture and you can decide from there if the profit potential is good enough to warrant the investment of your time and money.

Your credit is one of the most important things that a lender looks at when evaluating you and your application for a mortgage. To many people this is an unfair examination of factors that are often beyond your control. While this might be true, it is also true that some people manage to maintain perfect credit through all sorts of life’s obstacles. How do they do it? That is what this report is going to outline in specific detail. By the end of reading this report, you will have a detailed action plan that you can put into practice to begin to rebuild your credit immediately.

Note, this is not an overnight process. Building good credit takes times. Sadly, destroying it can be done virtually overnight. If you have already written an offer on a house and are trying to find a way to quickly shoot up your credit score, I’ll be honest with you: it isn’t possible. However, if you want to get your credit in shape so that in 6 months to a year from now you are well positioned to purchase a home and continue building a solid credit history, then you are the target audience for this brief write up.

WHAT IS A CREDIT ‘SCORE?’
There are really two elements to your credit. There is the score (called a ‘Beacon Score’ in Canada and a ‘FICO Score’ in the U.S.), and then there are the ‘Trade lines.’ Let’s address each in turn:

Beacon Score
Your Beacon Score or ‘Credit Score’ is the first thing that a lender looks at. It is a mathematically derived number that takes into account the number of accounts that you have, the length of time they have existed, the amount owing, the percentage of the credit limit being used, and any collections / judgments against you. The theoretically score ranges from 300 (low) to 900 (high). However, rarely are people below 480 unless they are in the midst of a financial crisis, and rarely are people above 820 just due to the way the formula works.

Most people with decent credit have a score of around 680. This is a solid score that gets you access to virtually EVERY lending program at full discounts.

There is NO fast way to boost your credit score. Each month, the different creditors you have report the current status of your loan / credit card / account. They report randomly and at varying days of the month. If you happen to be in arrears on the day they report, then you will show as a late payment even if it is only one day late! This system is in place to prevent people from manipulating the credit score. There is no one you can contact to boost it quickly, and there is no trick that will run it up fast. Credit, like a personal reputation, takes a lot of time and effort to build, but only a single mistake to harm.

Trade Lines
These are the individual accounts that you have. For example, if you have a card with MBNA Mastercard, the credit report shows the authorized limit, the amount of debt outstanding, your monthly payment, how long you have had the account, and if you have been late on payments at any time in the last 5 years. Five years! That is a long time that stuff will remain on your bureau. It will also show how many times you have been 30, 60, or 90 days late on your payments in the last 5 years.

Each account has a separate trade line that reports ALL of the above information. There are a few items that do not report to the credit bureau companies at this time. They are: mortgages on residential properties with a bank (credit unions DO report), loans in your business name, some auto or equipment lease companies, and some savings and loan companies.

How Do You View Your Credit
There are two credit reporting agencies in Canada and three in the United States. The most commonly used agency in Canada is Equifax. They can be found at www.equifax.ca and you can order a report instantly online for around $20. This is something that you should do periodically to make sure that nothing incorrect is reporting or that any errors are cleared up. Errors do occur! Not surprisingly, they are usually not in your favour. You can also get a copy of your credit bureau for free, once per year, by phoning Equifax and leaving a message (it is a hokey system but personal experience has shown that it does work).

Once you have your credit bureau, review it for inconsistencies. If you find that someone says you missed a payment but you think you did not, then the onus is on you to prove that you made the payment on time. Simply calling to complain is not only futile, it is not possible. If you have requested a copy of your bureau from Equifax, a number will appear on the report that you are to call for any corrections. This number is not a public number and it varies depending on what area you are living in. You can only get this number once you have gotten your credit bureau report sent to you.

Note: A lender will NOT accept a copy of the credit bureau that you give to them. They will insist that they pull their own copy directly from the credit bureau to avoid any possible fraud or manipulations (they DO occur frequently).

Inquiries and Credit Seeking

Most people are unaware that the more times people/companies look at your credit, the more it hurts you. The only exception to this rule is when YOU look at your bureau as this process does not have a derogatory effect.

Why? You may ask. Every time someone (a bank, credit card company, cell phone company, or anyone else) looks at your credit, it is recorded on your credit as to what date, and who pulled your credit to look at it. If a bank sees that you had our credit pulled at another bank, but doesn’t see a corresponding ‘trade line’ that shows what you got loaned to you, they wonder what happened. Did you get declined? Did you get the loan and it is not showing up? Are you trying to get the loan from multiple people? Are you in dire financial straights and need a loan? They don’t know for certain. The only thing that they do know is that you are seeking credit for one reason or another. As more and more and more people look at your bureau, not only does it look suspicious to the lenders, but it lowers your Beacon Score!!! Each inquiry doesn’t lower it by much, but when taken as a whole, 30 applications in a 3 month period of time can be very harmful to your credit and will raise all sorts of ‘red flags’ to the lender.

Some people make every payment on time, all their life, and then find out their credit score is low because of all the applications they put out there but never followed through on.

Does this situation sound familiar? You walk into a mall, or at a hockey game, and a young person approaches you with a ‘Free gift if you will apply for this mastercard.’ You think that there is no harm because you don’t really intend on taking the credit card, but you do intend on taking the gift. You walk away, and ignore all their mail and phone calls and think you have gotten something for nothing. What you don’t know is that they have pulled your credit and left their mark on it. Every loan you apply for, for at least the next two years, will now be influenced by that simple inquiry. Bottom line: don’t take the gift.

I Have Lots of Credit, Use it Well, but My Score is Low. Why?
There are a couple of other things that lower your score aside from credit seeking (or the appearance of credit seeking). The first one is having too many active accounts. Even if you manage them all well, the fact that you have 3 Visa cards, 4 Mastercards, 2 American Express cards, a car loan, boat loan, Sears card, etc… all combine to make it look like you could get into financial difficulty because you could run up your debt level. Having too much credit can result in lenders wanting you to close out some accounts before they will approve your mortgage and this leads to hassle and trouble later on.

Another thing that may lower your score is owing as much, more, or close to the authorized limit. For example, if you have a credit card with a limit of $5,000, and you owe $4,000 or more on that card, it will have a slightly harmful effect on your score because you are close to the limit and it appears you don’t have the funds to pay it off. If you are AT the limit, the effect is even stronger. If you are slightly over your limit, then the effect is very harsh. Even if you never miss a payment, but at the end of the month the interest is added to the card (and you apply for a mortgage before paying it down), the score will be lowered as it appears that you are exceeding the authorized limit. These rules may not appear fair, but it is the way that credit is calculated in Canada and there are no ways around it.

Ok, I Want to Fix My Credit Now. What Can I Do?
If you have had some troubles in the past, and you want to better your score for a future mortgage or home purchase, there are several things you can do to bolster your score. They are:

1. Do not apply for any other debt. Each inquiry hurts your score, remember?
2. Pay down your balances to below 50% of the authorized limit. The lower the better.
3. Do not miss any payments. Sounds simple? It is the most common reason for bad credit for obvious reasons
4. Keep your addresses on file updated with lenders if you move
5. Do not move around a lot as this looks dicey to lenders even if justified
6. Pay your parking and traffic violation tickets. They can end up at collections and ultimately on your credit which will lower your score substantially.
7. Clear up old debts and get it ‘in writing’ that it is paid in full. Keep this proof on file!!
8. Pull your credit once a year to review it and make sure it is up to date
9. Contact Equifax immediately if something is wrong and get proof in writing that it is fixed.
10. Close unused and unwanted / unneeded accounts

How Long Will It Take to Raise My Score?
Credit, like your personal reputation, is built up over time. Usually the credit bureau is behind by about 1 to 2 months. If it shows that you are in arrears on, say, your credit card, and you make a payment, it may not be reflected for 4 to 6 weeks. Credit is not instant, and you cannot make quick repairs. You can expect repairs to take 6 months to 2 years depending on how severe the credit problems were. There is no fast way to fix it other than continuing to use your accounts and continuing to pay them off in full as soon as you can.

What if I Have a Bankruptcy In My Past?
This is a complicated area of borrowing. You may still be eligible for fully discounted rates, even if you are a past bankrupt. Please request my other report: Past Bankruptcy for specific programs and advice pertaining to credit repair in this unique financial situation. Contact me directly if you are in this situation.