The Vancouver Sun published an article today about the rising unemployment in Canada coupled with the possibility of rising delinquency. Fortunately, CMHC and the lenders are willing to work with people (hopefully in advance of problems) to resolve their financial problems. This article puts a fine point on how solid our Canadian lenders have been, and why the sub-prime problem was primarily a US creation.

This is a reproduction of a Vancouver Sun article on March 28th, 2009. Particular author credits were not given on their site, but the work is entirely theirs. I am re-publishing it without permission but with full credit to them!

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Rising unemployment and falling real estate values inevitably increase the risk of mortgage defaults. Fortunately, a foreclosure remains a rare event in Canada: Both lenders and borrowers view it as a desperate measure of last resort.

But the recession is taking a toll on jobs. Canada’s unemployment rate rose to 7.7 per cent last month from 7.2 per cent in January, while the rate in British Columbia stands at 6.7 per cent, up from 6.1 per cent. Since the peak last October, Canada has lost 295,000 jobs.

Meanwhile, the average resale home price nationally has dropped by 9.2 per cent. That’s good news for buyers; not so good for homeowners who took out a big mortgage to buy a residential property during the real estate boom. Especially vulnerable are the rising numbers of homeowners who suddenly find their employment income at risk.

The federal government and Canada’s chartered banks hope to head off a wave of defaults by appealing to homeowners to approach their lenders before they find themselves in serious financial trouble. A foreclosure is not just an unhappy human story, it represents a loss for the banks and a potential policy challenge for Ottawa. Most mainstream lenders are willing to help their customers through a crisis by offering options such as deferred payments, extended amortizations and debt consolidation.

Canada Mortgage and Housing is expected to launch a campaign next week to inform the public that such options exist and to encourage homeowners in jeopardy to be proactive to protect their investment. CMHC and lenders realize that recessions are cyclical, home prices will recover and new jobs will be created. Besides, no one wins in a foreclosure, which can be costly for the banks and, with the resulting rise in the homeless population, politically damaging for all levels of government.

Canada’s preventive measures appear meek and mild compared with America’s aggressive $75-billion US mortgage relief plan that aims to help homeowners modify their loans, mainly by providing cash incentives to lenders to cut monthly payments. But each country’s circumstances are strikingly different. Mortgage delinquencies in the United States, where one in five mortgage holders is under water, jumped to 7.9 per cent of all loans last month. That excludes the 3.3 per cent of loans already in foreclosure.

In Canada, only 0.3 per cent of mortgages are in arrears.

Despite the relatively low risk of defaults, it makes sense for CMHC to put out the word that lenders are willing to be flexible on troubled mortgages.

It is likely that more Canadians will face financial pressures as the recession drags on and it is better for all involved, other than in the most extraordinary cases, that they stay in their homes.

In some hard-hit communities, banks are taking the initiative to contact customers to ask if they need help. Lenders might want to consider introducing that kind of customer service across the board to avoid problems before they happen.

Ultimately, it is up to individual homeowners, who best know the state of their own household finances, to recognize the warnings signs and seek relief from their lenders. With the encouragement of CMHC, the banks appear willing to play ball to prevent a U.S.-style mortgage meltdown in Canada. Communication and cooperation are key to helping mortgage holders get through this economic slowdown with a roof over their heads and equity in their homes.

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So everyone was worried that a sub-prime problem would rear it’s ugly head in Canada much like it has in the US. I, for one, didn’t think the same price crashing and defaults would occur. However, the sub prime market has had a different effect in Canada. Lenders that made sub-prime loans are unable to get the money back for clients are renewal, meaning people that had sub-prime mortgages are unable to renew them with their current lender. Many borrowers were sold a bill of goods whereby they figured that after 3 or 5 years they could get out of their higher-rate sub prime mortgage, and into a conventional mortgage with their bank. However, market conditions have changed, and most clients are unable to get into a new mortgage.

In light of these developments, the lenders that did sub prime loans have approached the government with the goal of getting some government backed funding to assist homeowners in this situation. I applaud their effort, but feel they have done an injustice by funding mortgages they weren’t sure they could renew. The first signs of distress have occurred with lenders foreclosing on borrowers who have made every single payment on time. It was featured last week on the front page of the Vancouver Sun, and now the Globe and Mail has caught wind of the story as well.

Below is an article that appeared in the Globe and Mail on March 26th and was written by Greg McArthur and Jacquie McNish. I have reproduced the article in full, and it is entirely their work. I felt it was a realistic look at what is going on in the market and being largely unreported (so far) by the main stream media.

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As many as 25,000 Canadian homeowners who consistently met their mortgage payments could lose their homes unless Ottawa or other financial players help supply capital to the struggling subprime lending market.

A loose network of about 12 alternative mortgage lenders began lobbying the Prime Minister’s Office and the Department of Finance in January about what they say is a looming problem: An estimated $3-billion to $5-billion worth of subprime mortgages are coming up for renewal over the next four years, and the lenders say they can’t renew them because capital has dried up for higher-risk borrowers.

“These are hard-working Canadians who could face foreclosure on their homes if they are unable to renew or find mortgage financing,” said Paul McGill, the CEO of the N-B Group, an alternative mortgage lender that has been spearheading the campaign.

These mortgages were arranged in the headier times of the early 2000s, when investors easily bet money on complex securities backed by mortgages. Many investors were comfortable investing in securities with subprime mortgages because of the higher returns these investments offered. The torrent of money flowing into securitized investments, such as asset-backed commercial paper, allowed a new generation of lenders such as Toronto-based Xceed Mortgage Corp. and U.S.-based Accredited Home Lenders Inc. to offer mortgages to people with credit score blemishes.
A Ladysmith, B.C., property in foreclosure this month. A recent spike in foreclosures in Western Canada could spread across the country over the next four years.

A Ladysmith, B.C., property in foreclosure this month. A recent spike in foreclosures in Western Canada could spread across the country over the next four years. (Deddeda Stemler for The Globe and Mail)
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When the global credit crisis struck in August 2007, investors fled mortgage-backed securities, forcing subprime lenders to turn to more conventional securities such as Canada Mortgage Bonds, which the Canada Mortgage and Housing Corporation administers. Because Canada Mortgage Bonds require borrowers to meet higher credit standards to qualify for their investment program, subprime homeowners who got mortgages a few years ago are on the verge of being orphaned.

Executives with subprime lenders said they have been unable to tap alternative sources of financing for the stranded borrowers. Unless Ottawa steps in to help support the homeowners, for example by buying or backstopping the loans, they warn that thousands of homeowners will lose their homes through foreclosure or power-of-sale proceedings

“The bottom line is, these people made their payments,” Mr. McGill said in an interview, repeatedly stressing that the number of affected homeowners in Canada – tens of thousands – pales in comparison to the subprime lending crisis in the United States. “It’s not dismal. It’s a problem that needs to be addressed.”

Ottawa has put forward no formal proposal, Mr. McGill said, adding that he couldn’t specify what kind of solution the lenders have in mind because the process is at such a preliminary stage.

Some subprime lenders, such as Xceed Mortgage Corp., say they have been forced to start foreclosure proceedings on customers who were current with their payments for this very reason. Ivan Wahl, chief executive officer of Xceed, said the company has initiated foreclosure proceedings against 200 homeowners, mainly in Ontario and Quebec, because the company was unable to find new money to lend to them.

He said another 1,200 of his company’s mortgage customers will be in a similar predicament over the next four years.

“They upheld their end of the bargain by making their payments. It would be fantastic if Ottawa stepped in, even temporarily, to help provide capital. The initial indications are that [federal government officials] are receptive.”

Two weeks ago, The Globe and Mail reported that foreclosures in Alberta and British Columbia have spiked, with Alberta’s foreclosures on pace to double from two years previous – to 5,300 in the first 11 months of 2008-09 from 2,510 in 2006-07.

Subprime lenders initiated about half of the foreclosures in Western Canada in 2008, although they held, at peak, only about 5 to 7 per cent of the market share. It’s not known how many of these foreclosures were launched against homeowners who were up-to-date on their payments.

In the current depressed housing market, foreclosures can be devastating to lenders because they can be forced to sell homes for less than the value of the mortgage debt.

The group of subprime lenders has enlisted lobbyist Kaylie Wells to negotiate with the federal government, according to records with Canada’s lobbying commissioner. In late January, Ms. Wells organized meetings with two policy analysts in the Department of Finance, Andrew Wallace, a policy adviser in Prime Minister Stephen Harper’s office, and Neil Desai, the manager of the Prime Minister’s Office.

“We are listening to a broad range of stakeholders on a broad range of topics,” said Chisholm Pothier, a spokesman for Finance Minister Jim Flaherty. “We’ve been clear that access to credit is among the top issues facing this country.”

He added that the federal budget contains “unprecedented measures” to provide financing. “Through the Extraordinary Financing Framework, we are making $200-billion in capital available to facilitate the flow of credit through the capital markets to lay the foundation for recovery.”

Among the measures the government has taken, Mr. Pothier said, were reducing the maximum amortization period for new government-backed mortgages to 35 years; requiring a five per cent minimum downpayment; introducing new loan documentation standards; and establishing a consistent minimum credit score requirement.

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This article was published in the Vancouver Sun on March 20th. No particular author credit was given, but it is their work, published below for your information.

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A foreclosure on a family home is a heartwrenching human tragedy. As the recession takes its toll on household income, the number of foreclosures is increasing.

Fortunately, they remain relatively rare, and pose no systemic threat to Canada’s financial system, in stark contrast to the subprime mortgage meltdown that ravaged the U.S. economy.

Despite what you may have read elsewhere, Canada does not have a subprime mortgage crisis. An article in a Toronto newspaper this week carried the alarming headline, Canada’s dirty subprime secret, but it offered little evidence that loans to unqualified borrowers were a secret or dirty — or for that matter, subprime.

The article focused on extreme anecdotes of homeowners using their property as collateral to get loans, and taking new loans to pay off old loans, hoping to squeeze out a profit through repeated refinancing. That hardly supports a case that Canada is awash in subprime mortgages.

In fact, its only statistical defence for the thesis was a misrepresentation of a 2006 report by CIBC World Markets economist Benjamin Tal. The article stated that Tal estimated that subprime loans were growing at a “meteoric” pace of 50 per cent and that more than 85,000 Canadian homeowners had subprime loans. He did no such thing.

What Tal said was that the market for non-standard and subprime mortgages was growing at that rate and that, in that year, the growth of the non-conforming market enabled no fewer than 85,000 Canadians who would otherwise have been shut out of the market to become homeowners.

Non-standard, or non-conforming mortgages, sometimes referred to as Alt.A, are not subprime. They are given to borrowers with good credit histories and have low loan-to-value ratios. However, they do not meet bank guidelines for conventional mortgages (good employment history, credit score above 700, 25 per cent down, gross debt service ratio below 30 per cent.) Subprime mortgages, on the other hand, are given to borrowers with bad credit and little or no income, have high loan-to-value ratios and often a low asset base. In the U.S., some of these loans were dubbed Ninja mortgages — no income, no job, no assets.

Tal estimated that, in the U.S., those with bad credit account for only 30 per cent of the non-conforming market, but two-thirds of total losses.

Non-conforming and subprime loans represented between five and six per cent of all mortgages written in Canada in 2006, 2007 and 2008, compared with 22 per cent in the U.S., and analysts put the maximum potential at no more than 10 per cent. The federal government’s reversal of its ill-considered loosening of insuring criteria governing the Canada Mortgage and Housing Corp. and the general credit tightening globally will likely keep the share of the market below that potential.

As the housing bubble inflated, U.S. subprime lenders began to aggressively market their services to Canadians, but they have captured only a tiny portion of the mortgage market, which is dominated by the chartered banks, with the vast majority of high-ratio loans insured by CMHC. The recession has curtailed the activities of non-bank lenders, although they may resume when the economy recovers.

Individuals must take responsibility for their personal finances, not borrow more than they can afford, be wary of teaser rates and other sharp marketing practices, and understand the terms of their mortgages.

Last month, Prime Minister Stephen Harper told CNBC in New York that Canada has avoided the subprime mortgage problem that has bedevilled the U.S. He was right then and has not “grossly underestimated” the impact of subprime lenders in Canada, as the newspaper article claimed.

While there has been a doubling of foreclosures last year over a year earlier, B.C. has the lowest rate of non-conforming mortgages in the country. And here’s another factoid to consider: The percentage of Canadian mortgages in arrears for three months or more was just 0.3 as of December 2008.

Like other nations, Canada is coping with the global recession. While it is better positioned than many others, it still faces job losses, falling exports, low resource prices, weak consumer spending, declining government revenue and rising debt levels.

One problem it doesn’t have is a subprime mortgage crisis.

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I take inquiries and questions from clients about Vendor Takeback Mortgages on a weekly basis. The purpose of this blog is to both clarify what precisely a Vendor Takeback Mortgage is, and where it is, and is not, helpful in arranging financing.

DEFINITION:
First, it is important to be clear what we are taking about. A Vendor Takback mortgage is one where the vendor “takes back” a mortgage when they sell a property. So, let’s use some round numbers to help this make sense. In this case, the home purchase price is $100,000.

If a vendor (seller) agrees to “take back” a $20,000 mortgage (for example) this means that the buyer has to get $80,000 of financing from the bank, and the vendor will register a 2nd mortgage for $20,000 behind the bank financing.

The first question is, “why would the seller do this?” or “why would the buyer want this?”

Typically, vendor takebacks get requested when the buyer doesn’t have a down payment, or enough of a down payment. If a buyer sees a property that they really want, but they don’t have any cash available for a downpayment, then how do they get one? They borrow it, and in the case of a vendor takeback, they borrow it from the seller!

The reason a seller would agree to do this (effectively lending $20,000 to a buyer) is because they will usually get a superior rate of return (often greater than 10% per year interest) than they would get otherwise in term deposits or other secure investments. For example, if bank rates on mortgages are 4.09% for the first $80,000 then the seller may request 12% for the $20,000 (for example) vendor takeback. This would mean the buyer would have a monthly mortgage payment on the $80,000 he borrowed from the bank ($424.5 per month assuming a 25 year amortization). Then, the buyer would also have a payment to the vendor for $200 per month (assuming interest only at 12% per year on the $20,000 vendor take back).

Now, clearly, the payment for the vendor takeback is higher, due to interest rate, than the bank mortgage. You may find yourself asking, “so why would anyone do this?” The answer is, 99% of the time, they don’t have the cash for the down payment. In this manner (vendor takeback) they are able to buy a property, with essentially no money out of their own pocket.

In this case, at the closing date, the buyer would get his $80,000 for the bank and turn it over to the seller, and the bank would register a mortgage against the property as security for $80,000. Then the seller would effectively take a $20,000 IOU (registered as a 2nd mortgage) instead of the balance of $20,000 in cash. The sale price of the property is still $100,000, and eventually the buyer will have to pay that money, but they are essentially borrowing the down payment from the seller in exchange for paying a higher-than-bank-rate return.

Sounds great? Not really.

My example above makes a couple of assumptions that may or may not be true.

The assumptions are:

1. The seller has to have the $20,000 in equity in the property, AND be willing to lend it (i.e. not need it to buy another home) at the agreed-upon rate.

2. The bank doing the $80,000 mortgage has a right to prevent the vendor takeback mortgage from being registered at the closing date.

3. My example presumed a 20% vendor takeback (to avoid CMHC insurance fees) but usually vendor takebacks are much smaller (percentage-wise) as vendors (sellers) don’t want to lend that much, or don’t have that much equity.

4. There are still closing costs that must be paid in cash such as property transfer tax, legal bills, adjustments, etc… that were left out of the example for simplicity.

5. There was still a payment required on the vendor takeback mortgage that the buyer has to be able to afford.

Let’s address each of these in turn as they are important considerations:

SELLER MUST HAVE THE EQUITY AND WANT (BE ABLE) TO LEND IT

If the seller doesn’t have the $20,000 of equity built up in the property, then they cannot do the vendor takeback even if they want to. They have to have the money in order to lend it! Also, the seller of the property is likely going to go and buy another property (although not necessarily). In order for them to be able to do a vendor takeback, they have to have enough alternative resources to buy their next home assuming they buy one.

THE BANK MAY NOT ALLOW THE VENDOR TAKEBACK

The bank doing the 1st mortgage may or may not allow a second to be registered. This depends on the lending institution, but most chartered banks do not allow secondary financing to be registered at closing. Why? Because they perceive the additional mortgage (and payment) as increasing the overall risk of the deal. If the client qualifies for the mortgage traditionally, why not borrow it from the bank at bank rates? The reason is that people often look for a vendor takeback when their bank won’t approved them for more money due to income, credit, or some other policy reason. As a first mortgage lender, the bank (or whomever) is doing the 1st mortgage has a right to dictate whether or not secondary financing (vendor takebacks) is available or not. This is just the way it is. If they are going to lend, in our example, $80,000 then they have the right to dictate the terms of the financing, and nearly ALL banks do NOT allow secondary financing.

That point bears repeating: MOST BANKS DO NOT ALLOW SECONDARY FINANCING. There are exceptions, but most banks insist that at least 5% or 10% of the purchase price come from the buyer’s own resources. There are no chartered banks, that I am currently aware of, that will allow 100% financing by way of a vendor takeback. None. Unless policies have changed recently, there are no banks that allow 100% financing by way of a vendor takeback. Why? Because the government recently mandated that the 100% financing be cancelled and the banks all support this ruling.

CMHC FEES USUALLY WRECK THE PARTY

In many cases, the vendor doesn’t want to do a 20% (or more) vendor takeback. In Canada, if you have less than 20% equity, then bank will charge you CMHC fees (mortgage default insurance that, if you default, the bank gets paid out of the insurance fund). These fees are NON-negotiable. They are law.

With the high price of homes in Vancouver, people usually ask if they can do a vendor takeback for only 5% or 10%. With a home price in Vancouver of around $720,000 (on average for a single family home) 10% down is $72,000! This is a considerable amount to ask a vendor to “carry” or lend back as a vendor takeback on purchase.

Let’s continue with our simplified example of $100,000 purchase price and see how a vendor takeback applies (or doesn’t apply). If the buyer requests a 5% vendor takeback, and gets 95% financing from their bank. Here is how the numbers look:

$100,000 Purchase Price
$95,000 1st Mortgage
$2,612.50 CMHC Fees (added to mortgage)
$97,612.50 Net Mortgage (97.62% financing)

$5,000 Vendor Takback Mortgage (5%)

5% + 97.62% = 102.62% financing (oops… over 100% financing isn’t allowed in Canada)

So, as you can see, CMHC fees, when added to the mortgage (they are added to the mortgage 99.9% of the time) force the financing higher than the original 95% amount. With the vendor takeback, we now exceed 100% and no bank in the land will allow this.

The only way that this MIGHT be allowed, is if a person pays the CMHC fees out of their pocket. However, if that have that cash laying around, they usually want to put it as a down payment to avoid paying interest. I have never had a client, in nearly 10 years of banking and finance, pay CMHC fees out of their own pocket. While technically possible, people usually just don’t do it.

The lesson to take away from this is that CMHC fees usually mess up the financing plans. So, unless you can talk a vendor into lending you 20% or more (or have some of your own equity plus a vendor takeback to sum to 20% of the purchase price), CMHC fees will screw up the plan. This is usually a moot point as most banks insist on 10% of your own equity into the deal. They want to see that you have some “skin in the deal” and stand to lose if you walk away just like they lose if you walk away or get foreclosed on.

THERE ARE STILL CLOSING COSTS TO BE PAID IN CASH

Even if you manage to get a vendor takeback, there are still closing costs to be paid. You can’t borrow more than 100% so you can’t “roll it into the mortgage.”

For example, on our $100,000 purchase, assuming you don’t qualify for the first-time homebuyer exemption for transfer tax in BC, the closing costs you will face are:

$1,000 Property Transfer Tax
$1,000 Appoximate Legal Costs
$1,000 Move-in fees, utility transfers, miscellaneous fees
$250 Adjustments for property taxes, etc…

$3,250 of CASH you will need to have access to at

THE VENDOR TAKEBACK WILL STILL HAVE A PAYMENT

People often say to me, what if the vendor takeback is from my parents. They will sell me their property, and give me the 20% of down payment (to avoid CMHC fees) but they will do it interest free with no payment so we can qualify for the 1st mortgage with the bank. Even if they don’t charge interest, and have no payment, the bank doing the 1st mortgage will ALWAYS make an assumption of a payment when qualifying you. This is a point of bank financing you just have to learn to accept. Even if the vendor takeback is done with 0% interest and no monthly payment, the bank will ASSUME YOU STILL HAVE A PAYMENT WHEN QUALIFYING YOU.

This point often makes first time homebuyers upset, but it is something that I’m yet to see an exception made on. I’ve never seen a charterd bank allow a vendor takeback with 0% and no payment without calculating SOME form of payment into the calculations on the 1st mortgage. When the bank is qualifying a buyer for the 80% 1st mortgage (or whatever amount it is) they will “plug in” some number for the vendor takeback mortgage payment, even if it doesn’t exist. This is just a conservative move that the banks do to ensure a buyer can realistically afford a mortgage (and vendor takeback if the parents or vendor change their mind and charge interest later on – something the bank has no control over once the mortgage funds).

SO WHERE DO VENDOR TAKEBACK MORTGAGES WORK???

So, I’ve spent the last 95% of this blog post, and video blog, explaining why vendor takebacks don’t work. So when do they work?

Typically, I see vendor takebacks on commercial deals. This is because on a commercial deal, all the rules I talk about above don’t apply. For this reason, I see them on large land deals, massive development projects, and commercial property purchases. If your purchase is of a commercial nature, talk to me about how to set up a vendor takeback with the seller as our options expand exponentially.

Based on the rules I’ve described above, if you have 10% down, and can get more (say 10% more) so that you can avoid CMHC fees, then we may be able to work something whereby you can get a vendor takeback. If you are in a position to come up with 20% down payment (whether from own resources or from a vendor takeback), please call me or email me to discuss how to structure this. I can assist you (or the vendor) with the mortgage document preparation and can advise all parties as to the risks and rewards of such a structure.

BOTTOM LINE: With the current bank restrictions, rules, and market panic, vendor takeback mortgages are difficult to structure and make a deal work. However, they ARE possible – and are particularly workable within a family looking to assist children buy their first home. Contact me for more detail and we can discuss a structure that works for you.

For the past several months, several readers of my blog have emailed me asking me to do a video blog as well as write-up. Their rationale? They want to get a bit of a personal read on ME, my style of communicating, and to see if they feel they can establish a bit of rapport with me during the home buying process, which is, undeniably, one of the largest purchases most people ever make.

The first video blog that I have done is a simple introduction to see if I can technically get my ducks in a row. Assuming this works well, I’ll be launching my first video blog tomorrow and addressing a thorny issue that I have had just about enough of: vendor takeback mortgages.

If you would like me to continue to post video blogs, please let me know. I am not the type of person that just puts video blogs out onto the internet for the joy of seeing myself recorded! I am doing it due to the number of requests that I have recieved, and if you want me to continue, please let me know. Podcasts to follow…

Consistently, people surprise me. They are in the midst of the largest purchaes of their lives (a new home) and they do something catastrophic to their lives to change it up and mess up our approval and financing. After three of these five things happened today, I felt obliged to report on the top five things to NOT do before buying a home.

#5. Do not shop your mortgage around to multiple mortgage brokers!

#4. Do not plan a vacation just prior to buying your home!

#3. Do not buy a home if you or your partner is out of town for business!

#2. Do NOT buy furniture or appliances on your credit cards!

#1. Do NOT change Jobs or get fired!

We should cover off all of these in more detail as they seem to come up with alarming frequency. Here goes:

NUMBER 5: Do Not Shop Your Mortgage Around to Multiple Mortgage Brokers!

Oftentimes, clients feel that they should call one mortgage broker, and then call another, and another. This is incorrect thinking in today’s marketplace, UNLESS YOU HAVE BEEN DECLINED. All mortgage brokers deal with the same lenders in Canada. There are exceptions from province to province depending on local credit unions, regional specials, and broker-lender relationships. However, by and large, most brokers offer exactly the same rate, at exactly the same lender. By going from broker to broker you are wasting their time, and you are wasting yours. Why?

THE BROKER’S JOB IS TO SHOP FROM LENDER TO LENDER ON YOUR BEHALF!

By going from broker to broker you are essentially having multiple professionals review your situation and find the best rate. However, they likely will have EXACTLY the same rate no matter who they are as most brokers deal with most lenders.

Exceptions: if you are dealing with someone that is a TD “rover” or RBC “mobile lending specialist” then you have to be aware the are working, first and foremost, to get mortgages for their respective institutions. Only if their primary institution declines it will they go to another lender. If the business card the alleged “broker” hands you is branded with the logo of one of the major banks, then you need to BEWARE. Question them if they are working primarily with one (or two or five) lenders, or if they truly shop the market and find the best rate. Most “in-house” lenders that work out of real estate offices work with one or two primary lenders. If this is the case, then, by all means, shop around! However, if you are dealing with a truly independent broker such as “The Mortgage Centre” or “Invis” or “The Mortgage Group” one of the companies that does NOT affiliate itself primarly with one lender, then use them. If you see a bank logo on their business card, take the time to find out who they truly represent!

NUMBER 4: Do Not plan a vacation just prior to buying your home!

It amazes me the number of couples that enter into a contract to buy a home, and promptly schedule a vacation (or had a prior vacation scheduled) in the week just before closing. Don’t do this! Make sure the week prior to your closing date / completion date (the date the money changes hands) is free and that you (or you and your partner) are generally available during this week. Things come up, and S— happens! Be prepared to make last-minute changes or supply last minute documents to your lender, realtor, broker, and insurer during this time. Planning to buy a home when you know you are on vacation at this point in time is a disaster waiting to happen. Make sure if you have a pre-planned vacation, that your completion date is 1 week after you return, or 1 day before you leave. You will sleep better while out of town, and not have to scramble with offshore lawyers / notaries to close on your purchase.

NUMBER 3: Do Not buy a home if you or your partner is out of town on businesss!

No matter what your reason is for being out of town, make sure you “complete” or “close” on your purchase while you are in town and able to deal with any last minute changes. Real estate purchases are complex transactions, and if you or your partner is planning on leaving town, make sure the purchase is completed before you leave, or after you return to avoid any drama and potential risk of capital.

NUMBER 2: Do NOT buy furniture or appliances on your credit cards!

When you go through the approval process, your mortgage broker and lender is looking at your financal position like a polaroid snapshot: they look at it the date you submit the application. In other words, they look at your debts and assets at the date of application. Once you remove subjects, provide your deposit, and are “all in” with the purchase, you do NOT want to go out shopping for furniture, appliances, and such PRIOR TO COMPLETION. Why? Some banks pull your credit 48 hours prior to funding to make sure you have not incurred additional debt since the date of application. Buying a home is a complex process, sometimes spanning several months, and the bank needs to know that you can still afford the upcoming mortgage payments as well as all additional debts. Wait until the property is yours, closed, and completed, before you go out and buy high priced items such as furniture and appliances. I know that buyers get excited about their new home, but overextending themselves before completion is a common error leading to a lot of hardship.

Bottom line: don’t go purchaes anything until it is officially “yours!”

NUMBER 1: Do Not change jobs or get fired!

It happens with alarming regularity that buyers tell me they are thinking of changing jobs now that they have their home. This is a disasterous and horrible plan. The lender has approved your mortgage based on where you are TODAY: not where you will be next week. If you are working (for example) as a salaried employee at $60,000 per year, do NOT change a self employed person prior, or change jobs, prior to completion. Wait until you are in your home before doing so. The bank can pull out and ANY time from application to funding, if there is a “material change in financial position,” and changing jobs (or losing jobs) is a material change.

Other things to avoid are:

1. Disability
2. Maternity Leave
3. Sabbatical Leave
4. Leaves of Absence
5. Termination

Any of the above list will result in a bank declining (or seriously reconsidering) your application. It is infinitely easier to wait until you are on title, own the home, and then able to make some of these serious long term decisions.

Bottom line: don’t upset the apple cart. Stay in you job, working, gainfully employed, until you own you home. What happens after that is “life” and “s— happens!” Before the money for your mortgage is advanced, be careful not upset your financial picture, no matter how promising new horizons may seem.

Happy hunting!

Another article out of Derrick Penner from the Vancouver Sun that showed some polled statistics that indicates that the market being more optimistic. I, as someone on the ground floor that deals directly can state emphatically that we are starting to see more and more optimism. I am working with more buyers than renewals at the moment, and enjoying seeing people starting to take real estate seriously again.

Is this the time to buy? I’m not sure, but sitting on the sidelines rarely does anyone any good in the long run when it comes to real estate. Yes, prices may fall, but if you need a place to live, and would otherwise be renting and paying down someone else’s mortgage, why not take the plunge and buy a home. In the long-run, history has shown that you always win, but your win may be many years out. If you are thinking of buying investment real estate, I don’t think this is the time at all. For homeowners, there is more to owning the home than just what it’s worth.

Here is Derrick’s most recent article that was published in the Vancouver Sun on March 5th, 2009:

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Falling home prices have a growing number of Canadians thinking about buying a home, according to a new poll done for RBC by Ipsos Reid.

The 16th annual RBC/Ipsos Reid housing poll, released Wednesday, found 27 per cent of Canadians surveyed said they would be likely to purchase a home within the next two years, although most surveyed believe housing prices will continue to drop next year. In B.C., 26 per cent said they would be likely to purchase a home within the next two years.

The number of people who reported they were likely to purchase in the next two years was up four percentage points from last year’s poll, the largest gain since 2001.

“But Canadians are split on whether buying conditions will change to be more favourable within the next year,” the report said, “such that it makes more sense to wait” to purchase.

The Mortgage Brokers Association of B.C. said in a news release Wednesday that signs of slowly emerging optimism are beginning to surface in the B.C. real estate market.

“MBABC members are experiencing an increase in mortgage lending activity as a direct result of lower home prices and record interest rates,” MBABC president Brian Peterson said in the release. “This new trend appears to be reflecting a slow growth in consumer confidence.”

Overall, some 65 per cent of Canadians said they believe the current real estate market is a “buyers’ market.” The “buyers’ market” sentiment rose to 78 per cent in B.C., the highest level in Canada.

Ipsos Reid conducted the online survey among 2,026 respondents on behalf of RBC from Jan. 6 to 9. The poll has a margin of error of plus or minus 2.2 percentage points, 19 times out of 20.

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The change in buyer sentiment is palpable in the market. Not more than 45 days ago I was working on 90% refinances, and now with the spring market upon us, I am working on 50% purchases. While this is good news that the market is picking back up in terms of NUMBER of sales, does this translate into PRICE increases? I’m not so sure…

I was reading an article today published in the Vancouver Sun on March 3rd, 2009 by Derrick Penner entitled, “February Real Estate Sales Continue Slide – Still It’s an Improvement over January’s Dismal Numbers.” I have re-published a number of Derrick’s articles as I find that he has a relatively realistic outlook on the real estate market. He isn’t all Doom and Gloom, and nor is irrationally exuberant about the potential market. He tells it like it is, and for that reason, I am reproducing another of his articles.

We all see the “great deals” available in the market, but we may be myopic and looking at what is a great deal “compared to recently.” Even by standards in the last 5 years, property in Vancouver is NOT cheap, even after a 12% – 13% decline that has already occurred. I do think there are deals out there, but many homes are still, in my opinion, over priced. I feel prices still have a way to fall yet.

Is that an argument NOT to buy? No. If you intend to live in and pay for your home in the long run, then this IS a good time to buy. However, if you intend to try and buy-and-flip then you will likely face a rude awakening.

Here is Derrick’s article, reproduced verbatim.

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With February’s sales results taken into account, Lower Mainland real estate prices are about halfway to the bottom of their expected down-cycle, a Canada Mortgage and Housing Corp. analyst said Tuesday.

Both the region’s major real estate boards reported February sales figures on Tuesday showing continued low levels of transactions akin to those experienced in the early 1980s, although transactions did surpass the dismal lows experienced in January.

“Overall, we’re looking for a 24-per-cent decline,” Robyn Adamache, Canada Mortgage and Housing’s senior analyst for the region, said in an interview.

“We seen prices trending down since spring of last year, and are about 12 to 13 per cent down depending on what type of property you’re looking at. So if we’re looking for 24 per cent, we’re about halfway there.”

The so-called benchmark price for a typical detached home in most of Greater Vancouver hit $653,342 in February, down about 14 per cent from the same month a year ago, the Real Estate Board of Greater Vancouver reported.

That benchmark was generated from 1,480 Multiple-Listing-Service (MLS) registered sales recorded within the board’s region, which includes the Sunshine Coast and Squamish, but excludes Surrey.

Those sales were about 45 per cent below the same month a year ago, but almost twice January’s 762 transactions.

In the Fraser Valley, the so-called benchmark price for a detached home was down just over 10 per cent from the same month a year ago to $456,683, though that was slightly higher than January’s $452,145 benchmark.

Fraser Valley realtors saw 682 sales in February, which was 48-per-cent lower than the same month a year ago, according to figures from the Fraser Valley Real Estate Board.

That number, however, was 75-per-cent higher than January’s sales.

Adamache said February’s jump in sales represents “a pretty normal seasonal trend,” and not one she would predict a dramatic turnaround.

However, the level of sales compared to a year ago seems to indicate that the rate of sales decline is slowing, Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C., said in an interview.

“To some extent, it looks like the rate of [sales] decline has really peaked and as we go into summer things will only be down a little bit, or will have stabilized,” Somerville said. “[That is] not presupposing that stuff doesn’t get really bad in the economy.”

Somerville added that housing markets tend to be a leading indicator of the economy, so “the housing market gets worse before the economic numbers turn down,” and vice versa.

In that respect, Somerville said B.C. likely hasn’t seen the end of its economic downturn play itself out, and as it does “a plateau [in sales] is a lot more likely than a bounce back.”

Both major real estate boards, however, reported higher traffic at property open houses from the standstill of last fall when news of the world financial crisis first hit.

Watt said the major mortgage lenders all report having pools of pre-approved potential buyers who “from a pure lack of confidence, are still sitting on the fence.”

For more of them, however, Watt said that while they don’t think prices have reached “whatever bottom they’re going to reach, they’re comfortable that the price adjustment was adequate for them to become more interest, and the cost of borrowing is down about 25 per cent in terms of actual payments.”

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