Tips, Advice, and Explanations from a Vancouver Mortgage Broker  

Posts Tagged ‘canada mortgage broker’

High Fees on Bank Mortgages? Talk to Me!

Tuesday, September 14th, 2010

Transcript of Video Blog:

Hi, everybody. It’s Rowan Smith from the Mortgage Centre. I want to talk today about rates and fees. I heard something that was very disturbing to me again. I heard a broker that was charging a very large fee to arrange a mortgage for a borrower through a bank. Now I’m going to explain how our industry works, and perhaps to the dismay of some agents out there.

We are compensated when we sell a mortgage by the bank. Now this is assuming that this is a bank mortgage. If this is a private mortgage or something arranged through a mortgage investment corporation or subprime lender, we may not be getting paid anything. In those cases, you will pay a fee.

But if you’re looking at an institution that is charging cut rates, like rock bottom rates, has the names like TD, CIBC, Scottish bank if you’re seeing those names on the mortgage commitment, and the broker’s charging you a fee, they are also going to be getting paid on the back end by the lender.

Now why am I telling you this? Because I’m tired of seeing it. I’m tired of seeing borrowers in perfectly good situations paying these extra fees to pad the wallets of these guys who are making way too much money doing no more work than I do.

I don’t charge fees on any bank mortgages. That’s a promise to anybody that’s listening. If you get a mortgage through me, there will never be a fee to deal with a specific tier one bank. I would never be charging those fees.

The lender may charge a fee if I’m doing a bankruptcy discharge, or there may be individual fees associated with applications and stuff, but that has nothing to do with the brokerage fee. I as the broker will never charge my clients a fee if I’m putting them with a bank.

Now there are a lot of extenuating circumstances: commercial mortgages, private mortgages, all that type of stuff where there might indeed be fees. I’ll very upfront and tell you when that’s going to apply. I’m not going to spring it on you at the closing date.

You’re going to know long in advance, as soon as you get an approval, if a fee is going to apply. You’re probably going to know it before that, because I’m going to tell you if that’s the situation.
Again, if you’re dealing with a bank, there shouldn’t be any fees, and for you brokers out there that are changing fees on bank deals, I’m here to eat your lunch.

For the Mortgage Centre, I’m Rowan Smith.

Top 5 Things NOT To Do After Writing An Offer

Thursday, July 22nd, 2010

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.

5 Steps in Arranging Financing – A How To Guide

Wednesday, May 26th, 2010

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.

Mortgage Line of Credit – When Can You Get One?

Wednesday, May 12th, 2010

Have you ever wondered if you can get a line of credit secured with your home? Maybe you wondered if you can get a line of credit along with your mortgage?

There are several specific criteria that need to be met in order for you to get a line of credit. The most important criteria is EQUITY.

Watch this video blog for more info and and a more in depth explanation.

Transcription of Video Blog:

Hey everybody, Rowan Smith with The Mortgage Centre. I want to talk today about lines of credit. More specifically, mortgage lines of credit. A lot of times people will come to me and they’ll want to get a line of credit, along with their financing for their purchase, for renovations and whatnot.

Now, generally, if it’s going to be a mortgage, you’re going to have to have 20% down payment or 20% equity in the property before you can start getting a line of credit. Because CMHC, who governs less than 20 percent down purchases, doesn’t not allow an interest only product at this time; they do, but no lenders really support it.

So you’ve got to have 20 percent down if you want to start getting the ability to have a line of credit. Now what I mean by that is if you have 20% down and you pay it down so that you now have 30% equity in the property, you could borrow that 30% to 20%, that 10%, you could get that in the form of a line of credit assuming that your income and credit qualify for it.

So, if you’ve just bought something with five percent down and want renovation funds, a line credit with the mortgage is not part of the option. What you can do is get an unsecured line of credit through your financial institution you bank with. They can supply that to you, you can use that. Now you will not get mortgage rates on that line of credit, but it’s really the only option.

Alternatively, there’s a Purchase Plus Improvements Program if you want money for renovations. I’ve covered it in detail in the prior blogs, please do a search and you can watch it. It’s a good three or four minutes and it explains how the Purchase Plus Improvements Program works, or Refinance Plus Improvements.

If you’re applying for a line of credit increase – maybe you already own your property, you’ve got a substantial equity position at home and you simply want to increase that line of credit, come and talk to me. There’s many institutions which we can stick a line of credit behind any other mortgage.

So if you’ve a RB Royal Bank first mortgage, we can stick a line of credit behind that and get you mortgage rates on that line of credit. You don’t have to go to your bank if that’s the case. It’s only the unsecured lines of credit which you need to speak with your bank about.

If you’d like any clarification on this or need a line of credit, please give me a call. It’s Rowan Smith from The Mortgage Centre.

CMHC Fees – How to Avoid Them on a 2nd Purchase

Saturday, May 8th, 2010

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?


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.

Imperfect Information – Managing Mortgage Expectations

Monday, February 22nd, 2010

So did you take a 5.69% mortgage two years ago and are now kicking yourself? A lot of us did. However, we can’t kick ourselves. You make the best decision you can with the information available to you at that point in time.

This video blog talks about imperfect information, and dealing with the “what if” of mortgage planning.

Transcription of Video Blog:

Hi everybody. I want to talk today about something that’s come up several times. I alluded to it recently in a blog post, but I want to talk about making decisions on imperfect information.

At any point in time when we’re, as brokers, selling you an interest rate. We do so with the same economic news that everybody else has, the same economic fundamentals. Things change. Prior to September 11th, none of us knew what was going to happen. We didn’t know the economy was going to go into an immediate dive, thereafter None of us knew that Lehman Brothers were going to go down.

In hindsight, looking at the financial practices of some of those financial institutions that went down in the United States, maybe some of us should have seen it coming, but we didn’t. When I say “we, ” I mean the overall financial institutions sector, the financial sector, and particularly the mortgage lending sector.

Now, why am I bringing this all up? Well I, myself, got into a rate that was well over 5% a few years ago. At the time, it was a fantastic rate. It was a promotion. I had to quick close in a very short period of time to get it.

The reality was when I got it, it was the best deal in town. It couldn’t be matched anywhere. I got it for as many clients as I possibly could. Those same clients, a few years later, are now looking, going “That 5.25 rate, which while fantastic at the time, is looking God-awful right now.”

There’s very little you can do about that. You can absorb the penalty and refinance down, presuming you have the equity or the ability to pay the penalty off in cash. Maybe you can get a bit of a cash-back offer from the new lender. You probably have to pay a slightly higher rate to do it, though. It may make it not worthwhile.

When you’re looking at yourself, if you are kicking yourself, thinking “Wow, I took a product. I took a variable rate when variable rates were prime plus a half. Now they are prime minus a quarter, ” or “I took a five-year when they were 5.50, and now they are 3.79.” If you are in that situation, do not be beating yourself up about it. You made the best decision you could at the time. If it was a good deal when you got it, it’s still a good deal today.

Frankly, any time I see interest rates below 5% to borrow money, that’s pretty darn good in my books. You think back even just eight years ago, ten years ago, at what interest rates people were paying, happily, compared to what they are paying now and you’d be shocked.

You may say, “It’s a totally different market. This is an entirely new paradigm in lending. What applied before no longer applies.”

I would argue that the lending practices that have stood the test of time and the interest rate averages that we all have seen are very accurate. The fact that we are well below those average should suggest there isn’t a lot of downward room but that there should be some upward motion.

When? That’s the question that’s worth a billion dollars. I can’t answer it but I can guide you with some of the recent economic news. If you would like further information or you would like to write a comment, please do so. Otherwise, I’m Rowan Smith for the Mortgage Centre.

Beware of What Your News Source Is

Sunday, February 21st, 2010

All I read is that the market is awesome, everything is awesome, prices are up and going higher, and home ownership is perfect for everyone.

Frankly, I’m tired of this rhetoric. If you are reading some news, such as a developer telling you they are projecting a 5% – 7% increase in prices, ask yourself, WHAT ELSE COULD THEY SAY? If they said they expected a decrease of 5%, you wouldn’t buy their product!

Look to neutral third parties for this type of info. On this topic, and in more detail, watch the blog below.

Transcription of Video Blog:

Hey everybody, Rowan Smith at the Mortgage Centre. I want to talk today about some of the overwhelmingly exuberant good news that keeps coming out in the media right now. A lot of it, I encourage you to view the source of who is issuing this news, before you really put a lot of stock in it.

I recently read an article from the Rennie Marketing group talking about some of their projects that they had on the go, and how they were ecstatic there was going to be a five to seven percent increase in real estate prices in Vancouver.

I look at that and I say, “What else could that organization say? What else could somebody in that situation say, when it’s their financial livelihood?” Now I have a vested interest in the real estate market, but I also have a fiduciary duty to my clients. If I see them getting into something I think is a bad financial move, I have to tell them.

Now that’s very different from a developer whose financial interest that they’re protecting is their own. When a developer issues a statement saying, “Oh, I’m so glad the market is recovered, ” and “Wow! Things have really taken off, ” and they turn and point to stats that have been issued by the mass media in the last couple of months, chances are that trend has already run it’s course.

It’s time and time again that I see great, great news come out, and immediately we seem to suffer a pullback. Now back in 2007, there was a lot of exuberance. People were writing offers, multiple offers, asking me, “Could we go in with no subject to financing?” Generally, the answer is “No,” by the way.

They were going in against 16 other offers, to try to get in on that property and not getting it. Even though they were going 20 percent over asking price and this kind of thing. That kind of behavior is back again, and with it comes the irrational exuberance of the banks who are now suddenly going, “Well, the market’s clearly recovered. Now is the time to get in.”

The chances are, the time to “get into the market” should have been back in January of 2008. When everybody was screaming and crying about real estate being a terrible investment.

Of course, this is 20/20 hindsight that I’m using right now. I, myself, purchased something at that point in time and I think that anybody that did, has reaped a lot of rewards as a result.

I think the old saying goes “when there’s blood in the streets, buy real estate, ” and that is never more true. Right now in the Vancouver real estate market, there is no blood in the streets. If anything, there’s a lot of wolves. I’m Rowan Smith for the Mortgage Centre.

Commercial or Residential – Multiple Suites in a Property

Wednesday, January 20th, 2010

There are a lot of properties, especially in East Vancouver, where the home has a main floor, and 3 or 4 or MORE basement suites (or carriage house). The clients often go to their bank, and are told the lender will only use 2 suites for rental income, or won’t give them ANY credit for rental income, and they need it in order to qualify.

It is usually at this point that the clients contact me, and ask me why their bank is telling them their home is commercial property, when it is a home with 4 basement suites!?

This video blog outlines the defining characteristics of what is residential and what is commercial real estate and the various financing requirements that each has. The differences are great, the down payment requirements vastly different, and the manner the banks qualify you is in an entirely different world. Watch and I’ll explain how the banks think.

Transcription of the Video Blog:

Hey everybody, it’s Rowan Smith from the Mortgage Centre.

I’m taking a lot of inquiries on properties that have 4, 5, or 6 suites in the home, and you know, East Vancouver has a lot of these especially in some of these larger, older, turn of the century homes that were built. The people have converted them over the years from being a kind of large mansion, to being a six or seven unit property.

I want to define what constitutes a commercial property versus what constitutes a residential property because the mortgage requirements, and the paperwork requirements, and the rate that you’ll pay, are heavily dependent on whether you are going to go residential or commercial (in terms of financing requirements).

A couple of things:

On a residential basis, if the property has more than 4 (four) units that is going to be constituted as commercial. There was one lender, Bank of Montreal, that used to do five units, but that is all gone. So if you have a property that has a main floor and four suites, that’s a commercial property so long as your are going to be using the income from that property to qualify for the mortgage.

There are some appraisers out there who are used to working with these five and six unit properties who have said that we have three units with two unauthorized suites, but that gets us into the issue of whether it is authorized or unauthorized, how much are you putting down, and all this. So, by and large, the rule of thumb is: four units in one property is residential. Anything beyond that (no matter how good the story or finances look) is commercial.

Now, if it’s zoned commercial, but people are using it residentially, it is still a commercial property and it will be judged and evaluated by lenders on that basis. Where you see this is (trying to think of areas in Vancouver): Kingsway, and these type of areas where there is a lot of low lying sprawl of commercial units in the basements (and you’ll have everything from nail salons to restaurants) with residential suites upstairs. If you are looking at one of these, they are “cash cows” and generate a lot of rental income when you have a commercial lease underneath generating the bulk of it, and a couple of residential units on top; often the owners will choose to live in those units and they sound great in principle, but because they are zoned commercial in a commercial area, they get treated commercially.

Now you say, “well what does that mean?”

First, you’re going to require a much heavier down payment:” probably 35% or more. There are some ways around this using expensive private financing , but if you are thinking of getting bank rates, that is what you’re going to be looking at. 35% down is number one.

Second, you’re going to need a commercial appraisal. They start at about $1,500 and they take a month! They don’t take three days or two days like a residential appraisal, so your subject removal period will have to be substantially longer.

Third, you are going to be looking at possibly requiring environmental studies. They (the lenders) want to look at the surrounding area and see if there is a fuelling station or a cardlock. Was there ever a drycleaner or any other chemical heavy, environmentally intensive, or environmentally dangerous business around you. Even though it’s not in your building, per se, but if it is within a very close proximity, it still impacts whether or not banks are going to want to finance it. Because, they don’t want to be on the hook, having to foreclose, when it turns out your property has massive environmental problems down the road.


  1. Larger Down Payment
  2. Environmental Studies
  3. More Costly, Slower Appraisals

And, the environmental study could be one, two, or three stages (or phases) depending on the type of property and they type business that is in it, or has been in it in the past.

In Summary:

More than four units, you are going to face commercial guidelines, probably going to pay a higher rate, and fees as well, with a much larger down payment.

Four units and less, you can get it done under a residential basis as long as it’s not zoned commercial or in a commercial area that looks like light industrial as well. So, if you are looking at buying one of these properties and you want to know if it’s even feasible, let me just take a look at it. It will take me five minutes of our time, we’ll go over the property, and determine whether or not it’s going to fit under residential or commercial guidelines, and how best to get it financed, and what you’ll need to do so.

For the Mortgage Centre, I’m Rowan Smith.

I’ll Donate One Can of Food For Every Rating or Comment…

Sunday, January 10th, 2010

Hi Everyone,

Thank you for your comments, emails, phone calls, and ratings. I appreciate all of it.

I’m making a special offer from January 11th (inclusive) through January 18th (inclusive), for every rating or comment I receive during these days, on my videos on Youtube, I will donate 1 can of food or 1 food item to the food bank. This will allow me to give something back to a worthy cause, and will possibly put me on the hook for a lot of money if you come through as I expect you will. Pass this on to friends and family, and let’s see what we can raise.

The link to my Youtube channel is:

Click the 5 stars (if appropriate) and put a comment down and it’s a fast way to get a donation made to the food bank.

Here is my video blog saying the same thing:

Transcription of the Video Blog:

Hey Everyone, it’s Rowan Smith from the Mortgage Centre.

I want to thank everybody for all their comments they’ve posted, the ratings that they’ve  given me, and the feedback that gotten both on and offline. It’s been very helpful. To thank everybody for that, I’m going to be doing a charitable or charity offering here:

For every comment received between January 11th (inclusive) going through to January 18th (inclusive) I will be donating 1 can of food to the food bank. That is for every individual rating I get on my videos that you can see in the channel all below here, and every one of the comments I receive.

So, I could be on the hook for a lot of money depending on how many people are actually watching, but if you can help out that would be fantastic, and then I can make a donation to a worthy cause.

It’s Rowan Smith for the Mortgage Centre.

Buying Foreclosures – Tips and Clarification

Tuesday, January 5th, 2010

A lot of people think buying a foreclosure is a great way to make a quick buck. It isn’t. It requires industry specific knowledge, and a clear understanding of how the process works. This video blog below explains what goes into the process, and the extra “homework” you need to do before you buy a foreclosure or court ordered sale.


Transcription of the Video Blog:

Hi Everybody, it’s Rowan Smith with the Mortgage Centre. I want to address buying foreclosures today and why the represent a challenge, especially if you don’t have a lot of cash, i.e., a big down payment and when you are trying to buy with less than 20% down.

When we brokers send an approval up and we look and try and figure out how much you are qualified for, we do so, and assuming you are putting less than 20% down, we have to send it to CMHC. The catch to this is, we need to know the purchase price. So if you find a foreclosure that is listed for $400,000 and you go and take a look at it, and it looks like a fantastic deal. Then let’s say you are going to put 10% down: $40,000. We get you pre-approved for $360,000.

BUT, in a foreclosure you have to be able to go into court on the date that all offers are presented, because it is a public auction, and you have to be able to present a subject free offer; free of ANY conditions. So you can’t say, “subject to financing” or “subject to a building inspection,” etc… No, it’s sold on an “as is, where is” basis. Now why this is important is: imagine you are trying to buy a place, but you can’t get access to the property. After all, the bank is foreclosing on the seller. Do you think the person that is being kicked out of their home is going to allow convenient access, times, and people onto their property? Usually “No,” so you have to be able to get it approved often without an appraisal.

Now, everybody is in the same boat here. The only people that aren’t are pure cash buyers. Guys that are just going to write a cheque or guys that are going to get private financing for maybe 50% (or less) of the value of the property.

So, I had some clients come to me recently trying to get hold of something that was a fantastic deal. The problem is, the guy wouldn’t give them access. They said that they wanted to go in at this price (whatever it was determined they wanted to pay), but we need to be pre-approved beyond that by up to $100,000 because bidding could go up there. We’re going to put 5% down. Now the problem with this, is that we (brokers) have to send a number to CMHC. And CMHC looks at it and goes, “ok, you’re putting an offer of $400,000 in.” They do their own investigation, or internal appraisal, to determine the value of the property. If the property value is there, you are approved assuming you qualify on an income basis.

Now, if you subsequently go to court and the bidding goes $425,000…. $450,000… $475,000 … and you offer $485,000 to get the property and you in the auction now you have to go back to CMHC, and CMHC is going to say, “what happened to the property value? We had it approved at $400,000. We thought that was a fair price. You rae paying $485,000!” In that case, one of two things has to happen:

a. You have to convince them, usually by way of an appraisal (which may not be available), that this property is worth $485,000

or alternatively,

b. You have got to pay the extra $85,000 out of your pocket. Not mortgaged.

So if you are thinking of buying a foreclosure, and you think it looks like a great deal, we need to sit down and go over your financial situation: downpayment amount, income amount, and determine what can you get approved for, and what will this property be approved for.

For The Mortgage Centre, I’m Rowan Smith.