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Posts Tagged ‘requirements’

Former Grow Ops – The Noose Gets Tighter

Saturday, September 25th, 2010

Transcript of Video Blog:

Hi, everyone. It’s Rowan Smith from the Mortgage Centre. I want to talk today about the ever-tightening noose that’s slowly closing around the neck of former marijuana grow-op properties.

Now these properties in the past, we always had some credit unions and some smaller institutions that really had more of a make-sense approach to this, to financing former marijuana grow-ops. But the list of lenders that does it has just gotten smaller and smaller and smaller, and those few that do still do it require an extensive amount of documentation up front.

Now if you’re looking at one of these properties, these former marijuana grow-ops, and you want to buy one, and you think it’s an amazing deal, chances are it’s an amazing deal because most people can’t get financing on it. Most banks won’t do it.

There are a couple of institutions. I’m going to use an example, VanCity Savings. I sent a file in to them recently. It was a former grow-op, and they told me after the fact, once they had funded it, this will be the last one that they’re going to do through the broker channel. So they’re not going to be doing former marijuana grow-ops any longer.

Well, that was one of our primary institutions. But think of it from their point of view. When you’re one of only a handful of these companies that’s still doing these products, your book is going to get loaded with these applications, and people may only use you for that type of a product. That’s not what any bank wants. They don’t want themselves to be known as the institution that finances former grow-ops.

So if you’re looking at one of these properties, we need to do some due diligence ahead of time. Things you’re going to need: you’re going to need a full appraisal on the property to make sure the market value’s there. You’re going to need an environmental air quality sample. This is going to cost about $1, 000 to $2, 500 depending on the property.

Now a smart seller will go get this stuff in advance, and this message is for Realtors, too. Realtors, if you’re listing one of these properties, make sure to get this stuff up front. It’s going to mean that you’re not going to go through eight offers and all the stress and everything. You’re going to have all the paperwork you could provide.

Some municipalities are doing to ID occupancy permit reissue program, where if it’s a former grow-op that’s busted the city yanks that occupancy permit, and they only reissue it once the appropriate fire and chemical and environmental reports have been obtained. In those circumstances, you’re going to have to get that reissued occupancy permit.

It’s a huge hassle, because you have to go to the city hall and deal with them to get it. “Who are you? You don’t even own the property. What right do you have to this information?” It becomes a fiasco. You’re going to need the buy-in and the assistance of the selling Realtor and the seller.

In summary, what are you going to need? An appraisal, environmental and occupancy reissuance or some sort of proof from the city that electrical and everything is up to code.

There could be differences, because a few municipalities are not on the reissuance program. Some issue comfort letters. An example is Surrey. Some of them reissue the actual occupancy certificate. You need to know what you’re dealing with, and you need to deal with a broker who knows what municipalities do what.

Now I used to do a lot of these things nationwide, and I’ve retracted to only financing former grow-ops in the BC market, the reason being is other markets, particularly Toronto, where I used to get a lot of these applications, the only lender that would look at them was HSBC, and they’ve now exited the broker market.

I can’t help any more in that matter. If you’d like to try HSBC directly for those people that are back east, go ahead and give them a try. But for now, I will be restricting my activities financing former grow-ops to British Columbia alone.

For the Mortgage Centre, I’m Rowan Smith.

Appraisals – When Are They Required?

Sunday, July 11th, 2010

Transcript of Video Blog:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I’m Rowan Smith from the Mortgage Center.

Why We Brokers Ask For So Much Paperwork – It Isn’t Our Choice!

Friday, March 19th, 2010

I frequently take calls from clients confused why the bank is asking for so much paperwork. You have to realize, they are lending you like hundreds of thousands of dollars, and have to do their due diligence to make sure you qualify, and that nothing is amiss. There is a LOT of fraud out there, so expect a lot of questions. That said, it’s pretty standard from bank to bank, and this video explains what you’ll need.

Transcript of Video Blog:

Hi, everybody — Rowan Smith at The Mortgage Center. Not a day goes by that somebody doesn’t say to me, when I give them my list of paperwork requirements, “Why is it so much?”

Well, you’re borrowing a lot of money. You can expect the bank is going to ask pretty much the same questions at every institution. Here is a list of paperwork you’re going to need for your first home purchase, or any home purchase. You may want to jot these down.

First, you’re going to need something to confirm your income. Now, this can take varying degrees and varying forms. It’s a little tricky, but basically, if you earn an hourly rate and you work full-time hours, we’re going to need a job letter that specifies that and tells what your job title is.

If you earn varying amounts of money — because maybe there’s overtime, bonuses, incentives, profit sharing, something like that — if you need that money to qualify, then we’re going to need to document it somehow. We have to show a track record of that extra money.

Generally, two years is what they’re going to be looking for. If you’ve only been on the job for six months and even though it looks like you’re going to make a lot more, they’re just going to use your base. They’re not going to use that higher figure.

For income, you’re going to want to get the last two years’ T4s, or notices of assessment, and a recent pay stub. It’s generally a good idea to get your two most recent pay stubs, because sometimes we can make that fly with certain lenders.

If you’re self-employed, we need proof that you’re self-employed, for at least two years. If you haven’t been self-employed for two years, that’s fine; but we have to show you’ve been in the industry for two years.

You have to have at least been doing something for the two years. It gives them something to fall back on, to let you know you’ve been in this business — whether you’ve been an employee or self-employed — for at least a two-year period of time. That’s the breakpoint for self-employed people.

You can expect us asking for things like articles of incorporation, or the last two years of T1 generals that show you filing as a self-employed person, assuming an accountant has prepared those documents. Or a business license, a GST return — something to just show us that fact.

That’s for income. If you’re buying a home, you’re going to need the contract, and if it’s in DC, the property condition disclosure statement. That answers all of the questions, such as, “Was it a former grow-up? Was it a meth lab? Is it connected to sanitary and sewer?” and all that other stuff.

You’re going to need the multiple listing servicing, the MLS deal sheet. That outlines all the specifics of the property — the square footage, heating, taxes, etc., maintenance fees, if applicable.

For down payment, you can be expected to be asked for about 90 days of bank statements showing that money. Now, if it just shows up in your account a month ago or a week ago, you have to show us where it came from.

If it came from the sales of another home, that’s fine. We just need to show that sale document and that contract. That shows that you actually did sell a home, and that’s how you got the funds.

So you’re looking at down payment, income, and property.

The property is also appraisal. The appraisal is required 100 percent of the time; however, sometimes we do it behind the scenes, electronically. You don’t ever see it. That’s a little bit complicated and it’s more of a topic for one of my prior blogs, where I covered off when appraisals are required.

There you are: Income, down payment, and property. If you can satisfy those things, or at least get those documents in motion before writing your offer, it will make the subject removal period — that period where you get to firm up your financing — much easier.

For the Mortgage Center, I’m Rowan Smith.