Today I wanted to share with you some “OTHER INCOME SOURCES” you may not realize we can use in the Broker world, for example:

• Non Occupying Co-Borrower – check out this article for more info
• Car, Living or Housing Allowance
• Parental Leave
• Foster Care
• Canada Child Benefit (CCB), Provincial Child Benefit, Family Allowances
• Support – Spousal/Child
• Investment income
• Retirement/Life Annuity
• Long-term & Short-term Disability Pension/Insurance
• RRIF
• First Nations
• Part Time Job (Second Job)
• Tip income (if claimed, or Alt lenders will look at deposits)
• Roommate/Supplemental income (Alt lenders only)

Be sure to have your mortgage needs run past us if you’ve ever been told NO by a Bank, we may be able to help!

1 – Default Insurance

The first and perhaps most common form of insurance when discussing the mortgage space is known as “default insurance”. The purpose of mortgage default insurance is to protect the lenders, allowing them to lend money more aggressively.

This type of insurance is mandatory for any homes where the buyer puts less than 20 percent down on the purchase. In fact, default insurance is the reason that lenders accept lower down payments, such as 5 percent minimum, and actually helps these buyers access comparable interest rates typically offered with larger down payments.

In Canada, there are only three companies that offer default insurance: Canada Mortgage and Housing Corporation (CMHC), which is run by the federal government and two private companies: Genworth Financial and Canada Guaranty. Default insurance typically requires a premium, which is based on the loan-to-value ratio (mortgage loan amount divided by the purchase price). This premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

According to CMHC, the minimum down payment required for mortgage loan insurance depends on the purchase price of the home:

• For a purchase price of $500,000 or less, the minimum down payment is 5 percent.
• When the purchase price is above $500,000, the minimum down payment is 5 percent for the first $500,000 and 10 percent for the remaining portion.

It is also important to note that default insurance (or mortgage loan insurance) is available only for properties with a purchase price or an improved/renovated value below $1 million.

2 – Title Insurance

Another insurance policy that potential homeowners may encounter is known as “title insurance”. This is an insurance policy that protects residential or commercial property owners and their lenders against losses relating to the property’s title or ownership. In fact, it is so important to lenders that every single lender in Canada requires you to purchase title insurance on their behalf. It is not a requirement to have coverage for yourself, but that doesn’t mean you should dismiss it outright.

Title insurance can protect you from existing liens on the property’s title, but the most common benefit is protection against title fraud. Title fraud typically involves someone using stolen personal information, or forged documents to transfer your home’s title to him or herself – without your knowledge. The fraudster then gets a mortgage on your home and disappears with the money. As the old adage goes: “It’s better to be safe than sorry” and the same goes for insurance.

Similar to default insurance, title insurance is charged as a one-time fee or a premium with the cost based on the value of your property. Title insurance for the lender is typically $250 to $300, while title insurance for yourself runs around $125 to $150. You can purchase title insurance through your lawyer or title insurance company, such as First Canadian Title (FCT).

3 – Mortgage Protection Insurance

Before you sign off on your mortgage, there is one more type of insurance your mortgage broker should tell you about – Mortgage Protection Insurance. Despite being optional, it should still be considered. Almost every mortgage broker in the business has a story of someone who passed on the extra coverage and tragedy hit.

Unfortunately, life happens but it doesn’t have to happen to your home. While you may not want to spend the money now, or maybe you already have some type of life insurance policy through work, don’t discount this option as it is often a blessing in disguise – especially when it comes to homeowners with a spouse and children. Can they carry on with the mortgage payment? If not, they would be forced to sell on top of everything else. For a few extra dollars a month, mortgage protection insurance provides that safety net in the event it is ever needed.

When it comes to choosing a mortgage protection plan, there are a number of different policies available depending on your budget. Manulife’s Mortgage Protection Plan offers immediate insurance and can be canceled at any given time. If you think you may be covered through your work, it can’t hurt to take a closer look at the policy.

Mortgage insurance is what we consider “debt replacement” and life insurance is more fitting as an “income replacement”. This is an important distinction and you should understand the difference. You also need to see just how much you’re going to get through your life insurance policy; you may be surprised just how little it amounts to.

Alternatively, you can look to a Financial Planner for a term policy, I am happy to provide that referral.

4 – Property + Fire Insurance

Lastly, after you’ve signed off on your mortgage you need to close on the home. Before you do this, your lender is going to require home insurance. When it comes to home insurance, there are many different types of coverage however it generally protects you from damage to the home that is accidental or unexpected, such as a fire.

Home insurance can also cover the contents of your home, depending on your insurance package. For individuals looking at purchasing condos or townhouses, this is especially important! The insurance from strata typically protects the building itself and common areas, as well as your suit “as is”, but it will not account for your personal belongings or any upgrades you made. Be sure to cross-check your strata insurance policy and take out an individual one on your unit to cover the difference.

One final thing to consider with regards to home insurance is that, just because you have home insurance you’re not necessarily covered in the event of a flood or earthquake. Depending on where you live, you may need to purchase additional coverage to be protected from a natural disaster. It’s best to talk to your insurance provider to confirm that you are covered.

At the end of the day, purchasing a home is a huge investment. Why risk it when there are so many great insurance products to ensure your investment – and family – remain protected?  Direct your clients to my Instant Home Insurance Approval HERE

Whether it is to get away to the cottage, a need to be closer to your job, or sending the kids to University – buying a Second Home is becoming increasing popular and is VERY similar to the purchase of your Principle Residence.

The minimum down payment remains 5% of the purchase price and will require the same processes as your first mortgage. If you are purchasing a non-winterized vacation home, or will not have year-round access, then you will be required to put down 10%.  Down payments for these properties can be taken from the principle residence, however both the extraction of the equity and the new purchase would be subject to debt servicing rules.  Happy to review and give you the best advise on how to make it all work!

The Key things to note when looking at Second Homes are:

• Single family dwellings only, with the specifications of a typical home residence
• Must have year-round access and be suitable for year-round use (indoor heating and fully-serviced water supply)
• Occupied by the owners for a portion of the year, or by a family member to live in rent free
• High ratio financing (as little as 5% down)
• Conventional mortgages (at least 20% down) follow regular application policy
• RENTAL INCOME can not be used for help in qualification
• Other restrictions may apply, e.g. price ceilings

Recreational and Vacation Properties

• Quality properties with year-round road access
• Residential-standard water and septic system, electrical and heating
• Used for recreational purposes
• As a second property, other restrictions may apply

Note: Properties with only seasonal access that aren’t winterized or don’t receive year-round plumbing may be subject to further restrictions and higher rates.

It can get pretty exciting to see campaigns around “cash-back mortgages” but, before you get too far along, here are three things you might not know about these types of mortgages:

1. Occasionally you will see campaigns on cash-back mortgages, so don’t jump at the first one you see! These types of mortgages are available through a few major lenders so it can be helpful to shop around to see what different terms and conditions are available, as this will affect the overall loan.

1. When it comes to cash-back mortgages, you’re really getting a loan on top of your mortgage. The interest rates are calculated to ensure that, by the end of your term, you will have paid the lender back the money they gave you (and perhaps a bit extra!). Be mindful that these loans can come with higher interest rates and, in some cases, the extra is more than you got in cash-back.

1. The average cash-back mortgage operates on a 5-year term. While you may not be planning to move before your term is up, sometimes things happen and it is important to be aware that if you break a cash-back mortgage, you have to pay the standard penalty but you will also have to pay back a portion of the loan you were given. For example, if you are 3 years into a 5-year term, you would have to pay back 2 years or 40% worth of the cash-back. Combined with the standard mortgage penalties for breaking your term, this can add up if you’re not careful!

1. Cashback funds can NOT be used for down payment, but can be used for closing costs.

1. Before signing for a cash-back mortgage it’s better to discuss your needs with a Broker first. We can advise regarding all cash-back mortgage availability, lines of credit, purchase plus improvement loans or also flex down mortgages that may be better for your situation.

1. There are currently cash bouses being offered by certain lenders – these are not considered a cash back mortgage, and do not come with the claw-back rule.  The amount of this bonus is dependant on the Mortgage amount being taken –  here is an example of what we are seeing:

Closing Costs:  As a Mortgage Broker, our job is to ensure you can produce not only the down payment, but all CLOSING COSTS as well.  Today I wanted to cover off the largest one that surprisingly, many forget to budget for:  Property Transfer Tax

What Is PTT?

Property Transfer Tax is a Provincial Government tax payable by purchasers of real estate. The tax applies to all types of real estate: residential, commercial or industrial and is only paid when a property changes hands (i.e. title is transferred). Taxable transactions include:

• transfer of fee simple
• right to purchase or agreement for sale
• lease or lease modification agreements
• life estate
• inheritance
• foreclosure
• crown grant
• escheat, forfeiture or quit claim
• transfer as a result of corporate reorganization

It is important to point out that this is NOT the same thing as the annual property tax, which is a city tax that is due on a yearly basis.

How and When Is It Calculated?

Property Transfer Tax is calculated as 1% on the first $200,000.00 of the property’s fair market value, 2% on the amount between $200,000 and $2,000,000, and 3% on the amount between $2,000,000 and $3,000,000, and 5% of the remaining fair market value.  The PTT is calculated by the lawyer or notary at the time the statement of adjustments is done, and they are the ones that will apply and organize the documentation for the payment of monies.

First Time Home Buyer Exemption

Just a reminder, a FTHB means the Buyer:

• Has never have owned an interest in a principal residence anywhere in the world at any time;
• Is a citizen of or a permanent resident of Canada;
• Resided in B.C. for 12 consecutive months immediately before the date they become the registered owner, or the Purchaser has filed two income tax returns as a British Columbia resident within the prior 6 years of becoming the owner;
• Moves into the property within ninety-two days after registration of the purchase of the property and reside in the property for at least one year.

Exemption limits: This exemption applies when the fair market value of the property is $500,000 or less (if the fair market value of the property is higher than $500,000.00 but less than $525,000.00, they qualify for a partial exemption)

The Sliding Scale can be found HERE.

Newly Built Home Buyer – This exception is not limited to First Time Home Buyers – anyone purchasing a NEW BUILD can qualify, as long as the following criteria is met:

1. The property must be newly built; a newly built home includes:
   1. a house constructed and affixed on a parcel of vacant land
   2. a new apartment in a newly built condominium building
   3. a manufactured home that is placed and affixed on a parcel of vacant land
   4. an already constructed house that is removed from one parcel of land and affixed to another parcel of vacant land, as long as the house hasn’t been occupied since it was placed on the new parcel of vacant land
   5. a house resulting from the division of an existing improvement affixed to a parcel of land that was also subdivided, as long as this house hasn’t been occupied since the subdivision of the parcel
   6. a house converted from an existing improvement on the land. The previous improvement couldn’t have been used as residential (e.g. a warehouse converted into apartments).
2. The Buyer must be an individual and a Canadian citizen or permanent resident;
3. The property must be used as the principal residence of the Buyer, who must move into the property within ninety-two days after registration of the purchase of the property and reside in the property for at least one year;
4. The property must be 1.24 acres or smaller.

Exception limits:  This exemption applies when the fair market value of the property is $750,000 or less (if the fair market value of the property is higher than $750,000.00 but less than $800,000.00, they qualify for a partial exemption).  

The Sliding Scale can be found HERE.

I now have access to a new BC lender and they have some amazing underwriting programs .. You are going to want to read this 😊

• A NON-STRESS TEST option, slightly higher in rate BUT can get the clients MUCH higher in pre-approval numbers.

Example:

• • $100K income, 5.39% Stress test and 20% down = $420 Mortgage; $525K purchase
  • $100K income, 5.59% NON Stress test and 20% down = $512K Mortgage; $640K purchase (that is $115K more house for only .20% in rate!)
• 70% Offset on rental suites vs. just adding to income = More borrowing power!
• Using 3 year posted rate for Variable rate mortgages instead of Benchmark = More borrowing power!
• Using 30 year amortization to qualify for a Home Equity Line of Credit = More borrowing power!
• Interalia / Bridge  –  this is the ONLY non-private lender offering Interalia Mortgages thru Broker Channel, so this is going to save our clients a ton of fees if they need to lean on the equity in a secondary property
• Construction
• Hobby Farm/Acreage
• EI when employment is seasonal in nature

*Lending in the Victoria CRD Municipalities, and Nanaimo ONLY (Sorry, nothing in between but will let you know when this opens up).

Call me if you have 20% down, and troubles qualifying – this Lender is going to be a great addition to my toolbox.

If there’s one thing I’ve seen in 20 years as Mortgage Broker its this:  BAD things happen to REALLY, REALLY GOOD people.  Divorce, health issues, accidents, failing parents, failure of business, pandemic….. there are a ton of reasons why someone’s credit score may have gone down the toilet.  My job is to listen, package it, and SELL IT.  No judgment – just empathy, understanding and a WAY OUT.

At least 50% of my business consist of these types of deals; where we have to use non traditional lenders for a year, maybe two,  in order to clean up credit blemishes, reduce debt load, fix up income taxes and then create an exit strategy to get these clients back into the prime market AS SOON AS POSSIBLE.

If you know someone who had equity in their home but is feeling pinched or overwhelmed and think they can’t possibly find a way out – please have them call me for a quick review.  I think I can help… and I LOVE doing it.

Have an amazing week 😊

Janette

PS: Speaking of helping – if you want to teach your kids/teenagers/young adults, or even yourself about financial literacy – PLEASE check out Enriched Academy – I can’t tell you how incredible this program is;  I know the co founders personally  (Jay Seabrook and Kevin Cohraine) and they are brilliant at what they do, making it easy and fun to learn for all ages.  It’s WORTH every penny.  Even Dragon’s Den is on board!

Today I am going to go over Document Requirements when getting a mortgage – Lenders today are SO incredibly picky about documents – it almost always takes people by surprise as to how much is required these days.  We do try to collect as much as we can at pre-approval stage, however many documents become stale dated within 30 days, so for the most part, we have to just prepare the client to have everything on their list readily available when the deal goes “LIVE” (Accepted offer)

ON A PURCHASE DEAL:

Requested from Realtor:

• Contract of Purchase
• MLS – FULL LISTING
• Property Disclosure Stmt
• All Addendums including Subject removal, and proof of Deposit Cheque

Requested from Client:

• Income verification

• • Self Employed Sole Prop – 2 year T1 Generals and Corresponding NOAs
  • Self Employed – Incorporated – same as above PLUS 1-2 year Financials
  • Salaried / Hourly – Job Letter + most recent paystub, Verbal phone call or proof of direct deposit for 3 months, some may require NOAs to confirm no taxes owing

• • Retired/Pension/Disability – 2 year T1 Generals and Corresponding NOAs, T4A Tax Slips, proof of direct deposit for 3 months AND Letter(s) from Pension or Disability confirming amount(s)

• • Use of Casual/Bonus Income or Overtime income  – will require 2 year T4s and NOAs
  • In the case of an ALTERNATIVE income or ALTERNATIVE credit, we may be asking for up to one year of bank statements.
• Down payment Verification
  • Sale of Property – Sale Contract + Mortgage Stmt; OR
  • Own resources – 90 day Bank Stmt; OR
  • Gift from immediate family member  – Gift Letter +proof of funds deposited
  • NOTE: Proof of Closing Costs = to approx. 1.5% Purchase price will also be requested and can be included in the documents above.

• Appraisal (sometimes) – Economic Rent may be requested if rental income is being used
• If other properties are owned  – RECENT Mortgage Statement/Property Tax Stmt/Tenancy Agreements, if applicable
• If Separated or Divorced, we will require a fully executed Separation agreement and any child support / spousal support is factored into the liabilities
• Child Tax Credit – Birth Certificates of any children under age of 12 ; CCB letter from the government confirming amount and some will require proof of deposit to bank account
• Void cheque
• Solicitor Info

 ON A REFINANCE OR RENEWAL/NO FEE TRANSFER:

Income verification, as above

• Property Tax Statement
• Most recent Mortgage Statement
• Appraisal (or internal valuation system)
• Use of funds (list of renovations/debts to be paid)
• If Separated or Divorced, we will require a fully executed Separation agreement and any child support / spousal support is factored into the liabilities
• Child Tax Credit – Birth Certificates of any children under age of 12
• Tenancy Agreements, if rental income is being used
• Proof of Fire Insurance
• Void cheque
• Solicitor Info

 As you can see, we definitely have our work cut out for us, that’s why those extra days on subject to financing clauses come in handy!  I am so grateful for my amazing assistant Nicole who is a “ROCH-STAR” at keeping the document flow going with our client, and ensuring timelines are always met with the lenders.

As we all know, Canada has seen a surge of international migration over the last few years so it’s a good time to review some of the details surrounding mortgages and how individuals new to Canada can qualify to be homeowners.
If you have a client who is already a Permanent Resident or has received confirmation of Permanent Resident Status, they are eligible for a typical mortgage with a 5% down payment – assuming the borrowers have good credit.
If they have limited credit, or have not yet qualified for Permanent Residency, there are still options! In fact, there are several ‘New to Canada’ mortgage programs through CMHC, Sagen™ and Canada Guaranty Mortgage Insurance. Please note, we will typically require a valid work permit that is valid up to 3 months post-purchase date.
To qualify for these New to Canada programs, the borrowers must have immigrated or relocated to Canada within the last 5 years and have had three months minimum full-time employment in Canada.
• For 90% credit, a letter of reference from a recognized financial institution OR six (6) months of bank statements from a primary account will be required.
• If they are seeking credit of 90.01% to 95% they need an international credit report (i.e: Equifax) demonstrating a strong credit profile OR two alternative sources of credit (i.e.: hydro/utilities, telephone, cable, cell phone or auto insurance) demonstrating timely payments (no arrears) for the past 12 months
As always, if they don’t fit into one box, I have other options available to consider! Depending on their residency status and credit history, there are many alternative or private lenders who may be able to fund their mortgage.
SO – if your New to Canada clients are unsure of their options or want to make sure they get the best mortgage product possible, please don’t hesitate to contact me. As a dedicated mortgage professional, I have access to dozens of lender options, which will allow me to find them the best options. I would love to set up a virtual appointment to discuss their financial history, goals and the mortgage process.

Let’s get right down to it – today I am going to chat about the Collateral Mortgage Charge. Collateral mortgages have had a bad rap when they first came out, but to the right client they do come in handy:

• if there is a good amount of equity in the property that you feel you could need access to at some point during your existing term, or
• if you would like to create various components to your mortgage (hybrid)

What are the pros of a collateral mortgage?

• In today’s uncertain market, a lot of clients are wanting to hedge their bets and diversify their risk products—i.e., hybrid (part fixed / part variable) mortgage.  A hybrid simultaneously protects against the risk rates may have to rise significantly, while offering the chance to overweight in a variable when appropriate (e.g., a 65/35 variable/fixed split) to potentially take advantage of cyclical peaks.
• The flexibility to borrow money from your home at any time, and
• The ability to avoid the legal costs associated with refinancing

What are the cons of a collateral mortgage?

The downsides include:

• The need to pay legal fees if you switch to another lender, even if your mortgage is up for renewal – IF you are put into a Collateral Mortgage without enough equity to take advantage of it’s “perks”, then this product is simply a TRAP, making it more difficult and expensive to shop the market on renewal.
• By having a larger amount registered, you may have a tough time securing financing for other things as it looks like you owe more than you do.
• If you need access to equity; but can not qualify for the increase, the ability to obtain a 2^nd mortgage with another lender is affected  – the 1^st mortgage lender must be willing to “cap” their lending amount, which in my experience has proven to be difficult with most banks, and impossible with others.

How is a collateral mortgage calculated?

If you choose to get a collateral mortgage, the lender may be able to register your mortgage for up to 125% of the value of your new home – let’s call it a “GLOBAL LIMIT”.

E.G. $800,000 home value x 125% max loan-to-value ratio = = Global limit: $1M  

When the time comes that you want to access your equity, you can now refinance / borrow up to 80% of whatever the new appraised value is – as long as it does not exceed the Global Limit – without incurring legal fees  

Which lenders offer collateral mortgages?

Most lenders offer collateral mortgages – or at least give you the option of taking one.  Anytime you see a lender who allows customers to divide their mortgage into multiple segments, such as a long term or short term, fixed rate or variable rate, and/or a line of credit, is registering as a collateral mortgage. E.g. RBC HomeLine, Scotia Step, Manulife ONE, TD Flex-line to name a few.

Like anything in life, we are always best served by dealing with an individual that is a FOCUSED EXPERT in the field in which we need information… call me anytime.

Have an amazing week!

Janette Roch, MBI

CELL: 250 588 1919