Are You Considering Financing a House Valued Over $1M? Read This First!

When it comes to financing a property over $1 million, understanding the 3 different mortgage categories is crucial. Here’s a breakdown of what you need to know:

Insured Mortgage:
• Down Payment: Less than 20%
• Property Value: Cannot exceed $1 million
• Amortization: Cannot exceed 25 years
• Default Insurance: The premium is paid by the borrower, and rolled into the mortgage
• Rates: Typically the lowest in the market due to the reduced risk – this is what you may see advertised, but watch for the bait and switch tactics!

Insurable Mortgage
• Down Payment: 20% or higher
• Property Value: Cannot exceed $1 million
• Amortization: Cannot exceed 25 years
• Default Insurance: This mortgage is “back-end” insured; therefore the lender pays the insurance premium for the borrower
• Rates: Very competitive, and they tend to decrease as the down payment increases

Uninsurable Mortgage
• Down Payment: 20% or higher
• Property Value: Applies to properties over $1 million
• Amortization: Can exceed 25 years, increase to rate may apply with some lenders
• Default Insurance: NONE required
• Rates: Typically 10-20 basis points higher than insured; however they also decrease as the down payment increases.

In Summary:
• Insured and Insurable Mortgages: These offer more protection for the lenders, therefore better rates are extended to the borrower.
• Uninsurable Mortgages: Higher rates due to risk pricing and no insurance; however we see more underwriting flexibility, exceptions and higher approval amounts as the lenders are not tied to Insurer guidelines
• Upcoming Changes: Starting August 2024, a new ruling will allow Lenders to offer 30-year amortization for First-time Buyers of NEW builds, impacting insured and insurable mortgages only. Stay tuned for more info on this!

For expert guidance on navigating your mortgage options or a quick rate quote, please contact Janette Roch for a no-fee, no-obligation mortgage consultation at 250-588-1919 or rochmortgage@gmail.com.

OK, so I have to admit, I had a love/hate relationship with today’s topic: Federal Government First Time Home Buyers Incentive. The reason is that – in the past- we were able to qualify for much higher than this program ever allowed, and mortgage payments/interest rates were affordable; however given the current rate environment it is starting to make a bit more sense to consider as it does lower the borrower’s monthly payment as well as the CMHC fees the borrower is required to pay. To reiterate – this program focuses on lowering the mortgage amount/payment, it does not increase borrowing power.

With this incentive, Government of Canada provides:
• 5% or 10% for a first-time buyer’s purchase of a newly constructed home
• 5% for a first-time buyer’s purchase of a resale (existing) home
• 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
The incentive is available to first-time homebuyers with a total annual qualifying income that doesn’t exceed $120,000 ($150,000 if the home is in Toronto, Vancouver, or Victoria).
A participant’s insured mortgage and the incentive amount cannot be greater than four times the participant’s qualified annual income plus their down payment (4.5 times if the home is in Toronto, Vancouver, or Victoria)
Here’s an example.
Anita lives in Victoria and wants to buy a NEW BUILD. She and her partner make $120K a year, so the max PURCHASE PRICE they can be approved for under the program is 4.5 times their income ($540K) PLUS their down payment ($35K) = $575,000 MAX PURCHASE PRICE.
Without Incentive With Incentive
Purchase Price ($) $575,000 $575,000
– Down Payment (5% up to $500K, 10% thereafter) -$35,000 -$35,000
– First Time Homebuyer Incentive $0 -$57,500
Mortgage Amount $540,000 $482,500
+ Mortgage Insurance Premium $21,600 $13,510
Total Mortgage Amount $561,600 $496,010
Monthly Payment $3,327.30 $2,938.70
Total Annual Savings $0 $4,663.20

Anita’s Savings with a 10% incentive = $388.60 / Monthly
*subject to income verification, satisfactory credit and qualification using today’s rates and stress test.
To Qualify :
• Must be a first-time homebuyer, which is defined as:
• having never purchased a home before
• having recently experienced the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements)
• did not occupy a home that borrower, current spouse or common-law partner owned in the last 4 years (the 4-year period begins on January 1 of the fourth year before the Incentive is funded and ends 31 days before the date the Incentive is funded)
• Must be a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada,
• Must meet the minimum down payment requirements with traditional funds (savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member)
• First mortgage must be insured, e.g. greater than 80% of the value of the property and is subject to a mortgage loan insurance premium. It also must be eligible through Canada Guaranty, CMHC or Sagen.
• Property must be located in Canada and must be suitable and available for full-time, year-round occupancy. The home is to live in and can’t be used as an investment property.

Shared Equity:

The First-Time Home Buyer Incentive is a shared equity instrument. It works by getting an extra 5% or 10% of the down payment of the home and then repaying the Government either 5% or 10% of the property’s market value at the time of repayment, up to a maximum repayment amount equal to:
• In the case of appreciation, the Incentive amount plus a maximum gain to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment; or
• in the case of a depreciation, the Incentive amount minus a maximum loss to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment.

Repayment:
There are no payments required under this program, instead, the incentive must be paid in full after 25 years or when the home is sold. There are a few ways where changes to the Incentive can also trigger repayment:
• A spousal / co borrower break up and buy out. If this requires additional insured funds, the Incentive must be paid back in full.
• Porting of the mortgage will trigger a repayment of the Incentive.
• A partial release of security is considered a sale and will trigger repayment of the Incentive.

Do you know someone interested in this program? Have them check out this handy calculator to determine their Max purchase price and then have them call me to confirm qualification with, and without the program.

Today I am going to share some MLS and PDS LINGO that may cause issues / further conversation on a file. While we recognize some can NOT be avoided in the interest of proper disclosure, it’s good to be aware that if we see this wording, we may need some extra time on the file:

o Fixer Upper, deferred maintenance
o Mold, flood, outdated electrical and plumbing
o Low Strata Contingency
o Rural/Hobby Farm/Animals
o Hording / pride of ownership
o Numerous out-buildings included in value (one only)
o Using value of anything other than House plus 10 acres when listing large acreages
o Heritage
o Grow Op (Remediated is ok)
o Anything that indicates the property may not be a Principle Residence, e.g. Vacation Rental, Air BNB, REVENUE, Investors dream! Tenanted at $2200 a month, Rooming house
Non-Property related flags or what we might see on a Bank Statement that can cause further questions / paperwork:
o Working for family members
o Buying multiple luxury items / large car loan payments
o Having several store cards, furniture loans
o Vague Paypal transactions
o Gambling activity
o Buy Now, Pay Later or Payroll Loans
o Recent Credit cards, multiple pulls on bureau (credit seeking)
o Large unexplained cash deposits
o Lack of Regular Savings / cash flow (e.g. living in O/D)
o Frequent NSFs on account
o Moving money around

Consider using a Broker…

1) Consider using a Broker (Pick ME!) who has access to lenders that will not use a STRESS TEST. For a rate difference of only .10 we can qualify for substantially more than any of the Banks.
2) Consider using a Broker (yep, ME again!) who knows the best lenders to work with when we are dealing with multiple properties . Again, certain lenders allow for MUCH higher use of rental income than others.
3) Consider using a Broker (surprise! It’s ME!) who can DEDUCT Child Support payments from income instead of adding this to liabilities (substantially higher approvals)
4) Lastly, consider using a Broker (you get it…) who CARES deeply for her client’s situation and is an expert at not only getting them the BEST rates in the Market. My toolbox also contains quick and painless Alternative B and Private lending options that aren’t just a Band-Aid solution, but instead come with an exit strategy to get them back into the A space as soon as possible.

“People don’t care how much you know, until they know how much you care” Theodore Roosevelt

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.