Purchase Plus Improvements Mortgage

Mortgage Tips Peter Carstensen 30 Jun

When it comes to shopping for your perfect home, it can be hard to find the exact one ready to go! If you are looking into a home that requires improvements, there is a mortgage product known as Purchase Plus Improvements (PPI). This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.

Depending on whether you have a conventional or high-ratio mortgage, if it is insured or uninsurable, and which insurer you use, the Purchase Plus Improvements (PPI) product can allow you to borrow between 10% and 20% of the initial property value for renovations. Additional insight on how the qualifying structure works can be found in the table below:

Type of Purchase Plus Mortgages and Their Requirements

Uninsurable: $40,000 or 10% of the “initial” value of the property, whichever is less
CMHC Insurable: Can exceed $40,000 but not 10% of the “as improved” value of the property
Sagen/Canada Guaranty Insurable: Can be 20% of the “initial” value of the property but the improvement amount cannot exceed $40,000

The main difference between a regular mortgage and a purchase plus home improvements program is the need for quotes. As part of the verification process, your mortgage professional and the lender will need to see a quote for the work that is planned for the improvements. The quotes will provide us with the cost and plan details required to secure the final approval.

Working with your realtor, your mortgage professional will help guide you through the final approval process, which works as follows:

1) Find a home
2) Apply and get approved for a Purchase Plus Improvements mortgage
3) Get firm quotes on the improvements
4) Get an appraisal for the estimated as-is and as-improved value of the property.

This will be ordered by your lender or broker and quotes are typically reviewed by the appraiser.
Note: If you are putting less than 20% down payment on the purchase, often only a final inspection is required to confirm the work on the quotes has, in fact, been done.

5) Close the purchase
6) Depending on your down payment, the lender may provide up to:

80% of the as-improved value, less the cost of improvements (if on an uninsured mortgage)
95% of the as-improved value, less the cost of improvements (if on a default-insured mortgage)

7) Start the improvements

The initial advance of funds will be up to 95% of the approved value of the property minus the improvements. You will usually have to pay a portion of the improvements upfront via savings, credit
card, personal line of credit, parental funds, etc.

8) Notify the lender when the project is complete

At this point, an inspector/appraiser will confirm the work has been completed to the specifications agreed by the lender
Once the lender verifies the inspection report, the balance of funds is advanced.

If you have questions about how a Purchase Plus Improvements Mortgage could work for you or are considering taking this route for your next home, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional for expert advice!

Source:
https://dominionlending.ca/mortgage-tips/purchase-plus-improvements-mortgage

9 Reasons People Break Their Mortgage

Mortgage Tips Peter Carstensen 25 May

Did you know, approximately 60 percent of people break their mortgage before their mortgage term matures? While this is not necessarily avoidable, most homeowners are blissfully unaware of the penalties that can be incurred when you break your mortgage contract – and sometimes, these penalties can be painfully expensive.

Below are some of the most common reasons that individuals break their mortgage. Being aware of these might help you avoid them (and those troublesome penalties), or at least help you plan ahead!

Sale and Purchase of a New Home
If you already know that you will be looking at moving within the next 5 years, it is important to consider a portable mortgage. Not all mortgages are portable, so if this is a possibility in your near future, it is best to seek out a mortgage product that allows this. However, be aware that some lenders may purposefully provide lower interest rates on non-portable mortgages but don’t be fooled. Knowing your future plans will help you avoid expensive penalties from having to move your mortgage.

Important Note: Whenever a mortgage is ported, the borrower will need to re-qualify under current rules to ensure you can afford the “ported” mortgage based on your income and the necessary qualifications.

To Utilize Equity
Another reason to break your mortgage is to obtain the valuable equity you have built up over the years. In some areas, such as Toronto and Vancouver, homeowners have seen a huge increase in their home values. Taking out equity can help individuals with paying off debt, expand their investment portfolio, buy a second home, help out elderly parents or send their kids to college.

This is best done when your mortgage is at the end of its term, but if you cannot wait, be sure you are aware of the penalties associated with your mortgage contract.

To Pay Off Debt
Life happens and so can debt. If you have accumulated multiple credit cards and other debt (car loan, personal loan, etc.), rolling these into your mortgage can help you pay them off over a longer period of time at a much lower interest rate than credit cards. In addition, it is much easier to manage a single monthly payment than half a dozen! When you are no longer paying the high interest rates on credit cards, it can provide the opportunity to get your finances in order.

Again, be aware that if you do this during your mortgage term, the penalties could be steep and you won’t end up further ahead. It is best to plan to consolidate debt and organize your finances when your mortgage term is up and you are able to renew and renegotiate.

Cohabitation, Marriage and/or Children
As we grow up, our life changes. Perhaps you have a partner you have been with a long time, and now you’ve decided to move in together. If you both own a home and cannot afford to keep two, or if neither has a rental clause, then you will need to sell one of the homes which could break the mortgage.

Divorce or Separation
A large number of Canadian marriages are expected to end in divorce. Unfortunately, when couples separate it can mean breaking the mortgage to divide the equity in the home. In cases where one partner wants to buy the other out, they will need to refinance the home. Both of these break the mortgage, so be aware of the penalties which should be paid out of any sale profit before the funds are split.

Major Life Events
There are some cases where things happen unexpectedly and out of our control, including: illness, unemployment, death of a partner or someone on the title. These circumstances may result in the home having to be refinanced, or even sold, which could come with penalties for breaking the mortgage.

Removing Someone From Title
Did you know that roughly 20% of parents help their children purchase a home? Often in these situations, the parents remain on the title. Once their son or daughter is financially stable, secure and can qualify on their own, then it is time to remove the parents from the title.

Some lenders will allow parents to be removed from title with an administration and legal fees. However, other lenders may say that changing the people on Title equates to breaking your mortgage resulting in penalties. If you are buying a home for your child and will be on the deed, it is a good idea to see what the mortgage terms state about removing someone from title to help avoid future costs.

To Get a Lower Interest Rate
Another reason for breaking your mortgage could be to obtain a lower interest rate. Perhaps interest rates have plummeted since you bought your home and you want to be able to put more down on the principle, versus paying high interest rates. The first step before proceeding in this case is to work with your DLC mortgage broker to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate – especially if you might incur penalties along the way.

Pay Off The Mortgage
Wahoo!!! You’ve won the lottery, got an inheritance, scored the world’s best job or had some other windfall of cash leaving you with the ability to pay off your mortgage early. While it may be tempting to use a windfall for an expensive trip, paying off your mortgage today will save you THOUSANDS in the long run – enough for 10 vacations! With a good mortgage, you should be able to pay it off in 5 years, thereby avoiding penalties but it is always good to confirm.

Some of these reasons are avoidable, others are not. Unfortunately, life happens. That’s why it is best to seek the advice of an expert. Dominion Lending Centres have mortgage professionals across Canada wanting to be part of your journey and help you get the best mortgage for YOU.

https://dominionlending.ca/mortgage-tips/9-reasons-people-break-their-mortgage

Process in the Paperwork – Documents Required to Qualify for a Mortgage

Mortgage Tips Peter Carstensen 19 Apr

Mortgages can sometimes feel like endless stacks of paperwork but being prepared in advance can save you time and stress! Getting your mortgage pre-approved is part of this prep process and will make things easy in the long run.

To get pre-approved, the lender must have taken you on as a client and reviewed all your documents before you begin house-hunting. It is important to ensure you have your pre-approval certificate before moving ahead and your pre-approval agreement in writing. This should include the pre-approved mortgage amount, the mortgage term, interest rate, payment information and the expiry for the pre-approval. Typically, they are valid for up to 120 days.

To prepare for the mortgage pre-approval process, there are a few must-have documents that you will need to organize and have available prior to submission.

Letter of Employment: One of the key aspects of financing approval is employment stability. Lenders want to see a letter from your employer (on company letterhead) that details when you started working at this company, how much you make per hour or your annual salary, your guaranteed hours per week, and any probation if you are new. This can be done by your direct manager or the company HR department – they will be used to this type of request.

Previous Two Pay Stubs: In addition to the employment letter, you must also have your previous two pay stubs. These must indicate the company name, your name, and all tax deductions.

Supporting Documents for Additional Income: If you have any other income, such as child support, long-term disability, EI, part-time income, etc., the lender will want to see all supporting documentation.

NOTE: If you are divorced or separated and paying child support, it is important to also bring your finalized separation or divorce agreement. In some cases, they may request a statutory declaration from your lawyer.

Notice of Assessment from Canada Revenue Agency: Lenders will also want to see your tax assessment for the previous year. If you do not have a copy, you can request one from the CA by mail (4-6 weeks) or you can log in to your online CRA account to access it.

Your Previous Years T4: Along with your tax filing and assessment notice, lenders will also want to see your previous years’ T4 slip to confirm income.

3-Month (90-day) Bank Account History: Lastly, it is important for lenders to see 90 days history of bank statements for any funds that you are using towards the down payment. As
saving up for a down payment takes time, there should be no issues providing these documents. If you received the money from the sale of a house or car, or as a gift from your family, you would need proof of that in the form of sales documents or a letter.

The above documents are required for any potential buyer who is a typical, full-time employee.

But what if you only work part-time? Or maybe you are self-employed? Here is what you will need:

Part-Time Employee

You will still require all the above documents (letter of employment, previous pay stubs, supporting documents for any additional income and 90 days of bank history).
However, the difference between a full-time employee and a part-time employee, is that if you only work part-time, you will need to supply THREE years’ worth of Notice of Assessments, versus just one. You will also need to have been working for at least two years in the same job to use part-time income.
If you have both a full-time and a part-time job, you can use that income too, assuming it has been at least two years.

Self-Employed

If you are self-employed, the requirements for documents to lenders are slightly different. You will need to provide them:

3-Month (90 day) Bank Account History: Lenders need to see 90 days history of bank statements for any funds that you are using towards the down payment.
T1 Generals: Also known as the Income Tax and Benefit Return
Statement of Business Activities: This is used to illustrate the business income versus expenses and should include financial statements for your business.
Notice of Assessment from Canada Revenue Agency: Similarly, to part-time income, if you are self-employed, you will also need to provide the previous three years of assessments.
If Incorporated: You will need to supply your incorporation license and articles of incorporation.

When it comes to mortgages, preparation is key. By having pre-approval in hand, it can prevent any delays or issues with subject-to-financing clauses in the mortgage agreement. While you can walk into a bank, fill in an application and get a rate for a potential mortgage, this is just a ‘rate hold’ meaning it is a quote on the rate so you can qualify for the same rate later. This is not a pre-approval and does not guarantee financing.

To save yourself the headache down the line, contact a Dominion Lending Centres mortgage broker today to start the pre-approval process! Plus, our services are free to you. Why wait? Get fully pre-approved today to make closing the deal that much faster when you do find that perfect home.


Source: Our House Blog – https://dominionlending.ca/mortgage-tips/process-in-the-paperwork

Understanding Your Mortgage Rate

General Peter Carstensen 30 Mar

When it comes to mortgages, one of the most important influencers is interest rate but do you know how this rate is determined? It might surprise you to find out that there are 10 major factors that affect the interest you will pay on your home loan!

Knowing these factors will not only prepare you for the mortgage process, but will also help you to better understand the mortgage rates available to you.

Credit Score

Not surprisingly, your credit score is one of the most influential factors when it comes to your interest rate. In fact, your credit score determines if you are able to qualify for financing at all – as well as how much. In order to qualify, a minimum credit score of 680 is required for at least one borrower. Having higher credit will further showcase that you are a reliable borrower and may lead to better rates.

Loan-to-Value (LTV) Ratio

This ratio refers to the value of the amount being borrowed as a percentage of the overall home value. The main factors that impact LTV ratios include the sales price, appraised value of the property and the amount of the down payment. Putting down more on a home, especially one with a lower purchase price, will result in a lower LTV and be more appealing to lenders. As an example, if you were to buy a home appraised at $500,000 and are able to make a down payment of $100,000 (20%), then you would be borrowing $400,000. For this transaction, the LTV is 80%.

Insured vs. Uninsured

Depending on how much you are able to save for a down payment, you will either have an insured or uninsured mortgage. Typically, if you put less than 20% down, you will require insurance on the property. Depending on the insurer, this can affect your borrowing power as well as the interest rates.

Fixed vs. Variable Rate

The type of rate you are looking for will also affect how much interest you will pay. While there are benefits to both fixed and variable mortgages, it is more important to understand how they affect interest rates. Fixed rates are based on the bond market, which depends on the amount that global investors demand to be paid for long-term lending. Variable rates, on the other hand, are based on the Bank of Canada’s overnight lending rate. This ties variable rates directly to the economic state at-home, versus fixed which are influenced on a global scale.

Location

Location, location, location! This is not just true for where you want to LIVE, but it also can affect how much interest you will pay. Homes located in provinces with more competitive housing markets will typically see lower interest rates, simply due to supply and demand. On the other hand, with less movement and competition will most likely have higher rates.

Rate Hold

A rate hold is a guarantee offered by a lender to ‘hold’ the interest rate you were offered for up to 120 days (depending on the lender). The purpose of a rate hold is to protect you from any rate increases while you are house-hunting. It also gives you the opportunity to take advantage of any decreases to your benefit. This means that, if you were pre-approved for your mortgage and worked with a mortgage broker to obtain a ‘rate hold’, you may receive a different interest rate than someone just entering the market.

Refinancing

The act of refinancing your mortgage basically means that you are restructuring your current mortgage (typically when the term is up). Whether you are changing from fixed to variable, refinancing to consolidate debt, or just seeking access to built up equity, any change to your mortgage can affect the interest rate you are offered. In most cases, new buyers will be offered lower rates than refinancing, but refinancing clients will receive better rates than mortgage transfers. Regardless of why you are refinancing, it is always best to discuss your options with a mortgage broker to ensure you are making the best choice for your unique situation.

Home Type

Among other things, lenders assess the risk associated with your home type. Some properties are viewed as higher risk than others. If the subject property is considered higher risk, the lender may require higher rates.


Secondary Property (Income Property/Vacation Home)

Any secondary properties or those bought for the purpose of being an income property or vacation home, will be assessed as such. The lender may deem these as high risk investments, and you may be required to pay higher interest rates than you would on a principal residence. This is another area where a mortgage broker can help. Since they have access to a variety of lenders and various rates, they can help you find the best option.

Income Level

The final factor is income level. While this does not have a direct affect on the interest rate you are able to obtain, it does dictate your purchasing power as well as how much you are able to put down on a home.

It is important to understand that obtaining financing for a mortgage is a complex process that looks at many factors to ensure the lender is not putting themselves at risk of default. To ensure that you – the borrower – is getting the best mortgage product for your needs, don’t hesitate to reach out to a DLC Mortgage Broker today! Mortgage brokers are licensed professionals that live and breathe mortgages, and who have access to a variety of lenders to ensure you are getting the best rates. Mortgage brokers can also assess your unique situation and find the right mortgage for you. Their goal is to see you successfully find and afford the home of your dreams and set you up for future success!

https://dominionlending.ca/mortgage-tips/understanding-your-mortgage-rate