31 Oct

THE 30-SECOND COMMUTE-OUR HOUSE MAGAZINE

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This story appeared in the Fall issue of Our House Magazine

How a B.C. woman transformed her home into a skin-care spa.

From an early age, Leah LaVanway struggled to get her acne under control. As a gymnast and horseback rider, her athletic pursuits made it difficult to keep her skin healthy and clean. It was those personal struggles that also led her into the medical skin-care industry.
“It was always my mission to learn more about skin and try to figure out why my skin was breaking out,” she tells Our House magazine.
LaVanway graduated as a Certified Medical Esthetician and sought to start her own business in B.C.’s Lower Mainland. But life got in the way, at least for a few years. Just as she was getting her spa business up and running, her boyfriend, William, a trainer of racehorses, was injured in a car accident and couldn’t work for a couple of years. She put her business on hold to help with the equestrian work that her boyfriend—now her husband—couldn’t do.
But once he got back to work, LaVanway wanted to get back to helping people.
She set up her spa business in a few retail locations around the Lower Mainland, but none seemed to be the right fit. The storefronts didn’t offer the privacy that she felt her clients wanted. They were also telling her if she ever set up at home, they’d come to her there.
She did just that, moving her spa into her home. Since 2012, LaVanway, 32, has been operating Essence of L Medi Spa & Laser Clinic out of her White Rock, B.C., home, and hasn’t looked back. “People love it. They come in and they feel comfortable. Especially since a lot of my treatments are for acne… a key reason to keep it here was the privacy,” she said.
LaVanway also noted some pretty big advantages to having a home-based business, including offering a flexibility in her schedule.
But the spa isn’t some little office space. She’s transformed nearly her entire home to give it a true spa feel. Walking through the front door, you wouldn’t know it was a residence too.
A grand entrance leads into the studio space on the house’s main floor. The studio is completely separate from the living space. And since there are no children in the home, there are no toys or other items strewn about.
Over the years LaVanway has changed the entire front entrance, adding parking, a waiting area and an outdoor fire table. The first piece of advice she would give anyone looking to start a home business is to make sure it’s as separate from the living area as possible. If you have clients coming to the house, she recommends spending a little extra money. “Just so when they come in [to your home], you’re proud to show your home and to welcome them,” she says.
There isn’t a better time to start a home-based business, LaVanway believes, and the statistics back her up. According to the Business Development Bank of Canada (BDC), there are 1.1 million small businesses in the country. Another 2.7 million people are self-employed.
“In my opinion, this is one of the best times to have a business at home because it’s so flexible, interest rates are great, and our lives are getting busier… It can change and build how you planned to have your dream life to supplement your income by having something else at home. It’s definitely the time to do it,” LaVanway says.
Before committing to starting a business in your home, check with your municipality regarding rules and bylaws governing such businesses. While very few cities and towns ban home businesses outright any more, they may not permit signage or customer visits, for example. Condominium and townhouse dwellers will need to confirm what their building’s regulations will allow too.

Financing a Home with a Business
Starting a home-based business like Leah LaVanway’s can be an appealing way to make a living, but there are a few things you need to consider if you’re about to take out a mortgage on the property.
Nancy Ingram, a DLC mortgage specialist in Guelph, Ont., notes that lenders will be looking at the sustainability of the business and whether the borrower can repay the mortgage. Lenders will also be looking at the history of the business for things like regular deposits. If it’s brand new, lenders will be considering whether the business venture is viable.
“They would really look at the whole scenario to make sure they’re protecting themselves and their investors’ money to ensure they [borrower] can pay it back,” Ingram says. Contact a Dominion Lending Centres mortgage specialist near you if you have any further questions.

JEREMY DEUTSCH
Lead Writer

30 Oct

5 SIMPLE STEPS TO OWNING YOUR OWN HOME

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Often, the route to owning your own home can seem like a trip to the moon and back.

Really though, it comes down to five key steps:

1 – Manage your credit wisely.
If there is one thing that will gum up the purchase of that perfect home, it’s an unwise purchase or extra credit obtained. Keep your credit spending to a minimum at all times, make every payment on time and most of all pay more than the minimum payment. Remember that if you just make the minimum payment on your credit cards, chances are you will still be making payments 100 years from now.

2- Assemble a down payment.
At first glance, the challenge of finding a down payment can seem insurmountable. In fact, you just need to consider all the sources for down payment funds. yes, you will have saved some but remember you can also, in some situations, use RRSP funds, grants ( BC Home Equity Partnership for example ) and non traditional sources like insurance settlements, severance and of course, gifted funds from a family member. Don’t forget that you’ll need to demonstrate that you’ve had the funds on deposit for up to 90 days and also that you have an additional one and a half percent of the mortgage amount for closing costs.

3- Figure out how much you can afford.
It’s at this point that most people usually stop and scratch their heads. Some even try and tough it out, using the raft of online calculators to figure it out, but new mortgage rules can make even that a challenge.
If you talk to a Dominion Lending Centres mortgage specialist ( like me! ) though, they can help you figure it out and even go as far as getting you a “pre-approval” from a financial institution. This can give you the confidence you need to actually start looking around.

4- Figure out what you want.
You’ll want to make a list of things your new home has to have and what the neighbourhood has to have. Things you want to think about are the things that are important to you now; is there access to a dog park? Is there ensuite laundry? Divide the list into things you can’t live without and things you’d like to have. It’s way easier to look when you know what you want to look at.

5- Look with your head, buy with your heart.
The final step is, with the help of a realtor, look at properties that meet your requirements. Yes, the market is a little frenzied at the moment, but remember, if your perfect property is sold to someone else, the next perfect property will soon appear.

When you do finally buy, chances are, you’ll buy with your heart. My sister Noona moved to London some years back and after settling in, decided to buy. Her list was fairly lengthy, one of the key elements was being able to walk to work. In a market similar to what we face now, she found a property that met most of her requirements. In the end though, she bought with heart, mostly because of the view from the balcony.

The decision which home to buy is a tricky thing, it should be made with your head and heart. Deciding, while balancing what you think and feel, really is rocket science.

I know that this may seem to be an oversimplification but really, the thing that complicates the process is your own emotions – all of the stress that comes along with making a life change can make the process challenging.

Jonathan Barlow
Dominion Lending Centres – Mortgage Professional

27 Oct

TIME TO LOCK IN A VARIABLE RATE MORTGAGE?

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Approximately 32 per cent of Canadians are in a variable rate mortgage, which with rates effectively declining steadily for the better part of the last ten years has worked well.

Recent increases triggers questions and concerns, and these questions and concerns are best expressed verbally with a direct call to your independent mortgage expert – not directly with the lender. There are nuances you may not think to consider before you lock in, and that almost certainly will not be primary topics for your lender.

Over the last several years there have been headlines warning us of impending doom with both house price implosion, and interest rate explosion, very little of which has come to fruition other than in a very few localized spots and for short periods of time thus far.

Before accepting what a lender may offer as a lock in rate, especially if you are considering freeing up cash for such things as renovations, travel or putting towards your children’s education, it is best to have your mortgage agent review all your options.

And even if you simply wanted to lock in the existing balance, again the conversation is crucial to have with the right person, as one of the key topics should be prepayment penalties.

In many fixed rate mortgage, the penalty can be quite substantial even when you aren’t very far into your mortgage term. People often assume the penalty for breaking a mortgage amounts to three months’ interest payments, which in the case of 90% of variable rate mortgages is correct. However, in a fixed rate mortgage, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The ‘IRD’ calculation is a byzantine formula. One designed by people working specifically in the best interests of shareholders, not the best interests of the client (you). The difference in penalties from a variable to a fixed rate product can be as much as a 900 per cent increase.

The massive penalties are designed for banks to recuperate any losses incurred by clients (you) breaking and renegotiating the mortgage at a lower rate. And so locking into a fixed rate product without careful planning can mean significant downside.

Keep in mind that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, things like opting for a “cash back” mortgage can influence penalties even more to the negative, with a claw-back of that cash received way back when.

Another consideration is that certain lenders, and thus certain clients, have ‘fixed payment’ variable rate mortgages. Which means that the payment may at this point be artificially low, and locking into a fixed rate may trigger a more significant increase in the payment than expected.

There is no generally ‘correct’ answer to the question of locking in, the type of variable rate mortgage you hold and the potential changes coming up in your life are all important considerations. There is only a ‘specific-to-you’ answer, and even then – it is a decision made with the best information at hand at the time that it is made. Having a detailed conversation with the right people is crucial.

It should also be said that a poll of 33 economists just before the recent Bank of Canada rate increase had 27 advising against another increase. This would suggest that things may have moved too fast too soon as it is, and we may see another period of zero movement. The last time the Bank of Canada pushed the rate to the current level it sat at this level for nearly five full years.

Life is variable, perhaps your mortgage should be too.

As always, if you have questions about locking in your variable mortgage, or breaking your mortgage to secure a lower rate, or any general mortgage questions, contact a Dominion Lending Centres mortgage specialist.

Tracy Valko
Dominion Lending Centres – Accredited Mortgage Professional

26 Oct

PAYMENT FREQUENCY, DOES IT REALLY MAKE A DIFFERENCE?

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It has been said that there are two certainties in life; death and taxes. Well, as it relates to your mortgage, the single certainty is that you will pay back what you borrowed, plus interest. However, how you make your mortgage payments, the payment frequency, is somewhat up to you! The following is a look at the different types of payment frequencies and how they will impact you and your bottom line.

Here are the six main payment frequency types:

Monthly payments – 12 payments per year
Semi-Monthly payments – 24 payments per year
Bi-weekly payments – 26 payments per year
Weekly payments – 52 payments per year
Accelerated bi-weekly payments – 26 payments per year
Accelerated weekly payments – 52 payments per year
Options one through four are designed to match your payment frequency with your employer. So if you get paid monthly, it makes sense to arrange your mortgage payments to come out a few days after payday. If you’re paid every second Friday, it might make sense to have your mortgage payments match your payday! These are lifestyle choices, and will of course pay down your mortgage as agreed in your mortgage contract, and will run the full length of your amortization.
However, options five and six have that word accelerated attached… and they do just that, they accelerate how fast you are able to pay down your mortgage. Here’s how that works.
With the accelerated bi-weekly payment frequency, you make 26 payments in the year, but instead of making the total annual payment divided by 26 payments, you divide the total annual payment by 24 payments (as if the payments were being set as semi-monthly) and you make 26 payments at the higher amount.

So let’s say your monthly payment is $2,000.
Bi-weekly payment : $2,000 x 12 / 26 = $923.07
Accelerated bi-weekly payment $2,000 x 12 / 24 = $1,000

You see, by making the accelerated bi-weekly payments, it’s like you’re actually making two extra payments each year. It’s these extra payments that add up and reduce your mortgage principal, which then saves you interest on the total life of your mortgage.
The payments for accelerated weekly work the same way, it’s just that you’d be making 52 payments a year instead of 26.
Essentially by choosing an accelerated option for your payment frequency, you are lowering the overall cost of borrowing, and making small extra payments as part of your regular cash flow.
Now, It’s hard to nail down exactly how much interest you would save over the course of a 25 year amortization, because your total mortgage is broken up into terms with different interest rates along the way. However, given todays rates, an accelerated bi-weekly payment schedule could reduce your amortization by up to three and a half years.
If you’d like to have a look at some of the mortgage numbers as they relate to you, please don’t hesitate to contact a Dominion Lending Centres mortgage specialist who would love to work with you and help you find the mortgage (and the mortgage payment frequency) that best suits your needs.

Michael Hallett

Dominion Lending Centres – Accredited Mortgage Professional

25 Oct

TRUDEAU GOVERNMENT INCREASES SPENDING AS THE ECONOMY NEARS FULL EMPLOYMENT

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The Canadian economy has grown at a stronger-than-expected annual rate of 3.7% in the past year, taking the jobless rate down to its lowest level in nearly a decade. With Canada’s economy the strongest in the Group of Seven countries, Ottawa now projects much smaller deficits than it did in March. The Liberal government cut its deficit projection for the fiscal year that ends March 31 to just under $20.0 billion, down from $28.5 billion in the March budget. It now expects a cumulative deficit over the coming five fiscal years of $86.5 billion, compared with $120 billion previously.

Finance Minister Bill Morneau announced new spending today totalling $7.7 billion over six years, bringing the total new spending since the March budget to $19.1 billion over six years. This additional stimulus comes as the economy is running far faster than its long-run potential noninflationary pace, rapidly approaching full capacity. The Bank of Canada has already raised interest rates twice since the summer and meets again on Wednesday. While we do not expect the Bank to hike rates tomorrow, additional fiscal stimulus runs the risk of ever tighter monetary policy–meaning higher interest rates than otherwise would be the case down the road. Higher interest rates slow interest-sensitive spending and nothing is as sensitive to rates as home purchases. With all the government’s concern about the record level of household debt, tighter monetary policy might well be welcome.

The government has already taken repeated actions to slow the housing market. Most recently, the federal financial institutions’ regulator, OSFI, has tightened the stress testing for non-insured mortgage borrowers effective in January.

Deficit spending, particularly the enhanced child benefit system, has undeniably been fueling consumption. The government announced today it would index its marquee Canada Child Benefit to inflation beginning in July 2018, two years earlier than scheduled. It also expanded the Working Income Tax Benefit, which supplements the earnings of low-income workers, starting in 2019. It also reduced the small business tax rate to 10%, announced last week, and it snuck in changes to the tax system that “ensure low corporate tax rates go towards supporting businesses, not to the top 1% of income earners”. In that regard, Ottawa is proceeding with a new tax on investment income held in private corporations and will detail the measure in its 2018 budget.

Trudeau’s team has been backtracking on a trio of tax proposals unveiled by Morneau in July and offered new details in its update on Tuesday. It will proceed to restrict so-called income sprinkling — paying family members who don’t work for a firm — with new legislation due later this year. The Liberals will also tax investment income held in private corporations when it exceeds $50,000 annually, releasing rules for that in its 2018 budget. It has abandoned a third proposal, which changed capital gains rules.

Despite the improved economic outlook, there is no forecast to return to budgetary balance, although the debt-to-GDP ratio does fall more rapidly than in the 2017 budget.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

23 Oct

AND THEN WE WERE THREE

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This story appeared in the Fall issue of Our House Magazine for Dominion Lending Centres.

Considering adopting a child? Here are some things to keep in mind as you welcome a new family member into your home.

November is Adoption Awareness Month in Canada. For Brianna Brash-Nyberg, the public relations coordinator for Adoptive Families Association of B.C., it’s a time to get the word out about the adoption process, but also a reminder of her own adoption story.

Ever since Brash-Nyberg could remember, she’d always intended to adopt a child. So several years ago, she and her then husband set out to become adoptive parents.

The young couple was far from established. Her husband was still in university and the couple was living in student rental housing. Completing the application process, Brash-Nyberg assumed it would be a couple of years before they got the call. Instead, it came just two weeks later. A baby had just been born and the birth mother picked the couple’s profile. They were told to come by the hospital the next day to meet their new family member.

They were living in a one-bedroom apartment and they didn’t have a single thing for their new daughter. They bought the wrong baby formula and the wrong car seat three times. But none of it mattered when they were taken to the hospital nursery.

“She was just lying there in the bed with her hands folded on her chest and this really calm expression on her face,” Brash-Nyberg says of meeting her first child, who is now eight. “I went and picked her up and started talking to her. It was so surreal. This whole person exists and is now part of your family and a day ago I didn’t even know she was coming.”

The second adoption was just as surprising. The couple was looking to adopt a teenager, but the matches didn’t work out. Then they got a call about a baby due in a couple weeks and the adoption was urgent. The couple once again found themselves parents to a newborn. In this case, the walk-in closet in their apartment would be their new child’s bedroom until they could get a larger place.

One of the common misconceptions among prospective parents is that you have to be well off or a homeowner to adopt, Brash-Nyberg says. “A lot of people think you have to have a lot more in terms of financial resources than you do,” she says.

Each province has its own rules regarding adoption. The first step is to get in touch with an adoption agency. There are a number of resources available, including the Adoption Council of Canada, a national organization that connects and supports domestic, private and international adoptees and families. In B.C., for example, there are three streams of adoption: international, foster care and through a private agency. Adoption through a private agency can cost between $10,000 and $30,000; an international adoption can cost between $20,000 and $70,000.

Brash-Nyberg notes that anyone adopting through the government will need to go through an adoption education program; in B.C. it takes 13 weeks. The adopting family is assigned a social worker. Meeting with the family, he or she will ask probing questions around how the adopting parents were raised and how they want to parent. They then conduct an examination of the home. “It’s a very intimate process. You have to be willing to talk about pretty much everything,” Brash-Nyberg says.

There are some things you can to do to get your home ready for a new arrival. Depending on their ages and sexes, a certain number of kids can share a room up to a certain age, and not everything has to be set up prior to approval of the adoption. Other basic requirements include fire alarms on every floor, fire extinguishers, and medicine and alcohol locked away in a cabinet. With infants, the stairs need railings, and a proper baby gate needs to be installed.

Across Canada, there are some 30,000 children waiting for adoption. As Brash-Nyberg looks back on her journey and decision to adopt, she admits the family dynamic can be “complicated;” the joy she experienced is founded on loss, grief and trauma. “It’s also a huge sense of responsibility. You’re raising someone else’s kids,” she said.
The pictures of her to two growing children at her desk, however, are all the confirmation she needs that she made the right choices. “It’s easily the most profound and joy-filled experience of my life,” she says.

For more information about adoptions in Canada, go to www.adoption.ca.

JEREMY DEUTSCH
Lead Writer

20 Oct

NEW MORTGAGE CHANGES DECODED

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This week, OSFI (Office of the Superintendent of Financial Institutions) announced that effective January 1, 2018 the new Residential Mortgage Underwriting Practices and Procedures (Guidelines B-20) will be applied to all Federally Regulated Lenders. Note that this currently does not apply to Provincially Regulated Lenders (Credit Unions) but it is possible they will abide by and follow these guidelines when they are placed in to effect on January 1, 2018.

The changes to the guidelines are focused on
• the minimum qualifying rate for uninsured mortgages
• expectations around loan-to-value (LTV) frameworks and limits
• restrictions to transactions designed to work around those LTV limits.

What the above means in layman’s terms is the following:

OSFI STRESS TESTING WILL APPLY TO ALL CONVENTIONAL MORTGAGES

The new guidelines will require that all conventional mortgages (those with a down payment higher than 20%) will have to undergo stress testing. Stress testing means that the borrower would have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada (currently at 4.89%) or the contractual mortgage rate +2% (5 year fixed at 3.19% +2%=5.19% qualifying rate).

These changes effectively mean that an uninsured mortgage is now qualified with stricter guidelines than an insured mortgage with less than 20% down payment. The implications of this can be felt by both those purchasing a home and by those who are refinancing their mortgage. Let’s look at what the effect will be for both scenarios:

PURCHASING A NEW HOME
When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:

Current Lending Guidelines

Qualifying at a rate of 3.34% with a 25-year amortization and the combined income of $85,000 annually, the couple would be able to purchase a home at $560,000

New lending Guidelines

Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization and the combined annual income of $85,000 you would be able to purchase a home of $455,000.

OUTCOME: This gives a reduced borrowing amount of $105,000…Again a much lower amount and lessens the borrowing power significantly.

REFINANCING A MORTGAGE

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV.
The maximum amount available is: $560,000 minus the existing mortgage gives you $145, 0000 available in the equity of the home, provided you qualify to borrow it.

Current Lending Requirements
Qualifying at a rate of 3.34 with a 25-year amortization, and a combined annual income of $85,000 you are able to borrow $560,000. If you reduce your existing mortgage of $415,000 this means you could qualify to access the full $145,000 available in the equity of your home.

New Lending Requirements
Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization, combined with the annual income of $85,000 and you would be able to borrow $455,000. If you reduce your existing mortgage of $415,000 this means that of the $145,000 available in the equity of your home you would only qualify to access $40,000 of it.

OUTCOME: That gives us a reduced borrowing power of $105,000. A significant decrease and one that greatly effects the refinancing of a mortgage.

CHANGES AND RESTRICTIONS TO LOAN TO VALUE FRAMEWORKS (NO MORTGAGE BUNDLING)

Mortgage Bundling is when primary mortgage providers team up with an alternative lender to provide a second loan. Doing this allowed for borrowers to circumvent LTV (loan to value) limits.
Under the new guidelines bundled mortgages will no longer be allowed with federally regulated financial institutions. Bundled mortgages will still be an option, but they will be restricted to brokers finding private lenders to bundle behind the first mortgage with the alternate lender. With the broker now finding the private lender will come increased rates and lender fees.
As an example, we will compare the following:
A dual income family that makes a combined annual income of $85,000 wants to purchase a new home for $560,000. The lender is requiring a LTV of 80% (20% down payment of $112,000.00). The borrowers (our dual income family) only have 10% down payment of $56,000.. This means they will require alternate lending of 10% ($56,000) to meet the LTV of 20%.

Current Lending Guidelines
The alternate lender provides a second mortgage of $56,000 at approximately 4-6% and a lender fee of up to 1.25%.

New Lending Guidelines
A private lender must be used for the second mortgage of $56,000. This lender is going to charge fees up to 12% plus a lenders fee of up to 6%

OUTCOME: The interest rates and lender fees are significantly higher under the new guidelines, making it more expensive for this dual income family.

These changes are significant and they will have different implications for different people. Whether you are refinancing, purchasing or currently have a bundled mortgage, these changes could potentially impact you. We advise that if you do have any questions, concerns or want to know more that you contact a Dominion Lending Centres mortgage specialist. They can advise on the best course of action for your unique situation and can help guide you through this next round of mortgage changes.

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional

19 Oct

SELF-EMPLOYED? HERE’S WHAT YOU NEED TO KNOW ABOUT MORTGAGES

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Why, why, why it is so challenging for entrepreneurs to obtain a mortgage in Canada?
If you’re among the 2.7 million Canadians who are self-employed, regrettably your income is not as easy to document as someone who’s traditionally employed.

Since 2008, mortgage regulations in Canada have made it more challenging for those who work for themselves to qualify for a mortgage due to tighter restrictions on “stated income” loans. In 2012, Canada’s Office of the Superintendent of Financial Institutions (OSFI) introduced Guideline B-20, which requires federally regulated banks to evaluate applications for residential mortgages and home equity lines of credit with more scrutiny. These rulings made it more challenging for the self-employed to prove income.

Here’s what Self-Employed home buyers need to know:

1. Most self-employed are motivated to decrease their earnings to avoid paying tax through legitimate expenses and personal deductions.
-Therefore, much of one’s self-employed income does not show up on paper.

2. I’m sorry… but you can’t have your cake and eat it too! If you choose to write off as much of your income as legally possible to avoid paying taxes, claiming low take-home pay, you will end up paying a higher interest rate on your mortgage.
– i.e. home buyer is a tradesperson, they earn $70,000/year and legitimately write off their business expenses to $40,000/year on Line 150 of their tax return. Lenders use income from Line 150… not gross income to determine affordability.
– Some lenders allow you to “gross up” your declared taxable income (as opposed to stated income) by adding up to 15%.
– i.e. if your declared income on your Notice of Assessment (NOA) is $40,000, the lender could add 15% for a total of $46,000. In most cases this doesn’t really help the business owner, as their income is still too low to qualify for the mortgage they want.

3. The new mortgage rules mean the assessment of a self-employed applicant’s income has become far more rigorous. Lenders now analyze the average income for the industry a self-employed candidate works in, and study the person’s employment history and earnings in the field. Their stated income should be reasonable, based on:
– industry sector
– type of business
– length of time the operation has been in business

4. Work with professionals. You need to hire a qualified book keeper and a Chartered Professional Accountant (CPA). Their job is to know the ins and outs of taxes so that you can put your focus on growing your business.
– You need to keep all your financial affairs up to date. That means getting the accountant prepared financials, filing your annual tax returns and most importantly paying your taxes. Government always gets first dibs on any money. Lenders won’t be interested in you haven’t paid your taxes.
– I recommend having a discussion with your CPA. Let them know that you want to buy a home. Come up with a budget of what income you need to be able to prove on your tax returns.

Suggestion: you could choose to pay more personal income tax this year, to push your line 150 income up and help you qualify for any mortgage transactions you hope to make. Please note: most lenders will want to see 2 years history, to prove consistency in earnings.

5. For self-employed borrowers, being able to document income for the past 2-3 years gives you more lending options. Some of the documents your lender may request include:
– Credit bureau (within 30 days of purchase)
– Personal tax Notice of Assessment (NOA) for the previous two to three years.
– Proof that you have paid HST and/or GST in full.
– Financial statements for your business prepared by a Chartered Professional Accountant (CPA).
– Contracts showing your expected revenue for the coming years (if applicable).
– Copies of your Article of Incorporation (if applicable).
– Proof that you are a principal owner in the business.
– Business or GST license or Article of Incorporation

6. If you have less than 20% down payment, Genworth is the only option of the 3 mortgage default insurers that still has a stated income program.

Self-employed home buyers, who can document proof of income, can generally access the same mortgage products and rates as traditional borrowers.

Tips for self-employed applying for a mortgage to ensure the process goes smoothly:

1. Get your finances in order. Pay down your debt!!
– Every $400/month in loan payments lowers your mortgage eligibility by $100,000
– Every $12,000 in credit card debt lowers your mortgage eligibility by $100,000
– Do you see a theme here? Pay down your debt! Resist buying/leasing a new vehicle or taking on any additional debt prior to buying your home

2. 3 “Rules of Lending” what Banks look at when you apply for a Mortgage in Canada
– Debt-service ratios are a major factor in a loan-approval assessment based on your provable income (Line 150 – what you paid taxes on)
– Maintain good credit. Solving the Puzzle – 5 factors used in determining your Credit Score
– Consider a larger down-payment.
– If you run into difficulty qualifying on your own, consider having someone co-sign for your mortgage. Would a Co-Signer Enable You to Qualify for a Mortgage?

3. Have two to three years’ worth of your self-employed supporting documentation available so your mortgage broker can work with you to set up your Mortgage Preapproval.

4. Be consistent and show stability. Lenders prefer self-employed borrowers who work in a business that’s established and have expertise in that field.

What happens if the banks still don’t want you for a conventional mortgage?

Many high net worth business owners with low stated incomes turn to private mortgage lenders for financing, since they can’t prove their income.
It is difficult to navigate which lenders specialize in self-employed mortgages. Using a mortgage broker has obvious advantages, since mortgage brokers have access to multiple lenders and have a broad knowledge of the mortgage market.

If you have any questions, contact a Dominion Lending Centres mortgage specialist for help.

Kelly Hudson
Dominion Lending Centres – Accredited Mortgage Professional

18 Oct

CREDIT RATING AND DEBT SERVICING A MORTGAGE

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It is great feeling buying your first home, but for most of us the first step is preparing to get a mortgage.
Your credit rating and cash flow are based on a minimum of a two-year history.
As mortgage rules continue to change, the credit rating is becoming even more important as a higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.
Your credit is made up of many things that the lenders will look at.

Character, it is determined by:
• Paying your bills on time.
• No Delinquent accounts
• Available credit – Are you using all or most of your available credit? That is not a good thing. You are better off to increase your credit limit than to use more than 70% of your limit each month. If you need to increase your score faster use less than 30% of your credit limit, and if you need to use more, pay your credit cards off early so you do not go above 30% of your credit limit.
• Your total out standing debt is considered.

Capacity: this is your ability to pay back the loan. Capacity also covers cash flow vs debt. Your employment history. How long have you been with your current employer, are you self employed, for how long? Capacity is not what you think you can afford, it is what the lender thinks you can afford based of the debt service ratio.

Capital: how much have you saved? How much do you have for a down payment and where does it come from?

Collateral: Lenders consider the value of the property and other assets as they want to see a positive net worth. If you have a negative net worth you may not be able to get a mortgage.

Not having one of these areas in order could prevent you from getting a mortgage.
Contact you Dominion Lending Centres mortgage specialist for a free review of where you stand.

Kevin Bay

Dominion Lending Centres – Accredited Mortgage Professional

17 Oct

THE IMPACT OF MORTGAGE RULE CHANGES

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The mortgage rule changes that were passed by the Ministry of Finance in October 2016 are still having their effect one year later. Higher qualification requirements and new bank capital requirements have split the industry into two segments – those who qualify for mortgage insurance and those who don’t.

Mortgages that qualify for mortgage insurance are basically new purchases for borrows that have less than 20% down and can debt-service at the Bank of Canada Benchmark rate (currently 4.89%). Those who don’t are basically everyone else – people with more than 20% down payment but need to qualify at the lower contract rate, and people who have built up more than 20% equity in their homes and are hoping to refinance to tap into that equity.

The biggest difference we are seeing is two levels of rate offerings. Those that qualify for a mortgage insurance by one of the three insurers in Canada (CMHC, Genworth and Canada Guaranty) are being offered the best rates on the market. Those who don’t qualify cost the banks more to offer mortgages due to the new capital requirements and so are offered a higher rate to off-set that cost.
Dominion Lending Centres’ President, Gary Mauris, wrote a letter to the Prime Minister and the Minister of Finance at the beginning of October 2017 outlining the negative impact of those changes on Canadians on year later. That letter was also published in the Globe and Mail. CLICK HERE to see that letter.

But even more alarming are the rumblings being heard about another round of qualification changes that will see those who have been disciplined in saving or building equity having to qualify at a rate 2.00% higher than what they will actually get from their lender.
Where the first round of changes in 2016 saw affordability cut by about 20% for insured mortgages, this new round of changes will have much the same impact on the rest of mortgage borrowers – regardless of how responsible we’ve proven to be.

The mortgage default rate in Canada is less than 1/3 of a percent. We Canadians simply make our mortgage payments. So where’s the risk?
The new qualification rules are intended to protect us from higher rates when our current terms come to an end. But when most Canadians are already being prudent, borrowing at well below their maximum debt-to-income levels the question now is why do we need to be protected from ourselves?

The latest round of rule changes are rumoured to be coming into effect by the end of October 2017 so my word of advice to at least those who have been contemplating a refinance to meet current goals? Contact your Mortgage Professional at Dominion Lending Centres to find out your options before your window of opportunity is closed.

Kristin Woolard
Dominion Lending Centres – Accredited Mortgage Professional