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A Better Way To Home Ownership
2019 Spring/Summer Digest. Get Financially Fit.
- What #HomeGoals cost accross Canada
- How to get from financial dreamer to doer
- What does affordability mean?
and much more..
2019 Spring/Summer Digest. Get Financially Fit.
and much more..
Just like all major adult milestones, buying a home requires a lot of paperwork.
There are offers to make, agreements to read, and contracts to sign. Once the seller accepts your offer to purchase, you’d think the volume of paperwork would ebb, and you’d be wrong.
Now you’ll need to apply for a mortgage, which requires its own small mountain of documentation.
You’ll need to provide at least a dozen types of documents during the mortgage approval process. Some of them are obvious, like your credit report and a list of your current assets, while others might come as a surprise. Here are three key aspects of the mortgage approval process that require documentation.
These documents are non-negotiable and could make or break your mortgage application, so it’s a good idea to start tracking them down well in advance.
When you purchase a home, you must have a minimum down payment of at least 5% of the purchase price.
This money can come from a variety of sources, including your savings, a gift from friends or family, or by using the Home Buyer’s Plan, which allows you to withdraw up to $25,000 from your Registered Retirement Savings Plan (RRSP) to use as a down payment.
While your down payment can come from a variety of sources, you do need to prove the origins of your money. If you are using your savings, you’ll need to furnish your mortgage broker with 90 days of account statements.
You must include a list of explanations for any irregular deposits during that time including proceeds from vehicle sales and wedding gifts.
If your friends or family are providing you with a monetary gift to go towards your down payment, they will need to explain that gift by providing your mortgage broker with a gift letter. A gift letter should include the name of the gift giver, the name of the recipient, the total amount of the gift being received, along with confirmation that the gift is genuine and there is no expectation of repayment. Finally, the gift letter should stipulate that the gift is not supplied by anyone with an interest in the sale of the home you are purchasing.
If you are using the HPB to help fund your down payment, you’ll also need copies of T1036 form that you submitted to the bank to make that withdrawal.
Transactional documentation for a mortgage includes information about the actual home you are purchasing. Your transactional documentation should include a copy of the original listing, along with the original offer and any counter offers. Your real estate agent should provide this information to your mortgage broker on your behalf, but that doesn’t always happen, so it’s a good idea to prepare this information yourself.
The transactional documentation is required to make sure the purchase is compliant with Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which aims to prevent fraudulent real estate transactions.
Beyond preventing crimes, your lender also needs this information to verify that you aren’t overpaying for the home, which protects the lender in the event you default on your mortgage. In some markets, the transactional documentation may be insufficient, and your lender may require a professional appraiser to verify the fair selling price of the home.
Finally, your lender will want to verify your income. If you have a full-time job, you’ll need a few documents including your T4 from the previous tax year and two recent pay stubs.
The other piece of documentation that you need is a letter from your employer confirming your employment and salary. Depending on how responsive your employer is, this letter could take some time, so it’s best to secure it as early in the home buying process as possible.
If you are self-employed, you’ll need a different set of documents. These documents are meant to prove your income from sources other than an employer. To prove your income as a self-employed person, you’ll need two years of Notice of Assessments (issued by the Canada Revenue Agency after you file your taxes) and two T1 Generals, which is the PDF file that is created and submitted to the CRA when you file your taxes online or with an accountant.
It’s important to note that the only income with a paper trail can be verified, so if you have a side job that you are compensated for with cash and don’t claim on your income tax return, that income will not count.
While not a necessity for every home, many rural homes will require extra documentation because they aren’t on municipal water and sewer lines. For example, a rural home may use its own water well and septic system. Your lender may require systems to be inspected by a third-party company, and the well water may need to be tested to ensure it is suitable for consumption.
While this additional documentation may seem onerous at the time, keep in mind that these additional inspections are designed to protect your investment as well as your lender’s. The last thing you want is for your home’s well water to be unsuitable for consumption, or for the septic system to require replacing!
Whether you are just getting started with the home-buying process or you are already well underway, it’s never too late to start getting your documentation in order. A ClearHome mortgage broker will furnish you with a list well in advance, so there will be no surprises when it comes time to move forward with your home purchase.
by Garry Marr
The traditional face-to-face approach of real estate agents and mortgage brokers is getting a little closer to extinction, according to a new study that suggests online shopping is taking over those sectors, too.
The report from HSBC Bank even goes one step further and suggests the day may be coming soon when consumers will be able to test drive their homes for a few days — albeit on a virtual basis.
“New technologies are poised to transform the way people buy a home,” says the bank in an international study on home ownership called Beyond the Bricks.
James Dearsley, a PropTech expert based in the United Kingdom quoted in the report, suggests the days of physically visiting an agent’s office may be almost over.
“Virtual reality will allow home buyers to live in a virtual version of a home for several days to truly try before they buy,” says Dearsley.
Jonah Brotman, 32, who founded the House of VR in Toronto about six months ago with his brother, says about 90 per cent of Canadians have not had any virtual experience and the lack of access to virtual technology is probably the main obstacle to a change in real estate habits.
“Entertaining and gaming is the first vertical that has succeeded in the VR space,” he says. “But the technology is incredible and will be a game changer in many industries. Real estate is one industry that has picked up that.”
Within real estate, it is new projects that are dominating the VR space because customers can be put in a headset before a project is built and virtually walk around their future unit – and even make design changes to it. “The person can be in a headset and decide if they want the countertops say marble or granite.”
The HSBC study looked at three key elements of home-buying, researching property, financing and then actual contact with an agent for purchasing. The bank said funding of disruptive property technology, so-called PropTech firms, has jumped from US$221 million globally in 2012 to more than US$2 billion in 2016.
Looking at the United Kingdom, Canada, Australia, France, the United States, Malaysia, China, Mexico and the United Arab Emirates, it found on average among those countries 83 per cent of recent buyers had searched for their home online. In Canada, the figure was 90 per cent.
Bob Faulkner, the owner of Vancouver-based Metropolitan Fine Printers, says about 40 per cent of his clients who are building major projects are looking for a virtual tour as part of their solution.
One of the problems that he has encountered with headsets is health concerns because people don’t want to put something around their eyes that has been used by another person. His company has switched to iPads and iPhones to create a tour.
“It’s early days of the technology but when you do get it, there’s a real wow factor to it,” said Faulkner, adding one of the restrictions is just the cost of creating an app for your project and then getting people to download it. “The last thing most people want is another app on their phone but for some of our offshore clients this allows them to tour a condo through their smart phone. They can walk through that condo, see the view from the floor, look out and see the view to the mountains.”
He said development costs for that virtual experience are anywhere from $50,000 to $150,000 so applying it to individual homes seems unlikely today.
“The cost just doesn’t make sense, it has to be a big enough development,” said Faulkner. “And it really has to be a realistic experience.”
The HSBC study also looked at financing and found 74 per cent of Canadians had researched their options online and 77 per cent had used online tools to determine what they could afford.
Rob McLister, the founder of ratespy.com, said Canada has been a little behind the curve when it comes to consumers completing a transaction online.
“The trend is starting to pick up steam but we are nowhere near the point where the average (person getting a mortgage) is going to close a mortgage online,” he said. “It is changing. You have banks promoting an end to end no human being mortgage process. You can apply online, upload your documents. You can do everything but sign the paperwork with a lawyer.”
It’s all leaving mortgage brokers fighting to keep clients and that means fewer profits. “They are taking their commission and giving over half of it away to consumer through rate buy downs or cash back,” said McLister, explaining why some of the online mortgage sites have discounts you usually don’t see at a bank.
The survey found in Canada that 39 per cent of respondents were dealing with agents completely or mostly offline but 29 per cent were dealing with their realtors completely or mostly online. The remaining 32 per cent used a combination of meetings and online contact.
At the Ontario Real Estate Association’s town hall meeting Thursday, technology was high on the list of issues the group said it has to tackle.
“We believe that technological disruption currently possesses the biggest risk to the livelihood of realtors,” said Ettore Cradle, president of the group, promising to work to enhance realtor access to technology and innovation. “Technology is changing everywhere. It is changing the way business happens. And real estate is not by any means an exception.”
The rise in online shopping is no surprise considering HSBC found that in Canada 27 per cent of respondents cited dealing with people as their biggest pain when buying a home. Fees were the second major pain at 23 per cent, followed by negotiating the price at 22 per cent and understanding the legal work at 20 per cent.
Dearsley says “artificial agents” may become the wave of the future as consumers look for a smoother and easier transaction.
“The traditional role of the estate agent is ripe for reinvention, as we are already seeing through the rise of online do-it-yourself platforms that allow homeowners to market their own properties and negotiate directly with sellers,” he says. “All houses may be sold this way in the future, with property websites offering end-to-end marketing, search, financing, negotiation, transaction and conveyancing services that significantly reduce the time and hassle for homebuyers.”
The research for the study was conducted in October and November and represents the views of 9009 people in nine countries. In Canada, 1000 people were interviewed.
Home Trust is getting a beat down it doesn’t deserve. The underlying numbers from the company are fine and when dealing with them over the years, they are by no means “wreckless” in their underwriting practices! So they had some rogue brokers who were caught doing fraudulent applications… is everyone naive enough to think this ONLY happened at Home Capital?
Finance Minister Morneau’s budget includes many new infrastructure spending initiatives that will support our economy and help continue our growth, albeit controlled, with a view to the long-term success of the country. His budget is focused on middle-class families, seniors and veterans, helping the less fortunate, committing to a clean economy, and strengthening relationships with indigenous peoples.
Here are a few highlights that specifically affect the mortgage and housing sectors:
We will continue to monitor the discussions that result from the budget announced today and keep you informed of further developments.
by Andrew Furino – Radius Financial
Maximum Affordability Assumptions: $80k family income, heating costs $100, property taxes 4000
GDS 34 / TDS 42 at 3.0% – no other debt obligations
Refinance $300k property value and same criteria above
A summary of the Federal Governments intervention in the Residential Mortgage Market:
Prior to First Intervention:
OSFI mortgage underwriting guidelines B-20 implemented Oct 2012 to Mar 2013:
September 2008 maximum affordable mortgage $476,304
March 2013 maximum affordable insured mortgage with 5 year term $359,221
March 2013 maximum affordable insured mortgage for other than 5 year term $301,373
March 2013 maximum affordable conventional mortgage 5 year term $404,181
March 2013 maximum affordable conventional mortgage for other than 5 year term $329,887
Biggest overall reduction is restricting insured mortgage to 25yrs and using benchmark for other than 5 year term. A total erosion of $174,931
We have been advised that one of our lenders are reducing their Variable Rate Discount to ZERO. Meaning their Variable Rate will be Prime (2.70%) with no discount. Most other lenders are still offering a discount of .30%-.50%. This could be sign of the times.
Their reasoning is below:
Just to give you some insight as why these changes are happening is because the bank is trying to bring a better balance between the deposit portfolio and the credit portfolio, as well as dealing with Basel III liquidity requirements along with new sets of rules that are coming on capital requirements from the Federal Government for banks with Mortgage portfolio
While this isn’t the largest bank in the country, it is still interesting to note their reasons for this. Stay tuned.
The Bank of Canada has kept its key interest rate at 0.5 per cent, opting to wait and see how the economy performs over the next few months before moving to stimulate activity with another cut.
Governor Stephen Poloz’s decision comes against a backdrop of low oil prices, a tumbling Canadian dollar and grim prospects for economic growth. There were some expectations that Poloz would cut the rate given recent downward revisions to economic forecasts.
Poloz dropped the rate twice last year to help absorb the impact of sliding oil prices, but crude has since fallen even further, hovering below US$30 a barrel in recent days.
“Prices for oil and other commodities have declined further and this represents a setback for the Canadian economy,” the central bank said in a statement.
Canada’s central bank is responsible for influencing interest rates charged by private banks and lenders, as well as managing other high-level monetary matters to keep the financial system and broader economy stable.
Despite the deterioration in economic conditions the central bank is sounding relatively upbeat, experts say.
“The text accompanying the decision continues to sound fairly optimistic,” Nick Exarhos, economist at CIBC World Markets, said.
Economic growth continues to shift away from the energy sector toward others, namely exporters and manufacturers, the bank said.
The “protracted process of reorientation towards non-resource activity is underway,” the bank said, “helped by stronger U.S. demand, the lower Canadian dollar, and accommodative monetary and financial conditions.”
“National employment remains resilient despite job losses in the resource sector and household spending continues to expand.”
The bank now expects the economy to grow by 1.5 per cent this year, while expansion moves to 2.5 per cent in 2017. But those outcomes are from certain, and will require a more meaningful pick up among non-energy exporters, experts say.
“The complex nature of the ongoing structural adjustment makes the outlook for demand and potential output highly uncertain,” the central bank said.
You may of heard that RBC raised their mortgage rates slightly last week. Well the other Big Banks are following as Scotia announced a hike shortly thereafter. That being said, rates are still REALLY low. Here’s a good article from the Financial Post.
by Garry Marr | January 11, 2016
Banks have started shaving the discount available on variable rate mortgages, but that doesn’t mean it’s time to lock in your mortgage just yet.
Royal Bank of Canada raised rates across the board last week and part of the shift included a drop in the discounting of its variable mortgage tied to the prime lending rate, which generally tracks the Bank of Canada’s overnight rate.
What it means is that instead of rates as low as 2.2 per cent, based on a 50-basis-point discount that some banks were giving last year, new customers who opt for a floating-rate product will get a 10-basis-point discount off the current prime rate of 2.7 per cent, which translates to a 2.6 per cent rate.
To be clear, by historical standards, these rates are still incredibly low. The option to lock in your rate also remains on the table, as it should, considering that even after a 10-basis-point increase, the five-year closed fixed-rate at RBC is 3.04 per cent.
“We kind of chuckled when they raised rates because we have some lenders dropping rates, said Vince Gaetano, principal broker and owner of MonsterMortgage.ca, adding that there are lenders working through mortgage brokers still offering a 50-basis-point cut off prime for a variable product.
Gaetano maintains that the banks make less money on variable-rate mortgages compared to people locking in their loans, adding that of the 50 basis points in cuts from the Bank of Canada last year, only 30 basis points have been passed on to the consumer.
“The big banks are trying to move people out of the variable (and get them to lock in),” he said.
Based on several decades of research, variable-rate consumers generally save more money compared to those who lock in, with the downside being that they give up the security of a guaranteed rate for the period of their contract — a key consideration in a rising rate environment.
But this time around, with discounts shrinking, there is something further to consider: If you have a discounted variable-rate mortgage — older products shaved as much as 50 to 80 basis points off prime, Gaetano said — you are giving up a product not even available today.
If the overnight lending rate potentially heads lower, those consumers could benefit from banks lowering their prime rate. But, no matter what, they’ll be keeping their huge discounts.
David Madani, Canada economist with Capital Economics, suggested Friday he thinks it’s possible the Bank of Canada will have a surprise rate cut this month. He doesn’t think any of the reduction will be passed on to consumers — a stance the banks initially took in 2015 before relenting and handing over 60 per cent of the rate reductions from the Bank of Canada.
One reason for the higher interest rates has been the increased costs to the banks from new rules, including higher capital requirements and increased fees from Canada Mortgage and Housing Corp. for securitizing loans.
David Stafford, head of Bank of Nova Scotia’s real estate lending division, said increases in short-term lending rates drove Scotiabank’s decision to match RBC’s reduced discount on variable.
“The spreads were narrowing and that causes us to raise rates,” he said.
Stafford said there are still enough savings going on with variable that he expects some consumers to continue to opt in that direction — usually it’s about 35 per cent of the market.
“It’s all about the math,” said Stafford, adding that the costs of breaking needs to be measured against what savings you’ll garner. “The whole question about fixed versus variable is an advice conversation and it depends on your personal situation.”
A variable rate mortgage has the advantage of being broken by just paying three months interest.
Calum Ross, a Toronto mortgage broker, said the temptation to lock in now is strong and for most people, who can’t be bothered to stay up to date on interest rates, it makes sense.
The one exception might be those people with “artificially” low rates from deals negotiated when the banks were heavily discounted.
“Keep it if you feel comfortable,” said Ross, adding the caveat that anyone with a variable-rate mortgage needs to be able to afford an increase in rates if that happens too.