Saving Up For Your Dream Home

Mortgage Tips Victor Anasimiv 14 Jun

If you’re just starting out on a journey of homeownership, the prospect of coming up with a hefty down payment can bring that trip to a quick halt. Whether you’re a young person starting out in adult life, or your income has stalled for years, putting together a five or even six-figure down payment on a home can seem virtually impossible. And while it isn’t easy with all the other costs in life, it is possible but it does take some discipline.

Mortgage brokers have seen it all. We’ve had clients living in big homes and driving fancy cars, only to find out they have nothing in their savings. On the other hand, we’ve seen clients making a below average salary with six figures in their bank accounts because they’ve been disciplined in saving over many years.

So it really depends on the person.

Regardless of what you earn, put aside 10 per cent of what you get paid. While that sounds nice, you might be wondering how that’s even possible, especially if you’re not used to saving. I’d recommend having that money put aside in an automated way. All the banks offer services that can help you force save.

Though it might feel painful at first, after a couple months you’ll get used to it and you won’t miss the extra money at all.

If you’re a saver, you’re eventually going to get where you need to be, maybe not as quickly as you’d like but if you’re a spender then you’ll likely be on treadmill to nowhere.

At the end of the day, when you get in the true habit of saving, it’s amazing how quickly that will compound and how quickly you can save a lot of money.

Now that you’re on track to save, there is another aspect you need to know about your down payment.

While this might sound contrary to conventional wisdom, a bigger down payment isn’t necessarily better, or the goal.

Sure, if you have no debt at all, put as much down as you can.

But most of us have some debt, and many of us are carrying a lot of debt and paying out hundreds of dollars a month to keep the bill collector away. You are better off putting less down and using the rest to pay off your consumer debt.

Keep in mind, every $400 in monthly payments roughly translates into $100,000 of purchasing power on a mortgage. If you can get rid of existing consumer debt, you’ll qualify for the larger amount you’re looking for without having larger down payment.

From Home A to B: Use Bridge Financing to Get You There

General Victor Anasimiv 28 Nov

Maybe you’ve met your soulmate and it’s time to move out of your studio apartment.  Perhaps baby #2 is on the way and your 2-bedroom starter home is starting to feel a bit cramped.  Or maybe you’re retiring to a big sprawling acreage in the country. Whatever the reason, it’s time to purchase a new home.  In a perfect world, most people would want to have possession of their new home before the current one sells.  The overlap allows time for painting, touchups and other renovations.  Life is not perfect though.  Unless you can qualify and afford to pay two mortgages, typically, the down payment for the new purchase is coming from the sale of the current home.  If the sale closes after the purchase and funds are needed in the interim, that’s where bridge financing comes in.

Bridge financing allows you to bridge the financial gap between the firm sale of your current home, and the firm commitment to purchase your new home.  The key word here is FIRM.  In order to secure bridge financing, all subjects must be removed from the sale.  Without a firm sale, a lender can’t accurately determine how much equity you have available to go towards the new purchase.

You will want to make sure that your new lender is a lender that does in fact offer bridge financing.  And that’s the benefit of working with a mortgage broker.  I have access to a wide array of lenders, as well as first-hand knowledge of which lenders will offer bridge financing.  The cost of bridge financing can vary between lenders, but has two components: an administrative fee plus interest charged on the loan.  The interest rate will be higher than for a traditional mortgage, but you’re paying for the convenience, and ideally the bridge financing will only be in place for a short period of time.  You can expect a rate somewhere around prime + 2 to 4% (prime = 3.2% at the time of this writing).  The maximum term of the loan will also vary from lender to lender, but is typically between 30-90 days.

Upon approval, the bridge loan proceeds are advanced “in trust” to your solicitor, along with instructions from the lender to ensure that the required net proceeds of sale of the existing home are directed back to the lender to repay the bridge loan.

Now, what happens if your home doesn’t sell?  That’s why the lender requires a firm sale agreement with subjects removed in order to qualify for a bridge loan.  If you don’t have a firm selling date and can’t wait any longer to complete the purchase, you may need to explore private financing.  This option can be more expensive as there are lender and broker fees charged and the interest rates are much higher.  Though expensive, it could be cheaper than lowering the sale price of your existing home just to get the sale.

 

No two mortgages are created equal, and this is even more true for bridge loans & private financing.  There are a lot of differences between lenders and it can take a lot of work sorting through everything.  Save your time and get a mortgage broker like me working for you.  If you have any questions about bridge financing, or any other mortgage-related questions, give me a call today.

Home Inspection – Definitely worth the money!!

General Victor Anasimiv 14 Nov

When purchasing a residential property, one of the more common conditions seen in a purchase contract is the buyer obtaining and being satisfied with a property inspection, which should be conducted by a certified home inspector.  The inspector’s job is to provide information about the building being purchased. This information helps the buyer decide if the home or building is worth purchasing or if there are major defects that could effect the purchase decision negatively.  A thorough home inspection will cover almost every aspect of the home and any other buildings on the property.  Structural elements, roof, full interiors & exteriors, & plumbing, electrical & heating systems are some of the components that should be inspected.  Even the attics & crawlspaces will be inspected by a good quality inspector.

Upon completion, the inspector should provide you with a thorough report, complete with pictures, that has a section devoted to each system or structure in your home.  If there are any deficiencies, they would be noted here, as well as how severe they are and how they can be remedied.

As far as protecting the buyer’s interest, a thorough home inspection is probably one of the most important steps when purchasing a home.  But unfortunately, they can be overlooked in a buyer’s rush to get an accepted offer.  Take for example, the bidding wars on residential properties currently happening in Canada’s largest cities.  Prospective buyers have been forfeiting their right to a home inspection as they place subject-free offers in order to avoid rejection.  Yet giving up your right to a home inspection could potentially result in repairs that could cost thousands of dollars.  This is a mistake that can easily be avoided.

An inspection is important whether you’re buying your own home or even an investment property.   An investment property should be making money, not losing it.  It would be unfortunate to purchase a rental property with no inspection done, to find out a couple months later that the roof needed to be replaced.

Similarly, for sellers, pre-listing inspections can be just as beneficial.  They can be used as a bargaining chip.  If a seller gets an inspection done beforehand, they may be able to get a higher asking price.  If any deficiencies arise, the seller can decide if they want to repair it or not.  Even if they decide not to do the repairs, being transparent about any issues could provide additional negotiating power.

As with any service, it’s good to shop around.  Have a quick chat with a couple inspectors.  Ask your realtor to suggest a good referral.  Compare fees.  Regardless, make sure you get one if you’re purchasing a new property.  In the long run, it will probably pay off.

 

The Purchase Process – What are My Closing Costs?

General Victor Anasimiv 24 Oct

When it comes time to get serious about purchasing a home, it’s important to do your homework and make sure you have a team of knowledgeable professionals working with you:  a realtor familiar with the area in which you’re shopping around, a notary or lawyer who can work around your schedule, and a mortgage broker who understands your needs and has helped you with the pre-qualification process.

Perhaps you’ve saved up enough of your own money for a down payment.  Or maybe you’re being gifted the funds by a generous family member.  Regardless, in addition to down payment funds, you must also have money set aside for closing costs.  Total costs will vary according to the transaction, but your mortgage lender will want to know that you have additional money on the sidelines to cover these costs.  Some lenders will require proof that you have 1.5% of the purchase price available for closing costs, especially if it’s a high-ratio purchase (less than 20% down).  So an important part of the homework leading up to purchase time is gathering estimates of any fees & costs that may be applicable to you.  The following is a list of potential, but not exhaustive, closing costs you may encounter upon completion of your purchase.

Mortgage default insurance

You may be more familiar with the terms CMHC or Genworth insurance, as they are the largest mortgage insurers in Canada, with Canada Guaranty being the third.  Mortgage default insurance provides protection to your lender if you happen to default on your mortgage.  If you are putting less than 20% down, your mortgage is known as a high-ratio mortgage and subject to a mortgage default insurance premium.  The premium is calculated as a percentage of the mortgaged amount and the percentage will vary based on the total down payment.  For example, if you put between 5 and 9.99% as down payment, your insurance premium is calculated at 4% of the loan amount.  If you can manage a down payment of 10 to 14.99%, the premium drops to 3.1%.  You can opt to pay the insurance as a lump sum, but the majority of borrowers simply have the premium added to the mortgage amount and amortized with the rest of the loan.

Property transfer tax

In B.C., when you purchase or gain an interest in a property, you’re responsible for paying property transfer tax.  The tax is based on the fair market value of the property at the date of registration, unless you qualify for an exemption, which can be granted under certain conditions to first-time home buyers or buyers purchasing a newly built home.   In B.C., the tax is charged at a rate of:

  • 1% on the first $200,000;
  • 2% on anything over $200,000 up to and including $2 million; and
  • 3% on anything over $2 million.

For example, if the fair market value of a property is $600,000, the tax owed will be $10,000.

GST

Newly built homes are subject to GST at purchase. There are rebates and exemptions available and your solicitor should calculate the amount payable for you.  The GST is added to the purchase price, less any rebates.  Your down payment will be calculated based on this total purchase price.

Home insurance

This insurance must take effect from the moment you are the owner of your home. Certain types of properties can be more challenging to insure and it’s always a good idea to research the property you’re interested in purchasing to see how much insurance will cost.  Some lenders, such as local credit unions, will require additional earthquake insurance.  Home insurance typically costs around $1,200 per year, but costs will vary depending on the type, location and any unusual characteristics of the property, such as outdated construction materials.

Home inspection fee

The purpose of a home inspection is to ensure you are making a sound investment. A good home inspection should cover nearly every element in and around a home and other structures on the property. Roofing, full exteriors, structural elements, full interiors, plumbing, electrical, heating and air conditioning, and all of the components of these are subject to inspection. It is a good idea to do your research before hiring a home inspector. Your realtor may be able to recommend someone, or you can check with friends or family to see who they have used. A good home inspector will spend three to four hours going over your home, then spend time with you explaining his/her findings. Inspectors provide a written report documenting any concerns that need to be addressed. You can expect to pay $400-$500 for an inspection.

Appraisal fee

An appraisal is not the same as a home inspection.  While a home inspection is more for your own peace of mind, your lender may require an appraisal to confirm fair market value. Most lenders will pass the cost of an appraisal on to you. Depending on the location and complexity of the property, an appraisal can cost anywhere from $300 to $1,500. Some lenders have an internal valuation system they use with the intention of bypassing the appraisal requirement.  If the property passes this test, there is usually a much smaller fee associated with it.

Title insurance

Title insurance is mandatory with most lenders.  The price can vary based on property value, but is typically about $250.  In addition to protecting against title fraud, this insurance will protect the lender from various issues with the property, such as violations of municipal by-laws or encroachments onto an adjoining property.  It’s important to note that this insurance is for the benefit of the lender. Homebuyers can purchase an additional personal policy if the choose.  It is relatively inexpensive if the two policies are purchased together.

Legal fees and disbursements

On a straightforward transaction, legal fees typically run about $1,200-$1,400. Your solicitor will also calculate any money that is owed to the seller for your portion of items that have been paid in advance, such as municipal property taxes or utility bills.

As your mortgage broker, I will do my best to make sure you’re aware of any potential fees or additional costs that might be encountered.  But with a bit of preliminary research and discussions with your realtor, you can be sure that you’ve put enough money aside so there are no last-minute surprises during the purchase process.  Prior planning prevents poor performance!  Let me help take the stress out of the process.  Call me today!

Advice for Single Home Buyers

First Time Home Buyers Victor Anasimiv 6 Jun

Advice for Single Homebuyers – by Marc Shendale, Genworth Canada

Of all first-time homebuyers in Canada, more than a third are single.  If you’re single and looking to make the jump into home ownership, the following information will serve as a convenient ‘To Do’ list to get yourself ready.

Study the market

Figure out where you want to live.  City?  Suburbs?  Country?  Get an idea of what places are selling for in your desired neighbourhoods.  A good realtor with knowledge of the area can help with that.  Next, figure out how much you can afford, and this is where my services come in handy. Remember to include estimates for property tax, utilities, insurance and any other expenses you don’t pay as a renter (condo fees, for example).

Assemble your team

A home purchase should involve financial, legal and real estate professionals.  Especially if you’re a first-time home buyer.  Buying privately is always an option, but there a lot of nuances that can get lost in the process.  As a buyer, realtors and mortgage brokers typically don’t cost you anything, so it’s in your best interest to enlist their services.

If you don’t already work with a financial advisor, consider scheduling an appointment. Reviewing your entire financial picture—debts and assets, insurance and investments, as well as budgets—is something that a professional can help you understand and offer strategies to improve, based on your goal of home ownership

Create a game plan

Before you start looking at specific properties, you should probably get a copy of your credit report, available through Equifax (equifax.ca).  A lender will want proof that you can demonstrate good credit management.  If you have a history or late or missed payments, or if you have multiple credit cards with balances very close to or over their limit, this will affect your chances for qualification. If that’s the case, start a plan now to improve your situation. Pay down those balances.  Keep on top of regular payments. A quick caveat…there is no quick fix for a credit report. Beware of companies that offer to “repair” your credit for a fee.

Cut back on expenses as much as possible before making a home purchase. Why? Finalizing the purchase involves closing costs that need to be paid before you’ll get your new keys. Homeownership will also bring new on-going expenses, such as property tax and utilities, so it’s good to have some cash saved up on the sidelines.

A couple months out, test yourself.  Subtract your current housing costs from the anticipated new home living costs and put the difference in a high-interest savings account.  If you can continue to get by without accessing the funds put aside, then you are likely in good shape.

Consider help from family

More often these days, first time home buyers are using the bank of mom and dad to come up with a down-payment.  And that’s not a bad thing.  If you have someone willing to gift you all or a portion of your required down-payment, that can make the difference between owning your own home and still renting your tiny studio apartment.  Except in the case of some self-employed borrowers, most lenders will allow the entire down-payment to be gifted, as long as it is from an immediate family member – parent, sibling, grandparent or child.

Protect yourself

While you may be single when you purchase the home, perhaps the stars align and you find that special someone a few years in.  If you start a relationship and allow another person to move into your home, that person may eventually have legal rights in relation to your home. How does that happen? If you live together long enough, you and your partner may become common-law. When do you and your partner go from couple to common-law?  In BC, once you’ve lived together for two years, you’re common-law.  If you have kids together, you’re common-law.

How can first-time homeowners protect themselves? With an honest conversation about expectations and specific responsibilities. The main question is what will happen to the home if you split up? Consider a cohabitation agreement (again, with the help of a lawyer) to cover everything you agree to verbally.

Make sure to also outline the nitty-gritty details of day-to-day finances: how will you split the regular bills and when will they be paid? Which one of you will be responsible for making sure those payments are made on time?

There’s a lot to think about when you’re ready to purchase a home.  Please contact me today and let me help you sort it all out.

Purchase Plus Improvements

Mortgage Tips Victor Anasimiv 16 Mar

If you’re currently on the hunt for a new home but can’t find exactly what you are looking for, you’re not alone. While ideally, you’re looking for your dream home, what you find might not match what you have in mind.  Why not think about buying a fixer-upper? With a few minor renovations, you might be able to turn a potential property into a dream.

There is a mortgage product available called Purchase Plus Improvements (PPI). Under a PPI the lender is able to provide additional financing to improve the subject property. This type of mortgage is available to assist buyers with making simple upgrades such as paint, flooring, windows, hot-water tanks, new furnaces, new roof, or basement finishing.  This product would not be suitable for major renovations where structural modifications are made.

The program has a few requirements:

  • There is a maximum limit to amount of funds that can be borrowed.  It varies lender to lender but it’s typically between 10%-20% of the ‘as-complete’ value
  • Minimum down-payment is still 5%, but is now calculated based on this ‘as-complete’ value
  • Quotes for work to be completed must be provided at the time of application for mortgage approval.
  • Portion of funds for the improvement are held back.  You will have to cover the cost or have your contractor/builder put it on account until work is completed
  • Renovation are to be completed within 90-120 days (varies by lender)
  • A third party (appraiser) must verify completion
  • Once the renovation is complete and verified, the lender will instruct the solicitor to release the improvement funds

A PPI Example:

  • Purchase price: $400,000
  • Value of renovations as per prepared quotes: $30,000
  • As-improved value: $430,000 (the new purchase price)
  • Minimum down payment: $21,500 (5% of the new purchase price)
  • Net mortgage amount: $408,500
  • Mortgage default insurance premium (with a 5% down payment, premium is 4% of loan amount): $16,340
  • Total mortgage amount: $424,840
  • Monthly mortgage payment: $1,944 (assuming an interest rate of 2.69%)

Many would typically consider accessing a line of credit for these renovations.  But it can be a daunting task to seek a mortgage plus a second type of financing to complete renovations, so why not opt for the PPI option?  Assuming the interest rate on the line of credit is 7.5%, your interest-only payments on $30,000 would be $185/month.  Why not roll that amount into your mortgage principal.  Doing so will save you about $50/month in interest costs alone.

This type of product is also available with refinances, with certain limitations.  With all the different types of mortgages out there, be sure to contact your local Dominion Lending Centres mortgage professional – that’s me! – so I can explain how “we’ve got a mortgage for that”!

Thinking Outside a Smaller Box with the New Mortgage Rules

First Time Home Buyers Victor Anasimiv 9 Mar

Not all mortgages are created equal.  That has always been true, but is even more so after the government changes made to mortgage default insurance guidelines in late 2016.  As we approach the end of the first quarter of 2017, Mortgage Brokers and lenders are still adjusting to the new risk-based mortgage rate pricing that came into play as a result of these changes.

On a high-ratio purchase (less than 20% down-payment), borrowers are required to pay a premium for mortgage default insurance.  Even if more than 20% is used as a down-payment, lenders still often choose to pay for the insurance themselves. Doing so protects a lender’s book of business against credit loss, helps them package more secured mortgages together to sell to investors and reduces the amount of capital they are required to maintain. In the mortgage industry, this practice is called back-end insuring.

The changes announced in October & November of last year have greatly limited the mortgages that lenders are allowed to insure using government-backed insurers. Essentially the government is passing the perceived risk on to lenders by implementing far more stringent guidelines for qualifying for this insurance and limiting mortgages that can be insured to what they consider lower risk “inside the box” mortgages.

I used the phrase ‘perceived risk’ because it should be pointed out that default rates on mortgages in Canada are incredibly low. As of January 2016, only 13,216, or 0.28% of Canadian mortgages, were in arrears.  Less than half of 1%! In any case, the onus has been placed on the lender to absorb more costs if a borrower defaults. In the end, these costs are passed on to borrowers by lenders applying higher rates to less secured mortgages.  The effect this is having an the Canadian public is two-fold.  First, it increases interest rates, merely based on speculation with no supporting data.  And furthermore, it prices smaller lenders out of certain subsections of the mortgage market.  This decreases consumer choices and competition, which can only serve to increase rates further.

These days, if you’re looking for a mortgage, your circumstances may not fit “inside the Box” as this box seems to be shrinking more and more. The following is a list of guidelines that must be satisfied for a mortgage to be considered an insurable mortgage (by no means an exhaustive list and is subject to change):

  • Maximum amortization of 25 years
  • Must qualify by using a stress test. Even though your mortgage contract rate may be 2.69%, you will have to qualify at 4.64%, the Bank of Canada benchmark rate.  This stress test decreases your purchasing power by about 20%
  • Maximum Gross Debt Service Ratio of 39% (shelter expenses as a percentage of gross income)
  • Maximum Total Debt Service Ratio of 44% (all liabilities – shelter plus other debts – as a percentage of gross income)
  • No refinances
  • No single unit rentals
  • Purchase price must be less than $1 Million

As you can imagine, this severely limits the type and number of mortgages that would be considered insurable and eligible for better mortgage interest rates. All mortgages are definitely not created equal in 2017 and it’s more important than ever to have a chat with me, a licensed and thoroughly educated mortgage broker.  As my client, I will help educate you on all the recent changes and come up with a mortgage solution to what could now be an “outside the box” uninsurable mortgage. Whether you’re refinancing, you need an amortization over 25 years, or you want to buy a single-unit rental, we have a mortgage for that!

Contact me today to get started on your mortgage approval! 250-338-3740 or anasimiv@gmail.com

Maximizing RRSPs for Down Payment

First Time Home Buyers Victor Anasimiv 28 Feb

When buying a home, contributing to your RRSP can help you increase your funds available for your purchase. Follow the 7 steps below so you can maximize your available funds to purchase your first home.

Step 1: Check to see if you fit all the Home Buyers’ Plan (HBP) requirements at www.cra-arc.gc.ca/hbp/. If you do continue to the next step.

Step 2: Consult with me, Victor Anasimiv, to review your credit and income and plan ahead so you are mortgage ready. I will help you figure out what you qualify for as well as help you navigate all the first-time home buyer programs such as the new BC Home Owners Mortgage and Equity Program.

Step 3: Contribute to your RRSP to top it up to $25,000 (check your contribution room to confirm the maximum you can contribute) for each buyer. Contribute to the highest income earners RRSP first to maximize your tax refund. If you don’t have the cash to contribute, then it may be beneficial to borrow funds to contribute to your RRSP but talk to your mortgage broker first to ensure your credit is in line to do so.

Step 4: Do your taxes as soon as possible so you can get your tax refund in your bank account.

Step 5: If you didn’t maximize your RRSP to $25,000 put your tax refund into your RRSP (highest income earner first) to help reduce your taxes next year.

Step 6: Now that your funds are in your accounts review your options with me.  Be sure to let your RRSP contributions stay in your account for 90 days for the withdrawal to qualify under the HBP.

Step 7: Begin searching for your first home. Be sure to plan the closing date to be after the minimum 90 days required for the funds to be in your RRSP and allow time for funds to transfer out of your account.

Important 2017 Dates:

March 1 – the 2016 RRSP Contribution Deadline

February 20 – the first day you can file your 2016 income taxes

May 1 – the deadline to file your taxes if you are not self-employed

April 30 – all income taxes must be paid to CRA by all tax payers

June 15 – the deadline to file if you are self-employed

Other important bits of info:

Funds withdrawn from your RRSP before they have been in your account for 90 days are not eligible under the HBP and income tax will be withheld from the withdrawal
You can use your RRSP withdrawal for anything related to the cost of buying or building your first home, as long as you’re in a contract to purchase your first home
You must repay the withdrawal amount over 15 years starting the second year following your withdrawal.  Any amount of required 1/15th not repaid will be added to your income on your tax return.
As your Dominion Lending Centres Mortgage Professional, I can help you plan to buy your first home. It’s never too early to start your mortgage application. Contact me today to get started!