How to get a bullet proof mortgage pre approval?

In a hot market like we are in right now, mortgage pre-approvals have become front and centre…particularly, the quality and legitimacy of them. Here in Vancouver (and I am certain in Toronto as well), buyers are placing offers with no financing conditions…and even though I strongly advise against it, I continuously keep on getting subject free offers, one after another. So at the very least, my goal with this blog post is to make sure that people realize that the more work you put into the pre-approval process, the smoother and less stressful your time-restricted purchase process will be.

Step 1 - Get your credit score where it needs to be and deal with any issues you currently have

Step 2 - Have your down payment funds confirmed and ready to go

Step 3 - Understanding and selecting the right mortgage product for YOUR particular circumstance

Step 4 - Accept the fact that you will have to provide a large amount of documents

Step 5 - Get it all on Paper

Step 6 - this is for people who are considering placing a subject free offer…HAVE A BACKUP PLAN IN PLACE

Step 7 - You are now ready to shop for a home!

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Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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Did you know? Approximately 15% of Canadians are self-employed, making this an important segment in the mortgage and financing space. When it comes to self-employed individuals seeking a mortgage, there are some key things to note as this process can differ from the standard mortgage.

For self-employed individuals with an established business seeking best rate financing, the business must have a minimum two years of history. This includes self-employed applicants who own a full or part-time business in the form of sole proprietorships, incorporations, and partnerships.

In order to obtain a mortgage when self-employed, most lenders require your most recent 2 years of Personal Income Tax documents; Notice of Assessments and T1 Generals. Typically, individuals who can provide these documents - with acceptable income levels – should have little issue obtaining a mortgage product and rates available to the traditional borrower.

One primary benefit of being self-employed is the privilege of writing your income down. You enjoy less tax because you get to write-off expenses, but you lose borrowing power. It is important to be aware of this because you can either pay less tax or have more borrowing power.

As a self-employed individual, you will fall into one of the following three categories:

• You can provide 2 years worth of personal income tax documents and will qualify based on the two year average of your declared income (as disclosed on Line 150 of your Notice of Assessment). Your minimum down payment is 5% and you will receive the same insurer premiums and interest rates as non self employed applicants.
• You can provide 2 years worth of personal income tax documents, but your declared income (Line 150 of your Notice of Assessment) is very low due to all the write-offs you declared. In this case, your application is further analyzed as the qualification criteria become more challenging. At this stage, Business Financial Statements or business related schedules from your T1 Generals will be examined to determine reasonability and validation pertaining to your qualifying income. Your minimum down payment increases to 10% and your insurance premiums increase, but your interest rate offerings remain competitive and uncompromised (when compared with non self-employed applicants). 
• You are unable to provide 2 years worth of personal income tax documents and are therefore required to increase your down payment to 20% (or possibly higher). Not only does your down payment increase, but so does your interest rate.

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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The criteria for mortgage qualification involves fairly deep analysis of your personal income generation, your history of handling mainly unsecured consumer credit sources (like credit cards, lines of credit, car loans) and lastly, the amount of skin you have in the game - the down payment, or if refinancing, the current equity stake in your property. But the main driver and gatekeeper to all of the qualification tiers is the loan-to-value ratio (aka LTV).  Generally speaking, the higher your down payment (or equity position), the less rigid the qualification guideline.

Here is a brief outline summary of the key LTV thresholds:

• up to 95% LTV - the least skin in the game, you will rarely (if ever) get exceptions from lenders. You are an inside-the-box applicant and need to fully comply with the standard qualification criteria. Regardless of which lender you team up with, the outcome will generally be the same...the lenders will all qualify you for the same amount and approximately the same interest rate (within a negligible margin)
• Up to 90% LTV - a few more qualification programs become available in this qualification bin, but still rigid qualification criteria with very little exceptions
• greater than 80% LTV - substantially reduced insurer premiums and a more pragmatic approach to exceptions (i.e. proceeding with an approval despite a light credit history, or recently recovered credit mishap, or remaining probationary period with employer)
• 80% LTV and lower - the entry level conventional, uninsured lending zone. Ironically, an increase in rates (often the highest interest rates as it falls just outside the insured safe haven zone, but only at the doorstep of big down payment territory). Today's 20% down payment is like yesterday's 10% down payment...not as powerful and influential as you might think. Still an impressive milestone, but not the money-talks arena.
• 75% LTV and lower - even better than 80%, a few more unique and niche qualification guidelines open up to you. Rates get lower and more exceptions are granted.
• and finally, the mother queen of the LTV scale...65% LTV - this is the big leagues, this is where you get rewarded for all the hard work of either accumulating your prized 35% down payment or owning a property with a comforting equity ratio...just the right amount of equity to creep out of all the lenders risk-pricing parameters. Best possible interest rates and significant qualification flexibility from lenders.

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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Rental Property Mortgages - how to qualify for them.

Qualifying for a mortgage when purchasing or refinancing a rental property can get really confusing. 

Here are the key qualification criteria when qualifying for a Rental Property Mortgage:

• the minimum down payment to qualify for a rental property mortgage ranges from 20% to 35% (refinances are limited to 65% of the appraised value)
• rental income generated from the property does not necessarily translate into direct qualifying income. 50% to 95% of the rental income is eligible as qualification income (varies radically from lender to lender)
• the rental income eligibility is classified as either one of the following (depending on the lender and type of income):

1. General Qualification Income (least preferred): the mortgage balance is maintained in the application and becomes part of the overall debt load that needs to be serviced for qualification purposes 
2. Offset Income (most preferred, best bang for your buck): the mortgage balance is removed from the application and a positive or negative offset figure is added to the overall application depending on the lenders offset calculation

• There are (3) types of rental property classifications and their income qualifying parameters are unique and independent of each other:

1. Basement Suite rental: when the mortgage holder resides in the property and rents out the basement suite
2. Subject Rental Property: the rental property mortgage that the mortgage holder is currently applying for (purchase or refinance), and
3. Existing (or Stand Alone) Rental Property: rental properties that the mortgage holder currently owns

• All three of the property classifications can have unique eligibility criteria for qualifying income allowances. For example, a monthly rental income of $2,000 can either boost or weaken an overall application depending on their respective property and rental income eligibility classifications.  
• All lenders have limitations when it comes to the amount of properties they deem acceptable for a single applicant. For example, one lender may allow for a limit of 3 properties per applicant (the one they currently reside in plus 2 additional rental properties) whereas another lender may allow for up to 14 accumulated properties under ownership.

Mortgage Brokers are a key resource for individuals who purchase rental properties as they have access to multiple lenders with varying qualification guidelines.  

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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The Mortgage Cash Back Ladder: (for a $500,000 mortgage)

1.0% cash back ($5,000) = 2.89% 5 year Fixed Rate, or 1.45% Variable Rate 

1.5% cash back ($7,500) = 3.04% 5 year Fixed Rate, or 1.50% Variable Rate

2.0% cash back ($10,000) = 3.19% 5 year Fixed Rate, or 1.60% Variable Rate

3.0% cash back ($15,000) = 3.49% 5 year Fixed Rate, or 1.85% Variable Rate

5.0% cash back ($25,000) = 3.94% 5 year Fixed Rate, or 2.35% Variable Rate

Here are some smart and useful ways to get the most bang from your Mortgage Cash Back proceeds:

• pay all or a portion of your closing costs (property transfer tax, legal fees, home inspection, movers, etc)
• use the proceeds to suit up your new place (furniture, new appliances, etc.)
• begin work on any renovation or home improvement projects (new paint, kitchen, bathroom, etc.)
• pay off high interest debt (credit cards, lines of credit, etc)
• invest the cash back proceeds in investments (rrsp, tfsa, stocks, etc)
• ...basically, you can do whatever you desire with the proceeds

But what's the catch?

Here are the key fine print conditions to be aware of when signing up for a cash back mortgage:

• be aware that you are getting an interest rate that is higher than what you would have received on a mortgage without a cash back component. The difference in rate depends on how much cash back proceeds you are opting for (see "The Cash Back Ladder" above)
• be aware that all (or a scaled portion) of the cash back proceeds will be owed back to the lender if you discharge your mortgage ahead of its maturity. Not only would you be subject to the standard payout penalty of breaking a mortgage ahead of its maturity, but also the balance of the cash back proceeds, as well (heads up!). But if you ride out the term to its maturity, you are safe - no penalties! For example, let's say you secured a cash back mortgage for a 5 year fixed term of $500,000 with a 3% cash back of $15,000. If you broke the mortgage ahead of its maturity (let's say 2 years in to a 5 year term), you would be charged the standard penalty of ~$4,000 (this is just an estimate and best case break penalty scenario) and as much as the full $15,000 may need to be returned to the lender (this is the absolute worst case scenario as some lenders will rebate the portion you have maintained during your current term, and fewer will outright forgive the entire cash back proceeds all together!). So, you could potentially have a total penalty of ~$19,000. But if you ride it out for the entire term (5 year), you will not owe anything...you can then simply renew into another term or even switch to another lender without any fees or penalties.

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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Here is a summary outline of the key qualification criteria for Alternative Lending mortgages in Canada (formerly known as subprime mortgages):

• minimum down payment of 20% is required
• debt servicing ratios are as much as 35% higher than triple-A lenders (this means applicants can qualify for more mortgage)
• income qualification criteria is far less demanding than triple-A lender qualification guidelines
• very flexible to applicants who have a weak/damaged credit history
• accommodating to newly established self employed applicants
• higher rates, shorter tems..."band-aid" or "transitory" mortgages
• expect a fee of 1-2% on the full mortgage balance

Here are some examples of common sense qualification:

• rather than requiring a recent pay stub and employment letter, an alternative lender may simply request 3 months worth of bank statements to verify income deposits into your bank account
• in triple-A lending, self employed applicants require a minimum tenure of 2 years, but an Alternative Lender will consider newly established self employed applicants with a history of only 3 months
• Alternative lenders are also more forgiving to applicants who have recently come out of bankruptcies. Triple-A lenders will decline applicants associated with a prior bankruptcy for up to two years after the bankruptcy has been discharged, whereas an Alternative Lender will consider applicants 1 day after their bankruptcy (or collection) has been discharged

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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With virtually every economic indicator calling for rate hikes, Canadian mortgage holders are left wondering how to prepare and react to the already-in-progress wave of interest rate volatility. Regardless of the degree and timing of the pending increases, concerned mortgage holders in Canada have the opportunity to control their own destiny and minimize (or even eliminate) potential risks associated with rising interest rates (i.e. higher mortgage payments). 

Click Here to be redirected to the blog version of this episode.

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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MarkoMusic (SoundCloud Account)...all podcast music tracks are performed and produced by Marko

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Buying a home while selling your current one?

The transition from selling one property to purchase another sounds simple, but there are a few critical events throughout the timeline that you need to be aware of.

Here are 6 key points to know when scaling up from one property to another: CLICK HERE to read the entire transcript

(1) perhaps the biggest dilemma: SELL first, then BUY, or BUY first, then SELL?  

(2) Use a Bridge Loan so you can gracefully transition from one property to another!  

(3) Consider porting your mortgage, but ONLY if it makes sense!

(4) secure a Home Equity Line of Credit on your current property BEFORE you list it for sale

(5) call your existing lender and find out what your current mortgage balance and discharge fee will be

(6) If you're planning to scale up at a specified time in the future, renew your current mortgage with the end in mind

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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Can BC Provincial Nominees qualify for a mortgage?

Yes! A BC Provincial Nominee is eligible to qualify for a mortgage in Canada. Here are the key mortgage qualification criteria to be aware of when qualifying for a mortgage as a BC Provincial Nominee:

• you can purchase a property with as little as 5% down payment, but only for purchases under $1M
• for purchases that are $1M or greater the down payment increases to 20% and potentially higher depending on how large your purchase price is (down payment can reach up to 35% for purchases that exceed $2.5M)
• must have relocated to Canada within the past 2 to 5 years
• must be employed for a minimum of 3 months
• full income confirmation is required (recent pay stub and employment letter)
• a 90 day history of your down payment funds are required (i.e. bank statements, investment statements, etc). If you are unable to provide a 90 day history, then prepare to explain where the funds were derived from along with applicable documentation to verify so (i.e. from sale of property, estate settlement, etc).

Have you recently moved to, or are planning to relocate to Canada? If so, Click Here to begin your mortgage pre-approval process or call Marko at 604-800-9593.

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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@markogelo (Twitter)

MarkoMusic (SoundCloud Account)...all podcast music tracks are performed and produced by Marko

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How to get the lowest possible mortgage payment?

Sometimes life presents you with some expensive curve balls and before you know it your monthly budget creeps up and you're suddenly in a pinch. This happens to Canadians more than you can think and oftentimes the mortgage payment is looked upon as the primary means to bring you back to that financial comfort zone.

Here are 4 ways to get the lowest possible mortgage payment:

1. Request that your mortgage amortization be increased to its maximum. This can significantly decrease your mortgage payment, but it all depends on how your mortgage was underwritten with the lender it is currently with. For example, your amortization may currently be at 23 years and 8 months, but it possibly may have been underwritten at 30 years. If this is the case, your payment would be eligible for a drastic payment reduction.
2. Convert all, or a portion of your mortgage into a Home Equity Line of Credit (HELOC). A HELOC payment does not include the principal portion typically associated with a mortgage payment. Therefore, the monthly payment is significantly reduced as it is only the interest portion that is required for payment. For example, for a $500,000 mortgage, the monthly payment for a fixed rate mortgage at 2.19% would amount to a monthly payment of $2,165, whereas for a HELOC, the interest only payment would be $1,230...this is a decrease of about 40%! Although HELOCs only require interest only payments, it is important to point out that unlimited principal payments can be applied to the balance at any time, and without penalty.
3. Get a variable rate mortgage! It's not hard to understand that a lower interest rate will yield a lower monthly payment. Lately, the best bang for your buck has been deeply discounted variable rate mortgages. Currently, you can get a variable rate mortgage for as low as 0.99%! So, let's go back to that $500,000 mortgage and compare a 0.99% variable with a 2.19% 5 year fixed - the reduction in payment isn't as impactful as increasing your amortization or paying interest only payments with a HELOC, but it still clocks in with a respectable 15% lower payment
4. Get a Refinance! If you're looking for a major reset, consider a mortgage refinance. This is especially impactful as it virtually wipes out all of your existing debt payments and consolidates them into your mortgage. For many, a mortgage refinance is a rejuvenating and a life-altering experience. You can literally save thousands of dollars in interest costs and substantially reduce your overall monthly payment burden to a level you may not have even imagined possible.

Contact Marko, he's a Mortgage Broker!

604-800-9593 direct Vancouver

403-606-3751 direct Calgary

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