Archive for January, 2010

Dispelling the Top 7 Mortgage Myths

Posted in Uncategorized with tags , , on January 22, 2010 by johngesa

Fear is often based on ignorance, and there are many misconceptions when it comes to mortgages. To help you sort it out, we dispel seven of the top mortgage myths.

•Myth 1: A preapproval is like money in the bank

•Myth 2: Self-employed people can’t get mortgages

•Myth 3: You need a down payment of 25 percent

•Myth 4: You can’t borrow your down payment

•Myth 5: A poor credit history scars you for life

•Myth 6: If you’ve ever been bankrupt, securing a mortgage is impossible

•Myth 7: Private lenders are akin to loan sharks

Myth 1: A preapproval is like money in the bank

Many people think once they’ve been preapproved by a lender for a mortgage, they’re home free. But that isn’t necessarily the case.

More than anything else, a preapproval is a rate guarantee. There’s plenty of financial paperwork still to be done as lenders examine more closely your sources of income and letters of employment. And if they find something they don’t like, or that you weren’t upfront about, you could lose the deal.

For example, if you reported that you earned $60,000 the past year and a portion of that included overtime or a bonus — both of which can vary year to year — the lender will find out and may change the terms of the deal since they calculate what you can afford based on your base salary only. So, always be upfront with your lender.

In the case of high-ratio mortgages, the insurer — whether it’s the Canada Mortgage and Housing Corporation (CMHC) or GE Mortgage Insurance Canada — has final approval. Chances are, if the lender has given you the green light, your income is not in question and your credit is good, you have nothing to worry about.

That’s why it’s prudent to add a mortgage contingency to your real estate offer, so if your mortgage does happen to fall through, you aren’t stuck with a house.

Myth 2: Self-employed people can’t get mortgages

The days of the self-employed being treated like second-class citizens by most lending institutions are over.

There are a lot of products now for self-employed individuals. Lenders are now willing to look at self-employed people on a case-by-case basis instead of tarring them all as potential liabilities.

In most cases, they are looking for good credit, a three-year history of being self-employed and no income taxes outstanding,” she says

Myth 3: You need a down payment of 25 percent

With housing prices on the rise and high rents eating up a potential buyer’s savings, lenders no longer see 25 as the magic number. In fact, with a high-ratio mortgage, you can put down as little as 5 percent.

The key is securing an insured mortgage through the CMHC or GE. To do so, you incur added costs, including an underwriting fee and a one-time insurance premium that can either be paid as part of the loan or in a lump sum. But as long as you have at least a 5-percent down payment, you should have no trouble.

Myth 4: You can’t borrow your down payment

There are restrictions, but lenders are far more flexible than they used to be. Large monetary gifts are perfectly acceptable as long as they’re from a close relative. What your lender wants to make sure of is that what you’re getting is actually a gift and that you aren’t incurring more personal debt that needs to be repaid.

Even borrowing a 5-percent down payment from a line of credit is OK, although you will pay a slightly higher insurance premium.

The B lenders are even more flexible than the major banks, but you’ll pay for that flexibility in the form of higher fees and interest rates.

Myth 5: A poor credit history scars you for life

Lenders recognize that people and circumstances change. A student who maxed out his first credit card in university and defaulted on payments will not pay for his mistakes forever.

A lot of lenders want at least a year and a half of good credit. For those who discover that bad credit stands in the way of building good credit, apply for an RRSP loan, which is easier to get than, say, a car loan.

Not only will you establish a history of installment payments, but you can later borrow from that RRSP to buy your house.

Myth 6: If you’ve ever been bankrupt, securing a mortgage is impossible

Bankruptcy does not put an end to an individual’s dream of homeownership.

If they’ve got 25 percent down, there’s financing available as soon as they’re discharged.

High-ratio mortgages are also an option: the CMHC will consider those who have been discharged for two to three years and have since established a good credit rating.

Myth 7: Private lenders are akin to loan sharks

They’re not loan sharks, they’re just offering something the banks can’t. I don’t recommend private financing for those who are habitually bad at managing money, it’s a viable alternative for those establishing or re-establishing a good credit rating.

The interest rates are higher, but there’s a value in those higher rates, adding that private financers are usually flexible; they know their role is short-term and often happily move aside once a borrower qualifies for lower interest financing from a major lender.

When you’re looking for a mortgage, don’t assume anything — ask questions and ensure you know the meaning of the terms being bandied around. Knowledge is power, or in the very least, it will make the process less intimidating.


Getting a Mortgage Pre-Approval

Posted in Uncategorized with tags , , , , , on January 15, 2010 by johngesa
If you are looking for a new home, be sure you are pre-approved. With a mortgage pre-approval, a licensed mortgage professional can do a more complete verification prior to sending you shopping for a home, and with that done, the dollar figure you are going shopping with is actually what you can spend.
 The mortgage professional that you work with to get pre-approved will let you know for certain what you can afford based on lender and insurer criteria, and what your payments on a specific mortgage will be.Licensed mortgage professionals can lock-in an interest rate for you for anywhere from 60 – 120 days while you shop for your perfect home. By locking in an interest rate, you are guaranteed to get a mortgage for at least that rate or better. If interest rates drop, your locked-in rate will drop as well.

However, if the interest rates go up, your locked-in interest rate will not, ensuring you get the best rate throughout the mortgage pre-approval process. In order to get pre-approved for a mortgage, a mortgage professional requires a short list of information that will allow them to determine your buying power. A mortgage professional will explain to you the benefits of shorter or longer mortgage terms, the latest programs available, which mortgage products they believe will most likely meet your needs the best, plus they will review all of the other costs involved with purchasing a home.

Getting pre-approved for a mortgage is something every potential home buyer should do before going shopping for a new home. A pre-approval will give you the confidence of knowing that financing is available, and it can put you in a very positive negotiation position against other home buyers who aren’t pre-approved.

Bank of Canada won�t raise interest rates to cool housing

Posted in Uncategorized on January 14, 2010 by johngesa

The Bank of Canada won’t raise interest rates to cool the country’s hot housing market, a spokesman said Monday, preferring to leave any tinkering to the country’s Finance Minister.“Some observers – those who see a housing bubble forming – have said that since low interest rates have stimulated housing market activity, the Bank should now raise interest rates to dampen that activity,” deputy governor Timothy Lane wrote in a speech delivered by an adviser on his behalf in Edmonton. “But that poses a problem.”

Existing-home sales are up 73 per cent year-over-year, while prices have climbed nearly 20 per cent as buyers take advantage of historically low interest rates to finance purchases.Those who fear a bubble worry that many people are taking advantage of cheap money to buy homes they wouldn’t be able to afford once rates rise, leading ultimately to a crash in prices.

Mr. Lane said the bank understands the concern, but it uses its lending rate to keep inflation in check for the whole economy and the housing market is “only one of several factors” that influence inflation.Other sectors could be adversely affected if the rate jumped before the broader economy was ready, he said.

“If the Bank were to raise interest rates to cool the housing market now – when inflation is expected to remain below target for the next year and a half – we would, in essence, be dousing the entire Canadian economy with cold water just as it emerges from recession.” Instead, he said, the government could increase capital requirements for lending institutions, adjust loan-to-value ratios and change the terms and conditions required to obtain mandatory mortgage insurance.

“These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions,” he said. “Ultimately, it is the Minister of Finance who is responsible for the sound stewardship of the financial system.” In an end-of-year interview with CTV, Finance Minister Jim Flaherty said the government would consider raising the minimum down payment from 5 per cent “to a higher figure” and reducing the amortization period of 35 years to “something less.”

But the Minister stressed that the government has not yet made that decision. “If there is, in the future, evidence of a residential real estate bubble, the tools we have are the tools we’ve used before, relating to insured mortgages, lending standards, amortization periods and down payments, which is what we acted on in the summer of 2008,” Mr. Flaherty said in a late-December interview with The Globe and Mail. In the summer, the government said it would no longer insure zero-down-payment mortgages or mortgages with an amortization period of more than 35 years.

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Posted in Uncategorized on January 14, 2010 by johngesa

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