30 Sep

When You Might Need an Alternative Lender Mortgage

Mortgage Tips

Posted by: Jordan Thomson

The majority of homeowners are blissfully unaware of alternative mortgages. They presume everyone is entitled to sub-3% mortgage interest rates, with no fees of any kind.

But there is a growing, significant percentage of borrowers who need a different type of mortgage financing solution. Sometimes there is no choice, which is why the alternative lending market (B-lenders) is so important to the overall health of the mortgage industry and, indeed, our economy.

Could this happen to you? Who would you turn to if your bank turned you down for a mortgage? How would you know if you are being given the straight goods, or being sold a bunch of baloney?

Plan B- If your primary financial institution (bank, credit union, trust company) refuses you a mortgage, you need to source a mortgage broker who can explore alternative financing options for you—hopefully with a B-lender solution. And if that doesn’t work out, then there are many potential private mortgage lenders too.

Most mortgage brokers are very comfortable working with A-lenders like banks, credit unions and monoline lenders, such as MCAP and First National. And, in recent years, a growing number have expanded their businesses to provide alternative and private lending solutions. Be sure to select a professional who is experienced with these types of specialized products when you are in the market for a non-traditional mortgage.

Mortgage brokers have access to a fair number of alternative mortgage lenders (B-lenders) who offer excellent solutions above and beyond the traditional branch-based lenders, including:

Expanded debt-service ratios—some alternative lenders will allow GDS and TDS ratios as high as 50%, and are not constrained by 35/42 or 39/44 ratios, as traditional lenders usually are. In fact, if the loan-to-value ratio is low, they can get really creative. (For example, Haventree Bank may consider up to 60/60 debt service ratios when the LTV is under 65%, under their non-conforming product).
Tolerant of damaged credit histories—they will reserve their lowest rates for those with high credit scores (720 and above, sometimes less) but at the same time may entertain your mortgage application with a score as low as 500 or even lower.
Receptive to forms of income that traditional lenders cannot consider, such as Air BnB income, commission income, tips and contributory income from spouses not even on title. And most are more relaxed in their approach to self-employed borrowers.
Suppose for you the door is closed to banks and all A-lenders. How did you get here? Reasons typically include one or more of the following:

Cannot pass the mortgage stress test: inability to meet maximum debt-service ratios.
Low credit scores: could be too many late payments, balances too high on credit facilities, collections and liens, or even a consumer proposal or bankruptcy.
Non-traditional income: could be commissioned or rely on tips and work in a cash-based business. May even be irregular part-time income. Or perhaps you rent out rooms in your home, or have Air BnB income, foster care income, disability income, child tax benefits, etc. Do you buy, renovate and sell houses, and the capital gains are your only income? You could even own “too many properties.” (Yes, that can be a thing!)
Self-employed: you could be a business owner with lots of expense deductions and low reported taxable income. Or maybe you have been self-employed only a short time—fewer than the two years A-lenders prefer to see.
How long will it take to graduate back to A-lending?

The length of time you remain in an alternative lending product will vary based on your unique situation; most alternative mortgages are offered as one- or two-year terms. There are some lenders who offer three- and even five-year terms, but this is much rarer.

There are some borrowers who remain in this space for the long haul. It is unlikely they will ever qualify for a mortgage with an A-lender because of credit and/or income issues and that’s ok. They are grateful there is a reasonable cost alternative.

What added costs come with alternative mortgages?

Interest rate

Your interest rate will be a bit higher than those offered by an A-lender. These days, they mostly range from 3.99% to 5.99%. I don’t have the stats, but it feels like a large percentage of these are in the narrower range of 4.24% to 5.24%.

And the lowest rates are typically for a one-year term, with the two-year term coming in a touch higher.

Here are some sample payments to illustrate the impact of different mortgage rates. The difference is not as much as people expect.

$300,000 at 2.99% with a 30-year amortization = monthly payments of $1,260
$300,000 at 3.99% with a 30-year amortization = monthly payments of $1,425
$300,000 at 4.99% with a 30-year amortization = monthly payments of $1,600
Lender fees

Most of the time, your lender will charge a one-time fee of 1% of the loan amount.

Brokerage fees

alternative lender feesWith mortgages arranged with A-lenders, your mortgage broker is paid by the lender at no extra cost to you. This is less the case with alternative mortgages, mainly because the shorter the mortgage term, the less the compensation, yet the workload is at least the same and often more intense.

Therefore, when sourcing an alternative mortgage for you, your mortgage broker will often charge a brokerage fee. They should be upfront about this exact charge early on in the process. The amount varies from broker to broker and from loan to loan. Factors brokers consider are:

The complexity and level of effort they anticipate is involved to fund your mortgage.
The size of your mortgage. The smaller your mortgage, the larger the fee may seem as a percentage of the loan amount, and the larger the mortgage, potentially the smaller the fee may seem as a percentage of the loan amount.
If you are buying a property, lender and brokerage fees come from your pocket. If you are refinancing, they are deducted from the mortgage advance, if there is enough equity to do so.

All fees and costs must be disclosed properly to you according to your provincial regulator’s rules. Lender and broker fees are paid on your funding date.

Other fees

As with most mortgages, you can expect to pay for an appraisal, solicitor and title insurance.

Some lenders charge annual administration or “maintenance” fees of a few hundred dollars, and they typically charge a renewal fee if you accept one of their renewal offers. There is not a one-size-fits-all formula applied when calculating renewal fees.

Monthly property tax administration fees can also be charged (less than $5 per month).

Alternative lenders are a safe route

In the Q1 broker lender market share figures, alternative lenders Home Trust Company and Equitable Bank together held more than 13% of broker market share.

Alternative lenders are not to be feared or disparaged. They serve a very useful role in the mortgage industry and are a terrific midpoint between a bank-issued mortgage and a private lender solution.

When a mortgage borrower does not even fit into the world of alternative lenders, your mortgage broker will need to source a private mortgage solution for you.

Think you may need to look into an Alternative mortgage? I’m highly experienced with these types of mortgages and lenders, helping people with bad credit, hard to prove income, low income…call me to discuss if it’s an option for you!

Jordan Thomson
604.725.1607
jordan@citywidemortgage.ca

11 Jul

20 Terms That Homebuyers Need to Know

Mortgage Tips

Posted by: Jordan Thomson

Buying a home is one of the most important financial decisions you will make.

It’s common for a first-time homebuyer to be overwhelmed when it comes to real estate industry jargon, so this BLOG is to help make some of the jargon understandable.

To help you understand the process and have confidence in your choices, check out the following common terms you will encounter during the homebuying process.

1) Amortization – “Life of the mortgage” The process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero. Typical amortizations are 25 years or if you have over 20% down payment – 30 years.
2) Appraisal – An estimate of the current market value of a home. A property is appraised to know the amount of money that a lender is willing to lend for a buyer to buy a particular property. If the appraised amount is less than the asking price for the property, then that piece of real estate might be overpriced. In this case, the lender will refuse to finance the purchase. Appraisals are designed to protect both the lender and buyer. The lender will not get stuck with a property that is less than the money lent, and the buyer will avoid paying too much for the property.
3) Closing Costs – Costs you need to have available in addition to the purchase price of your home. Closing costs can include: legal fees, taxes (GST, HST, Property Transfer Tax (PTT) etc.), transfer fees, disbursements and are payable on closing day. They can range from 1.5% to 4% of a home’s selling price.
4) Co-Signer – A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
5) Down Payment – The portion of the home price that is NOT financed by the mortgage loan. The buying typically pays the down payment from their own resources (or other eligible sources) to secure a mortgage.
6) Equity – The difference between the price a home could be sold for and the total debts registered against it (i.e. mortgage). Equity usually increases as the mortgage is reduced by regular payments. Rising home prices and home improvements may also increase the equity in the property.
7) Fixed Interest Rate – a fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
8) Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS)
a) GDS – Typically mortgage lenders only want you spending a maximum 35-39% of your gross income on your mortgage (principle & interest), property taxes, heat and 50% of your strata fees.
b) TDS – typically, lenders want you spending a maximum 39-44% of your gross income on your GDS – PLUS any other debt obligations you have (credit card debt, car payments, lines of credit & loans).
9) High-ratio mortgage / Conventional Mortgage – a high ratio mortgage is a mortgage loan higher than 80% of the lending value of the home. A conventional mortgage is when you have more than 20% down payment.
10) Interest Rate – This is the monthly principal and interest payment rate.
11) Mortgage – A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.
12) Mortgage Broker – A professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.
13) Mortgage Default Insurance – Is required for mortgage loans with less than a 20% down payment and is available from Canadian Mortgage & Housing Corp. (CMHC) or 2 other private companies. This insurance protects the lender in case you are unable to fulfill your financial obligations regarding the mortgage.
14) Open / Closed Mortgage
a) An open mortgage is a flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term, because of the flexibility the interest rates are higher.
b) Closed mortgages typically cannot be paid off in whole or in part before the end of its term. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment. If you try and “break your mortgage” or if any prepayments are made above the stipulated allowance the lender allows, a penalty will be charged.
15) Pre-Approval – A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
17) Refinance – Refinancing is the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.
Term (Mortgage) – Length of time that the contract with your mortgage including interest rate is fixed (typically 5 years).
18) Title – The documented evidence that a person or organization has legal ownership of real property.
19) Title Insurance – Insurance against losses or damages that could occur because of anything that affects the title to a property. Insurance Title insurance is issued by a Title Company to insure the borrower against errors in the title to your property.
20) Variable Rate Mortgage or Adjustable Rate Mortgage (ARM) – A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions, the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

28 Jun

Source of Downpayment Funds

Mortgage Tips

Posted by: Jordan Thomson

Over the past several years, investigators have been working on an ongoing investigation relating to criminal money laundering in Canada. Looking at B.C. alone, billions of dollars have been laundered through B.C. casinos by criminal organizations and parked in high end B.C. real estate over the past decade or more.

With government citing limited resources and a lack of funds available to conduct a proper investigation, criminals have been able to manipulate and take advantage of the Canadian and B.C. legal system for years and it is now finally coming to light the impact it has had on our economy, most notably our real estate market.

One of the measures the government implemented several years ago to help crack down on this was sourcing the funds people were using for the down payment on their home purchases. Lenders are required by the federal and provincial government to collect a minimum of 30 days of transaction history for every bank account where money comes from to help complete a purchase on real estate. Most lenders are still requiring 90 days and they are also required, by the government, to source any large deposits above $1,000 that are unrelated to employment income.

If you have e-transfers and transfers between your own accounts within the 90 day period, the lender will require a 90 day history of the account in which funds were deposited from. That means, if you have a savings account reserved just for a down payment, but you put $1,000 a month in there from your chequing account, brought in $5,000 from a TFSA, and put in $3,000 in cash all before you wrote an offer on a home, a lender is going to want to see 90 day history of your savings, your chequing, and your TFSA account as well as an explanation on where the $3,000 cash came from.

Most people find this frustrating and rightfully so, you are handing over personal information over a long period of time. However, due to the extreme affect money laundering has had on our economy, these rules are likely not going anywhere. When preparing your down payment, be prepared that the lender will be required to collect a 90 day history of every account you have where money is coming from to help cover your down payment. This is not because the lender feels like it, this is because the government regulators who review the loans the banks give out need to see that the lender verified the money was legitimate.

Also, with your T4’s and Notice of Assessments usually going into lenders, if you are just starting a new job and were making $20,000 a year while in school and now have $150,000 in savings for your down payment a year out of school, the lender is allowed to ask for a full year history because your income does not justify the savings you have.

Be prepared! Lenders are required to source down payment funds and with more and more news coming out every month on money laundering, the rules may only get more rigid. If you have any questions, don’t hesitate to contact me!

Thanks to DLC’s Ryan Oake for this info!

16 May

Do You Understand the B-20 Mortgage Guidelines?

Mortgage Tips

Posted by: Jordan Thomson

A new survey has emerged showing that out of 1,901 owners and would be homeowners, 43% (more than two out of five) Canadians are not confident in their knowledge of the mortgage stress tests—despite them being in place for more than a year now.

We wanted to give you a brief set of notes regarding the guidelines. This is something you can use and reference whether you are a first-time home buyer or looking to refinance underneath these new guidelines. It gives a clear picture of what/how you are impacted as a buyer or someone who is looking to refinance.

Here’s what you need to know about B-20:

The average Canadian’s home purchasing power for any given income bracket will see their borrowing power and/or buying power under these guidelines reduced 15-25%. Here is an example of the impact the rules have on buying a home and refinancing a home.

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:

Up To December 31 2017 / After January 1 2018
Target Rate 3.34% / 3.34%
Qualifying Rate 3.34% / 5.34%
Maximum Mortgage Amount $560,000 / $455,000
Available Down Payment $100,000 / $100,000
Home Purchase Price $660,000 / $555,000
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 $145,000 available in the equity of the home, provided you qualify to borrow it.

Up to December 31, 2017 / After January 1 2018
Target Rate 3.34% / 3.34%
Qualifying Rate 3.34% / 5.34%
Maximum Amount Available to Borrow $560,000 / $560,000
Remaining Mortgage Balance $415,000 / $415,000
Equity Able to Qualify For $145,000 / $40,000
Source (TD Canada Trust)

These guidelines have been in place since January 1, 2018 and we are starting to see the full impact of them for both buyers and those looking to refinance. Stats are showing that there is a slowdown in the real estate market, however there is also a heightened struggle for many buyers to now obtain approval under these new guidelines. It’s a difficult situation as the cry for affordable housing is still ongoing as the new guidelines may slow down the market but appear to further decrease the borrowing/buying power of individuals.
Keep in mind, this is just a brief refresher course on the B-20 guidelines. As always, if you have more questions or are looking for more information,I suggest that you reach out to discuss and get a full and detailed look at how it will impact you personally.

Thanks to DLC’s Geoff Lee for this info.

9 May

Sole Proprietors and Mortgage Qualification

Mortgage Tips

Posted by: Jordan Thomson

Sole proprietors are individuals who run their own business and do not have it set up as a corporation or partnership. The biggest difference between them and a corporation is that a sole proprietor does not have separation between their business and themselves. This means that when taxes are filed, all costs that are essential to the operation of the business are tax deductible on the individuals tax return. For example, an electrician who operates as a sole proprietor may earn $80,000 a year in income. However, costs such as materials, vehicle expenses, office space, or marketing (to name a few), are subtracted from the gross income- $80,000 in this case.

If those costs added up to $15,000 in a fiscal year, that sole proprietor really only earns $65,000 of income in the eyes of the lender. That is because the amount they are taxed on is the net income of $65,000 not the gross business income of $80,000. When submitting an application for a sole proprietor, you can either use a 2-year average of the net business income (income qualified) or state the income (stated files) based on history of earnings and the businesses write offs/expenses.

Majority of the time, we take the previous two years of income reported on line 236 of the T1 Generals, add them together, and divide that by two. If a business earned $80,000 of gross income and $65,000 of net income in year 1, and then $90,000 of gross income and $70,000 of net income in year 2, their income in the eyes of the lender is $67,500 ($65,000 + $70,000 = $135,000/2 = $67,500). There is an opportunity to “gross up” the 2-year average by 15%, but that requires a closer look at what the business has claimed as write offs for their business expenses. A gross up of 15% on $67,500 of income would equal $77,625.

Operating a business as a sole proprietor is a small cost when comparing it to a corporation, main reason being there is only one tax return prepared for both the business and the individual. The down side, an individual must pay income tax at the personal tax rate on the entire net income, whether they required all that income or not.

A corporation on the other hand, pays income tax at a different tax rate lower than the personal tax rate. That way, an individual only needs to take the income out of the corporation that they need, decreasing the amount of income tax they pay on their personal tax return (if money is left inside the corporation).

If you are a sole proprietor and are curious to know what kind of mortgage amount you can qualify for, let’s talk!

30 Apr

Accessing Your Home’s Equity to Invest

Mortgage Tips

Posted by: Jordan Thomson

To tap into your home’s equity, it all starts with refinancing your home. If you own a home, the equity you have built up in it is one of the most valuable assets you have available to you. It is also much more accessible than taking out a large loan. In many cases, home equity loans and lines of credit can offer you a lower interest rate as compared to other types of loans while providing you with access to credit for investment purposes. You can view an excellent comparison of loans here.

Often times we see clients who refinance in order to:
• Renovate their home
• Purchase a secondary property for investment purposes
• Debt consolidation
• Business Development
• Assisting their children’s post secondary education
• Financing thru a “life event” such as illness

In this particular article, we are going to highlight the value of utilizing your home’s equity to reinvest in other investments such as:
• rental properties
• stocks
• bonds
• mutual funds
• RRSP’s
• RESP’s
The first question that people ask is how much can I borrow? Generally speaking, you can borrow up to 80% of the appraised value of your house. For example, if your home value of $650,000 assuming one qualifies, they can access up to 80% of $650,000 which would be $520,000, if their current mortgage is $450,000 they may be able to get a home equity line of credit for $70,000 (totaling $520,000)

Working with your mortgage broker, you can go through the refinance and approval process if this is something you are interested in accessing. It is always a good idea to consult with your broker and understand the personality of your mortgage—there may be limitations of how much equity you can access and the conditions relating to the refinancing. There are also potential costs associated with this type of refinance including:
• Penalties to break your mortgage
• appraisal fees
• title search
• title insurance
• legal costs
Keep in mind that these potential costs can be rolled within your new loan amount and will not be “out of pocket.”
Now, if you have been approved and are utilizing your home equity for one of the above investments (after speaking to your financial planner/advisor first) and can expect to see a higher rate of return than the interest you are paying to borrow the money, then it is worth considering. We emphasize that you should always proceed with caution and get advice from sound professionals before choosing to invest your hard-earned money.

We have found that this type of investing works extremely well for many and is a safer and less risky way to access funds for further investment purposes. We recognize that this option may not be suitable or comfortable for some, but it is a viable way to capitalize on the equity sitting in your home and make it work for you! If you have questions or are interested in learning more, please do not hesitate to contact me at 604.725.1607.

12 Apr

7 Step Checklist to the Home Buying Process

Mortgage Tips

Posted by: Jordan Thomson

It’s important to understand the home buying process, so here’s a 7-step checklist.

Step 1: Down Payment
The hardest part to buying a home is saving the down payment (a gift from the Bank of Mom & Dad also works).
• For purchases under $500,000 minimum down payment is 5%.
• Buying between $501-999,000 you need 5% on first $500,000-PLUS 10% down payment for anything over $500,000.
• Buying a home over $1 million you need 20% down payment.
For any home purchases with less than 20% down payment, you are also required to purchase Mortgage Default Insurance.

Step 2: Strategize, Define Your Budget and get Pre-Qualified
Unless you can afford to buy a home, cash in hand, you are going to need a mortgage.
You need to get pre-qualified, which should not be confused with the term pre-approved.
The big difference is that no approval is ever given by a lender until they have an opportunity to examine the property that you wish to purchase. The bank may love you… but they also must love the property you want to buy.
Pre-qualifying will focus on gathering documentation to prove the information on your mortgage application including credit, debt load, income/employment, down payment etc.
Mortgage brokers will make sure you get a great mortgage rate. Just as important as rates are the terms of your mortgage which should include:
• prepayment options (10-20%)
• penalties
• portability
We also discuss what type of mortgage fits your current situation
• fixed vs variable?
• life of the mortgage (amortization) 25 or 30 years etc.
• payments – monthly, semi monthly, accelerated bi-weekly

Step 3: Set Your Budget
Keep in mind that just because you’re pre-qualified for a certain amount of mortgage, doesn’t mean you can actually afford that amount. Prepare your own monthly budget to be sure.
Typically, your total home payments (including mortgage, property taxes, strata fees & heat) should not exceed 32-39% of your gross (pre-tax) income.

Step 4: Find the Right Property – Time to Engage a Realtor
Once you have been prequalified for a mortgage, based on your budget… you need to find a realtor.
Selecting the right real estate agent is a very important step in the home buying process. When you work with an agent, you can expect them to help you with many things, including:
· Finding a home
· Scheduling tours of homes
· Researching the market, neighbourhood and home itself
· Making and negotiating your offer to purchase, and counter-offers
· Providing expert advice on home buying
· Handling the offer, gathering documentation and closing paperwork
I recommend interviewing at least three realtors. You will quickly decide who has your best interests in mind. Do you want to deal directly with a realtor who’s going to work with directly when you go home hunting, or do you want to deal with a BIG name realtor, who has buyers & sellers realtors working under them? There are advantages to each – you need to decide what is the best fit for your situation.
Get referrals for realtors from friends and family… OR ask me, I have a group of realtors that I know and trust.

Step 5: Mortgage Approval
Once you have found the property you would like to call home, your mortgage broker will send your mortgage application and property information to the lender who is the best fit for your situation, based on your input.
If the lender likes your financial situation and the property, they will issue a “commitment” letter outlining the terms of the mortgage. The lender will send you a list of documents, so they can verify and validate all the information you told them on the mortgage application.

Step 6: Time for the Solicitor (Lawyer or Notary)
Once the lender has reviewed and approved all your mortgage documentation and the property documentation, your file will be sent to your solicitor (in B.C. you can use a lawyer or notary). They will process all the necessary title changes and set up a time for you to meet, review mortgage documents and sign.

Step 7: Get the Keys
On the closing day the documentation for your home purchase will be filed at the land titles office by your solicitor. Typically, the possession date is 1 or 2 days later, giving time for the money (down payment & mortgage) to get to the home seller. On possession day you set up a time to meet with your realtor to get the keys.
Congratulations you’re done – you now own your home!!
Mortgages are complicated, but they don’t have to be… I’m only a call away.

Thanks to Kelly Hudson at DLC for the list!

10 Apr

Income Qualified

Mortgage Tips

Posted by: Jordan Thomson

There are several different ways a borrower can qualify for a mortgage when it comes to their income. One of the most common ways is known as income qualified. All of the following methods of employment income are under the income qualified umbrella:

1) Annual salary income employees
2) Full time employees working guaranteed weekly hours
3) Part time employees working guaranteed weekly hours
4) Auxiliary/On-call employees with 2-yr history at same employer
5) Commission Sales who have 2-yr history in same job/industry
6) Employees earning gratuities who have claimed over 2-yr history
7) Contract employees with 2-yr history at job/industry
There are a couple more types of employment that may fall into this category, but for the most part, these are the types of borrowers whose mortgage application is going to be done using income qualifying.

When it comes to the first 3, a borrower’s income is paid by a business in which they generally do not have any interest/ownership in. This means, an human resources representative or a supervisor can write a letter of employment stating the weekly guaranteed hours, the guaranteed hourly pay rate, the start date, and the employee’s position. The lender will then use this letter, a most recent pay stub, as well as verbally confirm the letter with the employer to verify a borrower’s income. This is how a borrower who works guaranteed hours or salary has their income verified and qualified on a mortgage application.

For numbers 4 to 7, lenders and mortgage brokers will verify and qualify a borrowers income a little differently. Because an employer does not guarantee hours or income, we need to see that there has been at least a 2-year history making the same amount. This 2-year history will usually need to be with the same employer and will need to be documented on your personal income tax returns to the Canadian Revenue Agency. The income amount on your line 150 of your T1 General Tax Returns for the past 2 years are added together and then divided by 2. The amount you get is the income you are allowed to use on your mortgage application and this is then verified by a letter of employment stating you have in fact been an employee there for more than 2 years, your are currently working there, your position, as well as a pay stub showing year-to-date income that is comparable to your 2-year average given the month you are in.

The same process would be used for those who earn over time or bonuses, claim tips, or work part time with two jobs. If you have any questions, let me know, I’m here to help!

Thanks to DLC contributor Ryan Oake for this info!

14 Mar

3 “Rules” of Lending- What Banks Look at When You Apply for a Mortgage

Mortgage Tips

Posted by: Jordan Thomson


Buying a home is usually the biggest purchase most people make and there are a lot of factors to consider. My job is to provide you with as much information (as you can handle!!) so you can make the best decision based on your particular situation.

The 3 “rules of lending” focus on determining the maximum size of mortgage that can be supported by your provable (what you paid taxes on) income.

You need to consider two affordability ratios:

Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 36-39% of your gross monthly income. Housing costs include – your monthly mortgage payment, property taxes and heating. If you are buying a condo/townhouse, the GDS will also include ½ of your strata fees. The total of these monthly payments divided by your “provable” gross monthly income will give you your Gross Debt Service.
Mortgage payments + Property taxes + Heating Costs + 50% of condo fees / Annual Income

Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 42-44% of your gross monthly income This includes your housing costs (GDS above) PLUS all other monthly payments (car payments, credit cards, Line of Credit, additional financing, etc.). The total of all your monthly debts divided by your “provable” gross monthly income will give you your Total Debt Service.
Housing expenses (see GDS) + Credit card interest + Car payments + Loan expenses / Annual Income

What about the other 56% of your income?? This is considered to be used up by ‘normal’ monthly expenses including: taxes, food, medical, transportation, entertainment etc.)

Rule #3 – CREDIT RATING Everyone who will be on title to the property will need to have their credit run. Your credit bureau is important because it shows the lenders how well (or not) you have handled credit in the past. This gives them an indication of how you will handle credit in the future, and will you be a good risk and make your mortgage payments as promised. If you handle credit well, you will have a high Credit Score and get the best interest rates from the banks/lenders. If you have not handled credit well, and have a poor credit score, you will either be charged a higher interest rate or your application will be declined.

Want to know what your mortgage qualification amount is based on these factors?

Set up a mortgage review phone call with me, where I can determine what your affordability ratios are, strategies to improve them if you want/need to qualify for more mortgage and an overall mortgage pre-qualification amount!