The Financing Clause

If you have been through the process of purchasing a home, you may have remembered a clause, at the back of your purchase agreement, that states something like this:

“ This offer is conditional upon the Buyer arranging financing within FIVE (5) banking days from acceptance of this Offer.”

Sometimes the financing timeframe is extended beyond five banking days, but more often, I typically see a 5-day window assigned.

The requirement to get your mortgage financing sorted out, within a set number of business days, is a very important time for the purchasing clients and for the real estate agents who represent both sides of the transaction, the buyer of the home and the seller of the home. Without financing, the purchase offer would be become null and void and the buyer’s deposit money is returned to the buyer.

As I have carefully navigated through several purchase deals and have organized financing for several clients, let me assure you that the time assigned to obtain the financing is often fully utilized and can even be a tight timeline to fulfill depending on factors which are often out of my own control. Let me take you through an outline of exactly what transpires during this very important timeframe so that you can clearly understand why the process can take this much time. I have allocated the financing process into a 10-step process.

Click here to review the 10-step process.

1. If the buyers have not yet started a mortgage financing application, they will need to make arrangements to provide full disclosure on a formal mortgage application. This would include their residential status, marital status, employment status, income, disclosure of current debts, and all other financial obligations, that the buyers may already have. The application is created and a credit report is retrieved.

2. Once the application is complete, it is then forwarded electronically, along with the attached credit report, directly to the chosen bank/lender.

3. The application is received by the lender and will be assigned to the lender’s underwriter. It is important to mention that underwriters receive many applications and so therefore the timeframe to receive attention on a submitted deal can be a day or two.

Once the underwriter has accessed the application, it is here that the application is carefully reviewed and considered. If the application has been carefully prepared, and there is no missing information, and details regarding the applicants have been carefully and properly documented, and a proper determination was made on the applicant’s ability to receive financing, the application would then receive approval by the underwriter.

4. The underwriter will prepare a mortgage commitment for the applicant(s).

5. Within the mortgage commitment, the underwriter will assign a list of conditions. These conditions will be outlined, within the mortgage commitment. A sample of these conditions might be:

a) applicants to provide proof of income;

b) applicants to provide recent pay stubs;

c) request for a full appraisal on the property;

d) confirmation of proof of downpayment…..etc.

6. Once the mortgage commitment is forwarded back to me, it is at this point that the clients are informed of the list of criteria that the lender has provided. The list of conditions would have to be carefully reviewed and as long as each item can be fulfilled, the possibility of the full approval is almost near. While it is preferable to gather documents before buyers enter into a purchase position, it is not always something the buyers fulfill up-front.

7. All documents required by the lender, per the mortgage commitment, are then forwarded to the lender for review.

8. The lender’s fulfillment administrator, will then carefully review all submitted documents.

9. If the lender’s fulfillment administrator has approved each document, then an approval on the documents would be provided.

10. It is only when the above items have been fulfilled that a decision is made to waive the financing condition, in the purchase document.

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario. Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca

or you visit her website at: http://www.missmortgage.ca

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) www.imba.ca

Lic # M08005880

Brokerage Lic # 10680

Head office is located at: 15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.

Mississauga – What exactly is mortgage loan insurance?

As a first time home buyer, you may have heard that you may have to pay a mortgage insurance premium.   

 

You will have to obtain mortgage loan insurance when you purchase a home and if your downpayment is LESS than 20%.  Remember that lenders do reserve the right to insure your mortgage even if your downpayment is greater than 20% and this decision is often based on the risk associated with the financing.    The key players that provide mortgage insurance in Canada today are CMHC, Genworth and AIG United Guaranty.   The newest insurer to join is AIG United Guaranty.   There may be more mortgage insurers joining the industry who may apply to the OFSI (Office of the Superintendent of Financial Institutions) to become mortgage insurers in Canada.  More competition will result in more choice and lower premium costs for Canadians who want to purchase a home.

 

Here is a sample breakdown to help you understand how a mortgage insurance premium is calculated for a buyer who wants to purchase a home with a 5% downpayment.

 

 

Price of home being purchased	(A)  $242,000
Your saved 5% downpayment	(B)  $12,100
Price less downpayment  (A) – (B) =	(C)  $229,900
Insurance Premium calculated for a 5% downpayment is 2.75% of amount $229,900   Total mortgage loan insurance premium is  à	(D)  $6,322.25
Total amount advanced to you by the Lender total mortgage amount   (C)  + (D)  =	$236,222.25
The lender who is reviewing your mortgage application will include the mortgage insurance premium (on your mortgage commitment) as part of your total mortgage loan and this is repaid over the term of your mortgage loan.   You can also pay this premium up-front, on closing date, if you prefer.

 

It is also important to point out that the mortgage loan insurance premium (calculated in example above) is also subject to provincial sales tax and this tax amount is not included in the total loan amount therefore you would have to pay this sales tax on your closing date.

 

Here below is a table that gives you an idea on what the typical mortgage loan insurance premiums are, but you should go directly to the various insurer websites to check the current insurance premiums when you are ready to buy.

The mortgage loan insurance premium charges are calculated as follows:

 

Financing Needed on the Purchase	Insurance Premium
Up to and including 65%	0.50 %
Up to and including 75%	0.65 %
Up to and including 80%	1.00 %
Up to and including 85%	1.75 %
Up to and including 90%	2.00 %
Up to and including 95%	2.75 %

 

 

You may be asking, so why do I need mortgage loan insurance, is it mandatory, and who does it protect?  

 

Why do I need mortgage loan insurance?   It is the lender who requires the mortgage loan to be insured.   The mortgage lender passes along the cost of insuring that mortgage, along to the consumer. 

 

Is mortgage loan insurance mandatory?   No.   There are a few mortgage lenders, on the market, who may provide you with mortgage financing without mortgage loan insurance but there will most certainly be a much higher interest rate offered as well as other administrative fees that could be added to the mortgage loan amount.   These other mortgage lenders can be accessed through the mortgage broker community.

 

Who does mortgage loan insurance protect?   Mortgage loan insurance is required by the mortgage lender because it protects the lender, if, the borrower, for some reason, cannot pay their mortgage.

 

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth services clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca 

or you visit her website at:    www.missmortgage.ca

 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) www.imba.ca

Mississauga – Pay off high interest debts

If you are already a home owner, you will likely have equity in your home.  Using that equity to pay off your consumer debts may be an option that will ease some of the stress of paying high interest debts over a long term.  Instead of paying your credit card debts at 18 – 28% interest, you may be able to consolidate that debt into your mortgage and pay it off at less than 6%.

 

Current Debt Position	Balance	Monthly Payment
1st Mortgage at 5.7 %  (amortization 19 years)	$220,000.00	$1,573.78
2nd Mortgage at 14%	$40,000.00	$469.55
Car Loan and Credit Cards	$18,857.00	$915.71
Total Mortgages + Car Loan + Credit Cards	$278,857.00	$2,959.04
New Debt Position	Balance	Payment
New Mortgage at 5.25% (amortization 19 years)	*$278,857.00	$1,926.60
2nd Mortgage at 14%	$0.00	$0.00
Car Loan and Credit Cards	$0.00	$0.00
Total Mortgage + Car Loan + Credit Cards	$278,857.00	$1.926.60
Total Monthly Saving:  $2,959.04 – $1,926.60 =		$1,032.44
*CMHC insurance fees and cancellation penalties may apply.  This example is illustrative only. Interest rates are subject to change without notice.

 

Consider above, a recent client with a mortgage balance of $220,000, a second mortgage at $40,000 and other debts totalling $18,857.  By consolidating the two mortgages, the car loan and the high interest credit cards, the client was able to reduce monthly payments and save $1,032.44 per month.  It is important to note that for this exercise to bear real financial fruit, this monthly saving should be applied to either an investment or as additional principal payments against the new mortgage.  All too often, the additional cash flow is consumed resulting in a similar crisis a few years down the road.

 

Such a consolidation will not only reduce monthly debt load but will improve and protect your credit rating, a major consideration for any Canadian seeking future loans.  Missed or late payments are not the only factors that can reduce your credit rating in the eyes of financial institutions, credit cards and lines of credit that are “maxed out” have the same negative impact.  You should always know, validate and protect your credit rating as much as your SIN number and credit cards.   When it comes time to renew your mortgage finance, you will be glad you kept your credit rating in good standing.

 

 

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you visit her website at:    www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

Keeping up with your growing list of contacts

When I decided to move into the mortgage financing business, I realized very quickly that there were a good number of people that I would be interacting with, on a daily basis……..lenders, clients, prospects, lawyers, appraisers, lenders, property inspectors, financial planners.  

 

It was after my first year, that my husband asked me how I was keeping track of everyone.   I pulled out the piles of business cards that I had been collecting over that first year and my husband shook his head in disbelief.  He told me that we were going to purchase a database management software program to help me get organized and I must admit that I was delighted to know that my own memory was going to finally get a break.

 

We purchased a software called ACT.  I went ahead and downloaded their 30-day trial version and by the 2^nd week of utilizing the software, I was hooked.  It was no longer a “nice to have” but moved to a “must have”.  Now in my third year of business, I know that I could not have possibly managed the contacts I have today.  I now have just over 600 contacts in my database and each day I add another name or two.  The software has allowed me to organize the data to retrieve customized reports and also help me to keep in touch with business partners, clients and prospects.

 

As my business continues to grow, I know that it was one of the best purchases I have ever made for my own business.

 

 

 

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth Blair services mortgage clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you visit her website at:    http://www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

 

 

 

 

Mississauga – Understanding your credit rating

What is your credit rating score?  If you don’t know, you are at risk of being refused credit, paying higher interest rates or being considered a high risk by banks, employers or others who have access to credit rating files.

If you have a credit card, a line of credit or a car loan, you have a credit history and it is being recorded in a credit report by credit reporting agencies, Equifax, Trans Union or Experian Canada Inc.   These Credit Reporting Agencies collect information on your ongoing use of credit and your repayment of that debt.  As you continue to utilize your credit cards, pay your car loan or your line of credit, you will be assigned something called a “credit score”.  A credit score is a numerical scoring measurement of an individual’s use of credit, specifically repayment of debt.   A higher score would indicate a borrower has better management of their consumer debt while a lower score would indicate poor management of consumer debt.  There are several factors that can affect your credit score, for example, whether you pay your debts on time, the total amounts that you owe, delinquent payments, collections that may have been filed against you or limits that have been exceeded or “maxed out”.  

 

If you currently have a mortgage or will be applying for mortgage financing, you may know that mortgage lenders will want to see your credit report.  You will need to provide permission to the bank or mortgage broker to retrieve your consumer credit report for review, at the time of your application for a mortgage.  Once the credit report is retrieved, it will be carefully reviewed, by the lender, to determine what mortgage rates you are eligible to receive.  Many applicants are surprised to learn that lenders establish very specific guidelines on what mortgage rates they will offer and it is usually based on an applicant’s credit score.  

 

Take the time to understand how you can achieve and maintain the best credit score.  When it is time for you to renew your mortgage financing in the future, you will be able to qualify for the best mortgage rates. 

 

Here are some quick tips to help you:

 

1.  Be sure to pay your bills on time.

 

2.  Avoid exceeding your credit limits.

 

3.  Avoid having too much available credit.

 

4.  You should always know, validate and protect your credit rating as much as your SIN number and credit cards.  

 

5.  You can check your credit rating for accuracy once a year free of charge.  Just call Equifax at 1-800-465-7166 or go on-line at http://www.equifax.ca and fill out the form at

http://www.equifax.com/EFX_Canada/consumer_information_centre/docs/request_report_form_e.pdf or you can purchase a copy of your credit report on-line.

 

6.  Often, a file contains data that is out-of-date or inaccurate.  If you find any information on your credit report that is not accurate, you should contact the Credit Reporting Agency to have it corrected.

 

7.  Be sure to download a copy of the document entitled “Understanding Your Credit Report and Credit Score” published by the Financial Consumer Agency of Canada by going to http://www.fcac-acfc.gc.ca.

 

 

This article was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth Blair services mortgage clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you visit her website at:    http://www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

 

 

 

 

 

Using your home equity for home improvements

You may be thinking about the projects that need to be completed around your home; landscaping the garden, rebuilding a patio or fence, changing older windows and doors, a new roof, or even remodeling a basement, kitchen or bathroom.  Tune in to some of the recent popular TV programs like “Extreme Makeover Home Edition” and you will surely catch the bug. 

 

If you live in a freehold house, you should be spending an average of 1% of your home value annually on maintenance just to keep it in good repair and to prevent it from declining in value, according to “Home Buying for Dummies” by Eric Tyson and Ray Brown.   Professional home improvements and renovations, according to the Appraisal Institute of Canada’s 2004 Home Renovation Survey, can provide homeowners with the following return on their investments:

 

Top Four Renovations that will give you the Highest Payback Potential

Bathroom renovations (75-100%)      Kitchen renovations (75-100%) Interior painting (50-100%) Exterior painting (50-100%)

Other Renovations Payback Potential

Roof shingle replacement (50-80%) Furnace/heating system (50-80%) Basement renovation (50-75%) Recreation room addition (50-75%) Installing a fireplace (50-75%) Flooring (50-75%) Constructing a garage (50-75%) Window/door replacement (50-75%) Building a deck (50-75%) Central air conditioning (25-75%)

Six Renovations that will give you the Lowest Payback Potential

Landscaping (25-50%) Interlocking paving (25-50%) Building a fence (25-50%) Asphalt paving (20-50%) Adding a swimming pool (10-40%)   Installing a skylight (0-25%)

 

 

How do you find the cash to pay for these various projects?  If you are already a homeowner, you will likely have equity in your home.  Equity is the present fair market value of the property less your outstanding mortgage amount.  Using that equity to finance home renovations is a real option.  You may borrow up to 100% of the value of your home, based on certain criteria.  Contact Elizabeth to find out how you can access your home equity to pay for projects you may have this year.  

 

This article was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth Blair services mortgage clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you visit her website at:    http://www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

 

Watch that mortgage renewal date

Watch your mortgage renewal statement and ensure your renewal does not sneak up too quickly or you will not have time to negotiate the best deal !

Did you know that your current lender must send you a renewal statement at least 21 days before the end of your mortgage term. I suppose that lenders wait this late to send you a renewal notice so that you have little time to negotiate or shop around for a better mortgage rate. When you receive your renewal, you will probably be very surprised to see that the rates offered are not the lowest or most competitive rates in the market.

Give yourself more than 21 days to explore your mortgage renewal.

Find your mortgage contract or your latest annual mortgage statement to find out what your exact renewal date is then mark your calendar to begin looking about 120 days before your renewal date. If your bank has not given you the most competitive or lowest rate, you do have the option to leave that lender.

If you are seeing higher rates on that renewal statement, ask yourself this question……why would you spend your time badgering your bank for a better rate when you are entitled to the best rate the first time?  Please call me so I can show you how you can SWITCH your mortgage to a new lender and at no cost to you.

 

 

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you visit her website at:    http://www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

 

My mortgage is up for renewal – what are my options?

If you have just received your mortgage renewal statement, you may be in shock when you notice the  drastic increase in the mortgage rates being offered by lenders.  The 5-year fixed mortgage rate has jumped to almost 6% and is higher with some lenders.  Even though the Bank of Canada has recently lowered its prime rate in October 2008, there is still a significant difference between the mortgage rates that you might have received 3 to 5 years ago compared with mortgage rates today.   Even a variable rate mortgage, which was recently available at discounts of 0.85% to 1% below prime rate, is no longer available and will not likely return in this market.  Today’s adjustable rate mortgage or variable rate mortgage is available at around prime rate PLUS 1%.     

 

When you receive your mortgage renewal statement, it is important for you to know that you can always take your mortgage business to another lender and there is no “penalty” as long as you are not breaking your mortgage term prematurely.  However, there are costs associated with just switching mortgage lenders, especially if you go shopping for a mortgage on your own.    Here are the typical costs associated with just switching mortgage lenders:   

 

1) Appraisal Fee:  you may have to pay the cost of an appraisal when you switch to a new lender.  Any new lender needs to know what the fair market value is, of your home, before they will agree to advance mortgage funds on it. Appraisal fees can be anywhere from $150 – $350 depending on the square footage of your home and these are always ordered by the lender so do not go out and hire an appraiser yourself.  

 

2) Discharge Statement Fee:  you will have to pay the cost that your lender will charge to prepare a discharge statement for your mortgage.  Every bank charges a discharge fee if you leave them at the end of your mortgage term. The discharge statement fee can range from $150 – $300, depending on your lender.       

 

3) Legal Fees – a new mortgage will have to be registered and you will need a lawyer to do this for you. The cost to register a new mortgage can be anywhere from $600 – $1,500 or more, depending on what you are having done.

 

Now typically, when you get a renewal notice from your lender (before your term is ending) and you do not like what you are being offered on renewal, let me recommend a couple of options:  1) you shop the rates yourself and go back to your lender and negotiate the rate with them directly; or 2) you call me and I will shop the mortgage rates out on the market for you. Because I deal with over 40 lenders, I can let you know if you are being offered the best deal. Once I find you a better mortgage rate, you can simply ignore your lender’s renewal “offer” and I can set up a new mortgage for you to take effect on your mortgage expiry date……it is that simple.  I help clients switch their mortgages to a new lender all the time and it is a painless process.

 

Now if you are concerned about the “cost of switching”, I have a GREAT product just for that!  One of my lenders will pay ALL of the costs typically associated with switching your mortgage:

 

1) your appraisal fee is paid;

2) the discharge statement fee is paid;

3) and the legal fees are covered.

 

So essentially, it is a NO COST switch that allows you to move your business without costing you a dime.  Also, since I have the ability to negotiate discounts on your mortgage rate too, I can almost always guarantee a better rate than what your own bank is offering.  Please contact me about 4 months prior to your renewal date, and I promise to give you the best service!

     

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you visit her website at:    http://www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

 

Planning for your first home purchase

If you are thinking of buying a house soon, here are some good tips to help you get started:

1.  Begin saving cash for your downpayment.  The higher your downpayment, The lower your mortgage obligation will be.  You can also place saved funds into an RRSP, and then cash them out to use towards your downpayment.  Remember that an RRSP will also give you some tax benefits each year, as you save.  Seek out the assistance of a good financial planner to help you towards that goal.

2.  All applicants on the mortgage should be using credit and be working towards building a credit history.  Use credit, pay it off.   Some examples of items that will develop your credit history are credit cards, line of credit, a car loan, a personal loan.

3.  Always pay your credit card bills, utility bills and anyone who provides you services ON TIME.  Remember that if you do not pay other companies, that may have provided services to you, and you owe money to them, those same companies could file “collections” against you for those monies owed and these collections are listed on your credit report.  Removing collection items from a credit report is a lengthy and tedious process.

4.  Avoid running up too many balances on cards or too much debt:  A common one I see is car loans.    Car loans are relatively easy to obtain, however, when it comes time to apply for a mortgage, and you have monthly payment obligations of $800 a month, it may greatly reduce your ability to qualify for a higher mortgage amount especially if you are carrying other debt obligations.  I always tell first-time buyer clients, to go out and buy the least expensive well-maintained used car they can find, pay cash for it, and drive it around until after they buy and move into their house.  After purchasing a house, they can then go out and take on a car loan and see what they can comfortably afford with the new mortgage obligation.

5.  Do not sign up as a co-signer or guarantor for anyone else.  If you do, you could be disqualified for a mortgage if you have a financial obligation to someone else’s debt.   Even though you may only have co-signed, that debt obligation would have to be disclosed on your mortgage application and depending on what that amount is, you may not be able to qualify for the amount you need on your mortgage application.

6.  Don’t switch jobs just before you apply for a mortgage unless you can wait out the probation period on the new job.  If your new position does not have a probationary period, that would be fine with most lenders reviewing your mortgage application.

7.  Be sure you understand the whole financing process when purchasing from a builder.  Often qualifications are given by the ‘in-house’ lender at the builder’s office, but clients often walk away without ever really understanding what happens with their mortgage qualification in the long-term (18 months away or whenever their new home is built).  I recently received a phone call from someone who made a deposit with a builder, over a year ago and was about to lose their deposit on closing date, because they could not qualify for their mortgage.  The lender could not approve the mortgage loan since the client’s financial status had changed.  Remember that a lender reserves the right to review all applicant’s financial status and if there is some substantial change in their financial status, right before closing date, the lender could refuse to fund the mortgage.  Read the fine print of any contract you sign and understand that while you may have put down a deposit with a builder, the house is really not yours until your financing is affirmed.

This article was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth services clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you can visit her website at:    www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca