Buying A Home

How using a professional mortgage broker can help a first time buyer

You have plenty of mortgage questions, how does a professional mortgage broker help?

The biggest challenge with first time home-buyers is that they have a multitude of questions and at the start a lot of those questions have to do with mortgage financing. As an Edmonton professional mortgage broker, we can can help. Among the first questions a first time home-buyer has are:

1. What size of mortgage do I qualify for? Try our maximum mortgage calculator.
2. How much will my monthly payments be? Try our mortgage calculator with down payments.
3. How much of a down payment will I need?
4. What are the other costs are part of buying a home? See Buying a Home in Canada.

Realtors and Mortgage Brokers Work Together

Many Realtors partner with a professional mortgage broker when they are dealing with a first time home buyers. They find it very effective to start the process off with the first time home buyer working with the Mortgage Broker who educates the client on what is involved in the financial side of buying a home and has completed the following steps with the client:

1. Review the client’s financial situation to determine how much of a mortgage the client qualifies for.
2. If the client has any credit challenges the broker works with the client to address these challenges, including a credit rebuilding program if necessary, so that the client can meet the lenders credit requirements.
3. Discuss with the client the many options for down payment ranging from zero down/flex down to gifted down payments and the Federal Government Home Buyers’ Plan (HBP) which allows first time home-buyers to access their RRSP savings for the down payment.
4. Discuss with the client the First Time Home-Buyer Tax Credit which can be used to offset some the costs associated with purchasing a home, such as legal fees, disbursements and land transfer taxes.
5. Have the client pre-approved with a lender so that when the client starts looking for homes with the Realtor they can make an offer confidently along with having a lower rate locked in if rates move up while they are looking.
6. Manage the mortgage file all the way to funding so that there are no hiccups or surprises that can interfere with the purchase closing on time.

Both the First Time Home-Buyers and the Realtors who use this process of partnering with a Mortgage Broker find that this a very beneficial process. If you are looking for a professional Mortgage Broker who not only has an established first time buyer program but who is also available to partner with you to do first time buyer seminars, please call or email us at Best Rate Mortgage Group.

5 Year Canadian Bond Rate Down 28%

Since January 21st the 5 Year Canadian Bond Rate is down just over 28%, falling from 1.066 on Jan 21st to close today at .760 This should continue to put downward pressure on the 5 year fixed mortgage rates which are priced off of the bond rate. Currently the best rate I have on a five year fixed mortgage is 2.79%.

With the Fixed Rates looking like they can go lower and the potential of the Variable Rate going lower, hopefully if the Banks drop the Prime Rate, I am finding more clients are torn between going with a Fixed Rate or a Variable Rate. My advice has always been and continues to be, it depends on each clients unique financial situation and their tolerance for risk.

In light of the recent movement in the rates if you are struggling with the question of which is a better fit for you, a Fixed or Variable mortgage, please send me a quick email and I can work through the numbers with you. I have found once the clients see all of the numbers based on the two scenarios they can very quickly decide which is a better fit for them.

First Class Opportunities for First Time Buyers

You live in a house, but is it your home? Being a renter is a position that we all find ourselves in at one stage of life, or another. Consider it a means to an end. Eventually the time comes when you are in position to invest your hard earned cash into your future. Enough of your earnings have gone into lining your landlords pockets, as you pay down his mortgage.

First time home buyers nowadays are far better positioned to obtain a mortgage than in the past. Gone are the days when the only institutions that extended mortgages were the big banks. The rise of mortgage brokers and alternate lending organizations has meant that first time buyers enjoy a position of power, as a result of increased mortgage options and mortgage rates being near all time lows.

Imperfect credit record? No down payment? These are no longer show stoppers when it comes to purchasing property. Real estate agents work together with mortgage brokers, mortgage insurers, and even the government to make a first home a reality for as many Canadians as possible. Working together as a team, your Mortgage Broker and Realtor can make your home ownership dream a reality.

As part of Canada’s Economic Action Plan, the government introduced the First-Time Home Buyers’ Tax Credit (HBTC), and expanded the incentives available under the Home Buyers’ Plan (HBP). Many Canadians have longed to purchase property they can call their own, but have found that coming up with the down payment is big hurdle This hurdle can be overcome with programs such as the first time home buyers RSP withdrawal plan. This government of Canada program allows first time home buyers to withdrawal up to $25,000 from RSP accounts, tax free, for the down payment. There is also the flex down program which allows you to borrow your down payment, as well as gifted down payment options and others.

Finally, First Time Home Buyers are getting the tax breaks, and financial help with the many costs associated with buying a house. This along with mortgage rates being near the all time lows make this a perfect time to stop being a renter and purchase your own home. So how do first-time buyers ensure they are getting the best rates and terms on their home financing?

A recent Bank of Canada report found that first-time home buyers were better positioned to negotiate the terms of their mortgage than those renewing an existing policy. This was also true for homeowners looking to switch banks when it came time for a mortgage renewal. The report was entitled Discounting in Mortgage Markets, and conducted in 2011. It made for some interesting reading, here is the link to the full report:

https://www.bankofcanada.ca/2011/02/working-paper-2011-3

The Bank of Canada concluded that those looking for their first mortgage tended to get the best deals when they put a mortgage broker to work for them. They found that “Over the full sample the average impact of a Mortgage Broker is to reduce rates by 17.5 basis points. Brokers are a significant factor, therefore, in driving discounts.” One of the best things about mortgage brokers is that you don’t pay them. The lender who works hard enough to earn your business does (except for private lenders). Since the 1990s there has been a huge increase in the number of lenders in Canada beyond the six main banks that provide mortgage financing. This increase in competition means better terms and rates for borrowers. Through the use of a Mortgage Broker you have access to over three times the number of lenders you would on your own, and many of these lenders just specialize in providing mortgages so they can offer more competitive rates and products. It is currently estimated that 40% of first-time buyers work with a broker and a real estate agent when purchasing property, and that this percentage is going up as first-time buyers learn about the benefits of using a Mortgage Broker.

Buying a home is one of the most important financial investments you will make, and your family’s future and prosperity depends on getting it right. So, take a few minutes to contact a professional Mortgage Broker and go over the options that are available to you. You may be pleasantly surprised by what you can achieve by putting the experience, and expertise of a Mortgage Broker and a Realtor to work for you.

We at the Best Rate Mortgage Team are available to answer any mortgage questions you may have. You can reach us at 780-418-BEST (2378), or send me an email at bernie@thebestrate.ca. For updated mortgage rates and news along with some great calculators and work sheets to help you decide what mortgage works best for you, go to our web site www.TheBestRate.ca or like us on facebook/bestratemortgage.

Finance Minster feels pressure to raise interest rates

Finance Minister Jim Flaherty says Canada will face global pressure to raise interest rates in 2014, as the United States begins to step back from its policy of extraordinary economic stimulus through intervention in bond markets.
The Fed’s reduction of quantitative easing, dubbed tapering, adds to pressure from the Organization for Economic Co-operation and Development and International Monetary Fund for Canada to hike rates, Mr. Flaherty said Sunday.
“I think the pressure will be there, because the Fed in the U.S. should stop printing money, and taper off as they say,” Mr. Flaherty, referring to the dialling back of U.S. bond-buying, told CTV in an interview aired Sunday. “The OECD and the IMF have both said to Canada we ought to let our interest rates go up a bit. So there’ll be some pressure there for that to happen.” Mr. Flaherty stopped short, however, of saying what he thinks Mr. Poloz should do, with the minister’s spokeswoman saying Sunday that’s the “domain of the Bank of Canada.”
However, a November OECD report said Bank of Canada interest-rate hikes “may begin by late 2014 to avoid a buildup of inflationary pressures.” The OECD projections assumed the rate would be hiked in late 2014 and raised to 2.25 per cent – more than double its current rate – by the end of 2015.
The IMF said in October it expected Canada to consider raising rates, or a “gradual tightening” of monetary policy, in late 2014. But the IMF also said in a report a month later that the Bank of Canada “can afford to wait before starting to raise policy rates towards more normal levels,” but that policy makers must “remain vigilant against the potential risks” of keeping rates low, such as pension funds’ “increased reliance on non-traditional investment strategies.”
Monetary policy, such as interest rates and the dollar, are the Bank of Canada’s turf, not that of Mr. Flaherty, so it’s uncommon for him to comment on the subjects. Through his spokeswoman on Sunday, he declined to comment further. NDP Finance Critic Peggy Nash said it’s “disturbing” that Mr. Flaherty is wading into a subject area that’s the responsibility of Mr. Poloz.
Bank of Canada governor Stephen Poloz says he expects long-term interest rates to rise this summer as the U.S. Federal Reserve continues tapering, but he believes that would be a positive development.
Poloz said he believes that the U.S. Fed will continue to taper its bond-buying program throughout the year and that will create market pressure on bond yields.
“In the context of a firming global economy, especially the U.S., we’d expect to see some upward pressure in market interest rates, long-term rates in particular, where the quantitative easing has its primary effect,” Poloz said in an interview with Amanda Lang on CBC.
The market handled the tapering announcement well, though it put pressure on bond yields, including Canadian bond yields, Poloz said. That would lead to an increase in long-term fixed mortgage rates, though the Bank of Canada would not increase its benchmark rate.
This may create an opportunity down the road where the spread between the 5 year fixed and the 5 year variable mortgage is large enough that the variable mortgage becomes a great option for Canadians as the rise in prime rate lags behind the rise in the bond rate. Please contact me directly to discuss the pros and cons of a fixed vs. a variable rate mortgage.
Cheers
Bernie

One of the results of OSFI now overseeing CMHC will be that more borrowers will require an Alternative Lender as Banks tighten up.

The banks will have to sweeten the terms of the “covered” bonds they sell in the market. In the past these bonds, backed by a portfolio of mortgages, had a lot of appeal to investors due to the fact that those mortgages were guaranteed by CMHC and, ultimately, Canadian tax dollars.
With the plan to reduce banks access to portfolio insurance through CMHC for their conventional mortgages, banks are going to have to increase the yield for investors to buy these new bonds that will not contain mortgages backed by guarantees from CMHC. This is going to result in increased rates. Also with these changes there will be a shifting of greater responsibility for bad mortgages back to the banks that originated the mortgage. This will result in the bank tightening up their lending decision in an effort to reduce risk.
As the lending terms of the banks get tighter and banks get pickier on which borrowers they want to offer mortgages, the alternative lending market will gain momentum as more borrowers get pushed further out of the mainstream bank lending comfort zone. It’s currently estimated that banks are rejecting as much as 20 per cent of the mortgage applications they receive because they are no longer insurable by CMHC. This is only going to increase over time.
As an independent Mortgage Broker I deal with a large number of lenders besides the major banks. All of these lenders offer mortgage solutions that go beyond what the traditional banks can offer, and many of these solutions are at rates under 4%. Just because the bank says no to a deal does not mean that the clients cannot find a suitable mortgage at a very attractive rate. Please give me a call or email if you have a client that has been turned down by the bank….I am sure I can find them a mortgage solution whether they are BFS and need stated income or if they are first time home buyers with less than perfect credit. 

Important Questions For First Time Home Buyers

How Do I Get Started Buying A Home?

You can get started today by thinking about your financial picture. Ask yourself the important question about whether you’re ready to make the commitment to own a home. Remember that help is always just a phone call or email away with Best Rate. Denise and Chantal, our mortgage brokers at the Best Rate, are friendly and easy-to-talk-to professionals that can help answer all of your home buying questions.  How much can you afford in a monthly mortgage payment? How big does my house need to be? What areas of the city do you like or dislike? When you answer these questions, compile your “To Do” list and start figuring out the answers. You may decide to separate your “must-haves” and “nice-to-haves” in order to prioritize your home buying goals. It’s always helpful to get the input of others, so talk to friends and family, drive through potential neighborhoods, and look in the “Homes” section of the newspaper. Mortgage brokers are in a unique position when buying a home because of their experience and connection to the housing market.

Does Buying A Home Compare With Renting?

Many times owning and renting don’t really compare at all. The main advantage of renting is being free of maintenance responsibilities. But by renting, you lose the chance to build equity in your asset, protect yourself against rent increases and you miss out on enjoying the pride that comes with ownership. You may not be free to decorate your living environment and you may be at the mercy of the landlord’s restrictions.

Home ownership has many benefits. As you pay your mortgage, you build equity. That’s an investment. Many people like you, choose the freedom, stability, and security of owning your own home. The Best Rate Mortgage Brokers help you get the best mortgage options and rates to make your dream of home ownership a reality.

How Does The Bank Decide The Maximum Mortgage That I Can Afford?

All lenders and banks mainly consider your “debt to income ratio”, which is your gross income compared to housing and other expenses. Other expenses can include long-term debts as car or student loan payments, credit card debt, alimony, or child support. The mortgage brokers at the Best Rate can help you understand what your debt to income ratio is and recommend a mortgage that works best for you. Mortgage brokers can use multiple lenders to get the best mortgage rate and mortgage terms for your situation. Lenders and banks also consider cash available for your down payment and closing costs and credit history when determining your maximum mortgage amount

How Do I Find A Good Real Estate Agent?

The Best Rate Mortgage Specialists can recommend excellent real estate agents who work in your area. Referrals are a great way to meet a number of real estate agents before you choose one that will assist you in your search for a home. It is important that an agent listens well and really understands your needs, and whose judgment you trust. The ideal agent knows the city well and has resources and contacts to help you get the most from your search. Overall, you want to choose an agent that makes you feel comfortable and can provide all of the knowledge and services you need.

Everything You Wanted to Know About Buying a Home

Making the right choice when it comes to purchasing a home is a matter of good planning. There is so much to learn, especially on your first purchase, that it’s essential to surround yourself with qualified professionals throughout the process. Even with the help of qualified professionals, you’ll need to understand, in a general sense, how the process works. Our hope is that this article we be a very helpful introduction to the process of buying a home and qualifying for a mortgage.

Affordability and Financing

The question of ‘How much can we afford?’ is largely answered by comparing your income to expenses in two different formulas:

  1. Your gross income to your future mortgage payments, heating costs, strata fees and property taxes, commonly called the Gross Debt Service Ratio (GDS Ratio)
  2. The three previous expenses plus all other debt servicing costs that you regularly pay on a monthly basis. This formula is commonly called the Total Debt Service Ratio (TDS). The TDS Ratio often includes the payments you make on credit card debt, automobile loans, existing lines of credit and student loans as well as other similar loans.

The current maximum ratios for individuals and couples with a 5% to 25% down payment are 32% for GDS and 40% for TDS. In English, this means that lenders will allow you to use a maximum of 32% of your total pre-tax or gross income to pay for your mortgage payments, property taxes and heating costs. And a maximum of 40% of your total pre-tax or gross income for these payments plus all other debt servicing cost you may have –see previous paragraph for examples.

By using these ratios I can help you select a price range for your new home that you are going to be comfortable with and let you know what the maximum mortgage that you will qualify for. This will save you time , money and disappointments you may incur by looking at homes over your price range.

Why Get Pre-Qualified?

There are 3 good reasons to get pre qualified for your mortgage:

  1. It saves you time from looking at homes outside your price range.
  2. We can get you an interest rate locked in for up to 120 days. This protects you from any rate increases that can happen after you have written and offer but before you close on the purchase. This could save you thousands of dollars in interest.
  3. It makes your offer more appealing to a seller, if they know you are a qualified buyer. This means they will look at your offer more seriously which can even result in a lower purchase price.

This pre-qualifying stage is also a good time to find out about the differences between conventional mortgages and high ratio insured mortgages. Ask about assistance for first time the federal government’s “RSP Homebuyer’s Plan” letting you use funds from your RSP to purchase a home and the option of using a gifted down payment to help you qualify.

Applying For Your Mortgage – A Checklist:

  • A copy of the accepted Offer To Purchase, MLS print out, Strata Documents and the land survey.
  • A current salary letter from your employer.
  • Self-employed individuals need financial statements for the past three years as well as personal income tax returns.
  • Confirmation where your down payment came from (i.e. bank statements or a gift letter).

If you are buying a home to be constructed you will need a copy of the building plans and specifications, the land survey, plus your agreement with the builder. With these documents in hand, I can move quickly to secure an unconditional mortgage approval once you’ve found the perfect home.

Making House Hunting Fun!

By taking care of your mortgage needs first you can focus your attention on the details of the home you are buying.  Take the guesswork out of shopping for a home by taking advantage of all the professional resources available to guide you through the many choices available when purchasing your first home.

Mortgage Life Insurance

You should look at mortgage life insurance, disability and critical illness insurance, especially where two incomes are involved. Just like fire insurance, you will sleep better knowing that you are covered for those curve balls that life throws at us.

Prepayment Privileges

I could go on at length about the various features of each mortgage type but in the interest of time, our best advice is to contact me with the questions you are most concerned about. I know the pre-payment privileges of the various financial institutions on the system. These let you pay down your mortgage faster. Also be aware that the longer the amortization period (the time it takes to pay off a mortgage), the more interest you will end up paying. Amortization periods range from five to twenty-five years.

Accelerated mortgage payments such as Bi-weekly payments divide the monthly payment in half and make them payable every 2 weeks. This means you will make 26 half payments a year or 13 full payments a year. This extra 2 half payments can reduce your mortgage from 25 years down to 17 years.

Some clients find having a payment every 2 weeks hard to budget for as there will be 2 months in every year that have 3 half payments in it. This extra payment can through your bank account balance out of whack if you are not very careful and not following which months have the extra payments.  You can accomplish the same goal by just increasing your monthly payment by 10% and making 12 monthly payments a year.

Portable and Assumable Mortgages

Another option to consider is portability. If later, you decide to sell your home and buy another, you should be able to take your mortgage with you or transfer it to the buyer of your home without penalty. This can turn out to be a major advantage if your mortgage rate is below current market rates.

Selecting the Right Mortgage:

The basic choices to look at in selecting a mortgage include:Portable and Assumable Mortgages
Another option to consider is portability. If later, you decide to sell your home and buy another, you should be able to take your mortgage with you or transfer it to the buyer of your home without penalty. This can turn out to be a major advantage if your mortgage rate is below current market rates.

  • Conventional or high ratio mortgages
  • Term length
  • Closed or open mortgages
  • Fixed rate vs. variable rate

A conventional mortgage is a loan for less than 80% of the appraised value or purchase price of the property, whichever is less. A high ratio mortgage is usually for more than 80% of the appraised value or purchase price. This type of mortgage is often referred to as an NHA mortgage because it is granted under the provisions of the National Housing Act and must, by law, be insured through CMHC, GE or a private insurer for which the borrower pays the insurance premium, application, legal and property appraisal fees.

The term you select is important. Short term mortgages can be appropriate if you believe interest rates will drop come renewal time, but in many of these circumstances, they are inferior to a variable rate mortgage. Long term mortgages are suitable if you feel rates will rise in the next few years, they also provide you with the security of knowing what your payments are for a long term. This can be especially important for first time homebuyers. The key is to choose a mortgage that fits your tolerance to risk.

A closed mortgage usually offers a lower interest rate than an open one of the same term, but the open mortgage lets you pay off as much as you want, any time, without penalty. This is a feature many consumers pay for and do not use. The pre payment options that come with most closed mortgages are usually sufficient.

You can choose a fixed or variable interest rate. A fixed rate mortgage allows you to budget precisely for whatever term you select anywhere from six months to 35 years. A variable rate fluctuates with the market and allows you to follow the rates as they drop. These mortgages are very useful in a falling interest rate market.

The Next Step

This article offers an outline of the steps involved when buying a home and qualifying for a mortgage. But it has probably left you with a few questions. We would love to hear from you – please take the time to Contact Us if you have questions.

Get A Pre-Approved Mortgage Before House Hunting

A pre-approved mortgage certificate is a written commitment, by a lender, that you will get a mortgage for a set amount of money, at a specific rate of interest that is guaranteed for a set period of days. The commitment is made subject to a property assessment. The service is free and without obligation.

A pre-approved mortgage gives you an edge. Before you even go house hunting, you will know the size of your mortgage, the interest rate, and the size of your monthly mortgage payments. With your financing already mapped out, you can concentrate on finding the right home in your price range. A pre-approved mortgage also puts you in a strong bargaining position when you make an Offer to Purchase. If the seller wants to make a quick sale, you may be able to negotiate a price lower than the list price, because the seller knows that you are a serious buyer. On the other hand, if several people are bidding on the home you want, you may decide to offer to purchase at the list price, to beat out earlier offers.

Are You Ready To Go Shopping For A Home?

You are ready to go shopping if you have:

  • Set aside money for your down payment and additional costs
  • Determined the price of home you can afford
  • Investigated your mortgage options
  • Your pre-approved mortgage certificate

Draw up a Wish List

Think about where you would like to live (what area or neighbourhood) and what kind of house you would like to live in (which features are absolutely essential, which you can live without and which are entirely out of the question).

Take a look at real estate ads for the area you’re interested in to see what’s on the market and the prices. Also drive around a few neighbourhoods and see what’s for sale or visit Open Houses. This can help crystallize what you want or don’t want in a home.

Choose a Real Estate Agent

Your friends, relatives or co-workers may be able to recommend a real estate agent. If not, call around and talk to a few agents. Ask if their real estate licence is in good standing, find out if they have access to the Multiple Listing Service (MLS) and see how the agents respond to your questions. Also, notice what questions they ask you – are they interested in knowing exactly what you are looking for, do they try to assess your financial situation, are they knowledgeable about neighbourhoods that interest you?

Also, have a discussion about fees. Typically, a real estate agent’s commission is about 6% of the purchase price of a home. In some parts of Canada, there are now buyer/agency agreements that set out how the agent will be paid. Again, make sure you have the discussion about fees at the start of your relationship with your real estate agent.

The best real estate agent will be a combination of personal advisor, consultant and negotiator. He or she will show you homes that match your criteria, guide you through the home buying process, negotiate the best possible price for your home and deliver your closing paperwork.

Retain A Lawyer

Retain a lawyer (or notary in Quebec) who specializes in real estate . Depending on the volatility of the real estate market, you could find yourself in a bidding war for the home you want and you will want to have your lawyer look over any offer to purchase before you submit it.

House Hunting

Knowing exactly what you want in a home will save you a lot of time when house hunting. Think about your immediate needs, your future plans and your lifestyle. When you look at homes, you will be concentrating on the house, but don’t forget to look at the property as a whole – the lot, the neighbourhood, the surroundings – and how close the home is to facilities and services that are important to you.

Buying a home can be an emotional decision, but the home you purchase should strike a balance between your wish list and the practical realities of the property, its location and the housing market. Use our house hunting checklist to compare the homes that you view and get a clear understanding of what exactly is included in the purchase.

We invite you to Contact Us with any questions you about mortgage pre-approval.

Understanding Your Canadian Credit Score

What is a credit score? Your credit score and rating are produced by Equifax. Your credit score is also referred to as a FICO Score as the mathematical formulas behind your score were created by Fair Isaac & Company (FICO). This Credit Score is used by most lenders to help them decide whether or not you’re a good credit risk. Equifax crunches the numbers from your credit report, and spits out a score somewhere between 300 and 850. A low score says you’re a bad credit risk, a score of 750 or higher puts you in the driver’s seat.

Here are the factors considered when calculating your credit score and an estimate of how heavily each factor might be weighted.

  • Past payment history (35%): bankruptcies, late payments, past due accounts and wage attachments
  • Amount of credit owing (30%): amount owed on accounts, proportion of balances to total credit limits
  • Length of time credit established (15%): time since accounts opened, time since account activity
  • Search for and acquisition of new credit (10%): number of recent credit inquiries, number of recently opened accounts
  • Types of credit established (10%): number of various types of accounts (credit cards, retail accounts, mortgage)

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