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Rowan Smith, AMP
Transcript of Video Blog:
Hey everyone! Rowan Smith at the Mortgage Centre. This week we’re doing Myth busting No. 3. This week’s myth is the old: “My bank did a former grow op property for me before so they will again.” That’s not necessarily the case. The industry hasn’t had this problem for that many years, at least not that they’ve been aware of. Properties now being branded as a former grow op in the property condition disclosure statement or in some places even on title has caused lenders to re think how their lending policies are when it comes to former grow ops. They don’t even say why, but what’s changed?
Well, they’re starting to find that some former grow ops have chemical issues with the use of fertilizers and accelerants and whatnot not all of them but some of them and lenders get worried that those chemicals may have leached into the actual property, could damage the actual property. There could have been mold and moisture that damaged the structure.
Well, don’t forget that the property is the bank’s security. Ultimately, that’s all that they have to rely on at the end of the day if there’s a foreclosure. So they want to make darned certain that those properties they’re lending their money on are in fact solid, there’s nothing wrong with them.
Former grow ops haven’t been around, at least in a documented sense, for a long enough period of time for banks to know whether or not they’re actually presenting a risk. So what we saw a few years ago was we could get former grow ops done at five or six banks and it slowly dwindled. Every year we lose one. We’re down now to just a couple of institutions who will consider it and there are pretty onerous paperwork requirements.
Environmental, air quality samples to make sure that there’s no mold or other chemicals in the air. Some of them will want even a “stage two” which could involve taking samples of drywall or this type of thing. Well, certainly they’re going to want to see that the applicant is very solid, their income and credit is very solid as a minimum, before they’re going to lend on a property which might not be quite as solid.
So, you think your bank did it before, I counsel you to check again before you go writing any such check free offers. If you know anybody in this situation who’s written an offer on a former marijuana grow op and would like some advice, get them to call me. I’m Rowan Smith at the Mortgage Centre.
Transcript of Video Blog:
Hi everybody! It’s Rowan Smith with the Mortgage Centre. We’re doing Myth busting #2 here and another one I want to address is the myth that if you have 35% down you don’t even need a job. That is patently incorrect!
There was a time when 35% down gave you a lot more leeway than it does and to a certain extent that’s come back. If you’re a self employed individual you don’t necessarily have to prove how much money your company makes but you do have to prove you have a job, that you have a capacity to make a payment. A mortgage is a 25-year, in some cases a 35-year commitment so, for you, having a four-month contract doesn’t really document that you have the capacity to pay in the long term.
Banks are interested in the long haul. Even with 35% down nowadays you would be expected to provide some form of income confirmation. That doesn’t mean that your tax return has to say a specific amount of money, it simply means you have to: A, have filed your taxes and your taxes are up to date; B, that you proved that you can in fact make these payments. Reasonable proof, not just some estimate of what your future earnings and income could be.
For a company that might mean maybe the last couple of year’s financial statements, so that they can look at your gross income and then another more important factor is: “What is your business?” If your business is something like a small-time cleaning company where you’re doing residential cleaning there’s a very good chance you’re making some cash in there and while the banks don’t recognize cash, they’re aware that this goes on in the industry.
These programs are equity programs based on the equity that someone is putting down, not based on the documented income. So, with 35% down you still do need a job or at least — at the very least — you have to have a way to make those payments.
For the Mortgage Centre, I’m Rowan Smith.
Transcript of Video Blog:
Hi everybody! Rowan Smith with the Mortgage Centre. We’re doing a Myth-busting series here. I’m going to do a 10 part series that I’m going to release over the following weeks. So, I’m just going to address a number of different myths within finance and real estate.
The one I want to come at the hardest right at the gates is: “My bank didn’t ask me to verify my income a few years ago so how come you, Rowan, are doing it now?” Well, in many, many cases what went on a few years ago simply can’t occur now. The sub-prime mortgages, the no-income mortgages, the stated-income mortgages, the liar-loans — whatever you want to call them — that were going on in the United States and, to a certain extent, up here in Canada, simply don’t exist any more!
Those lenders are gone. So while you may not have had to prove your income before, at the very least today you’re going to need to show that you have the capacity to earn a living. Simply having a large down payment isn’t enough any longer.
So, when you’re looking at my request for documentation and you see “notices of assessment” or “T4” and all those types of things, we’re not asking for anything that’s more onerous than any other bank or financial institution. We’re simply doing the due-diligence that is now the way the industry has gone. You can expect heavier documentation requirements today than you would have a few years ago and that’s just the nature of the beast.
There’s nothing we can do about it. All we can do is play by the bank’s rules, fit you within their box and move on. If you know anybody that’s in this situation and has been hassled for too much paperwork, there are maybe ways that I can reduce that but I can’t do anything if I don’t have an application.
From the Mortgage Centre, I’m Rowan Smith.
Transcript of Video Blog:
Hi everybody, it’s Rowan Smith with the Mortgage Centre. I want to talk today about down payment confirmation. I get a lot of questions about this. People concerned with why we’re asking for so much detail, why we’re asking for so much paperwork, so I’m going to address that today.
Most commonly, with 95 percent of the lenders out there, when we request down payment confirmation, we’re going to need a 90-day history. Now sometimes that’s not always possible. Perhaps the person’s down payment is coming from the proceeds of their existing residence.
Well, in those cases, I don’t need 90 days bank statements, I typically need the offer to purchase with the subjects removed, showing that the person has a firm offer on their property.
We also need a mortgage statement or something to confirm what their existing balance, if anything is on that. So that will establish the purchase price and the mortgage amount, and that difference is residual equity.
Now some lenders will want it a step further, and they’d like to see an Order to Pay. And an Order to Pay is a document you receive at the time of closing. This only comes into effect if the sale of the property occurs prior to the purchase of the new property.
And I don’t mean one day, I’m talking, if maybe somebody sells in June and they don’t buy until September. There’s been a period of time in there where the bank is going to want to see that those funds in there are in fact the person’s.
Now, you may say, “Why does the bank want 90 days? Why such a long history?” What they’re trying to do is establish that the funds are non-borrowed. They want to know that the dollars that a person have are not being borrowed by friends or family or some other distant relative. More importantly, that they’re not some sort of proceeds of crime from something illegal.
Typically, although 90 days doesn’t certainly get around that fact, if we can have 90 days of history of funds, chances are the money isn’t borrowed. So they’ll want to see bank statements, or savings accounts statements or RSP statements or what have you or something to prove it.
There are lenders that will accept less time for down payment, for when they’re doing a mortgage, some as low as 30 days. But it’s impossible for most clients to know which lender will do 30, which will want 90.
So if you’re looking for a lender and you can only provide maybe 60 days confirmation, because perhaps you got a large bonus, or perhaps you sold a vehicle, or something else that could be quite difficult to document without a complete hassle or paper chase, give me a call. From the Mortgage Centre, I’m Rowan Smith.
Transcript of Video Blog:
Hi everybody, it’s Rowan Smith with the Mortgage Centre. Today I’m going to talk about non-resident mortgages. So a non-resident is somebody who is defined as not living within Canada but trying to buy real estate here.
It may be for rental purposes, it may be for a second home or vacation property… whatever purpose they see. So the first question everybody asks is: “How much down-payment is required?”
Well, typically, banks are going to want to see at least 35%, possibly as much as 50%, depending on which institution you’re dealing with. You may say: “Wow, that’s a lot of money! Why so much?”
Well, if somebody lives in another country — Afghanistan or in Japan or something like that — how is the bank going to go after them for a shortfall? In the event that there is a foreclosure and they can’t make the payments and they have to take the property, if there is a shortfall, how could the bank go after that in another country?
The answer is it’s horribly expensive, very unlikely to proceed and frankly, the banks just don’t even want to get involved in it. So instead, what they want to do is make sure that the person putting down payment on the property puts enough down that should they need to foreclose and take the property as their sole source of recourse, that there will be enough equity in the property that they’ll sell it and get their money back.
35% is generally considered within the industry to be a safe number and that’s what most banks will want. However, if you’re dealing with a smaller financial institution or credit union and you’re a non-resident, they simply cannot — due to the laws that govern credit unions — deal with you.
So you’re going to have to deal with one of the big banks and even then, they’re going to make it a little more difficult with requiring 35% down or more and wanting you to prove your income in your home country and can service your housing costs there, as well as the housing costs for the new property.
So if you know somebody who is a non-resident and they’re looking to try and buy a place in Canada, get them to call me first. This is Rowan Smith for the Mortgage Centre.
Transcript of Video Blog:
Hey everybody, Rowan Smith with the Mortgage Centre. I’m going to talk right now about new immigrant mortgages. There’s a lot of confusion out there because there’s really two types of programs. First type of a program is one where a person can document their income here in Canada, they have a job and they’ve established credit. They may have been here for a couple of years. Second type of person is very new to the country, who maybe doesn’t have permanent long term employment and doesn’t have a credit rating here in Canada.
So if you have the credit rating and the job, well, then you fit the requirements of CMHC and the other insurers, they’ll let you put as little as five percent down. It has to be from your own sources, for the most part. There are exceptions. It has to be money that you’ve brought with you from your home country and can prove that it is, in fact, yours and you’re going to have to have a job that can service the debt, just like any other Canadian buying. So if you are a new immigrant, yes, you can buy with as little as five percent down.
But! Many times people come from another country, they’re not in that situation. Maybe they’ve run a business back home that’s a big source of their income and it hasn’t quite been set up here in Canada just yet. If that’s the type of situation we’re talking about, where they have no established credit, the banks are generally going to want to see between 35% and 25% down payment.
So if the place is 1,000,000 bucks, you’re going to have to put $250,000 to $350,000 down payment on the property in order to get a mortgage on it. Well, it may seem like a lot but it is because the bank cannot rely on any sort of credit repayment history or whatnot that you have. Some of them will ask for a banker’s reference letter from back home.
Now I say 25 to 35, you may say: “Well, my bank is telling me I can do it with 35 but not 25 or 30. Why not?” Well, there are a few programs out there but what they require is: if you’re going to put 25% down and not being asked to properly document your income and not have a credit rating in Canada, they want to see an additional 25% of the purchase price in cash, verifiable cash assets worldwide.
So if you’re buying a million dollar home, you want to put $250,000 down, you can do that. If you can’t verify your income and if you don’t have a great credit rating but you’re going to have to show another $250,000 of liquid assets somewhere else in the world, in another bank account or another country or what have you.
So if you know anybody in these situations, new immigrants that don’t have credit, don’t have great employment yet or new immigrants that have been here for a couple of years and do have jobs, either way we can help them. From the Mortgage Centre, I’m Rowan Smith.
Transcript of Video Blog:
Hi, everyone, Rowan Smith with the Mortgage Centre. I want to talk today about vendor takeback mortgages. I’m getting a lot more inquiries no them, and there’s a fundamental misunderstanding out there about how they apply and whether or not you can really use them.
A lot of the no-money-down programs, Carlton Sheets and all these other guys that are out there, have been using vendor takeback mortgages. Those programs are predominantly American. Now the technique does work here, but it’s not as simple as people think.
What they’ll often say to me is, “Rowan, I want to buy a $400, 000 house. I don’t have the 5% down, so I want to take a vendor takeback for the 5%.” What that means is that the seller is loaning you the 5% down payment.
Sounds good. The only problem is, it’s not allowed. You can’t do it under Canadian banking systems, because to do 5% down, the person who’s got the first mortgage either has to get CMHC, Genworth, or Canada Guarantee in mortgage insurance, most commonly CMHC.
CMHC is not going to allow you to borrow 5% behind their 95% financing. Part of it’s just simple risk. Knowing that you have absolutely no money in the deal and have nothing to lose if you walk away doesn’t give them a lot of security that you’re going to make your payments.
But secondly, you end up borrowing more than the purchase price. And the reason is, when you pay, put 5% down, you’re going to be looking at a mortgage insurance premium through CMHC for Genworth or Canada Guarantee of anywhere between 2.75% and 3.35%, depending on what program you buy through.
So if you’re looking at 95% financing plus the additional funds for the premium, you’re up at 98% financing. Now you’re going to add your 5% that you’re getting from the vendor. So you’re up over 100% of financing. They’re simply not going to allow that.
And while the math may make good sense, or it may make sense to your realtor or advisor why you can do this, it’s realistically not going to happen in Canadian real estate. I’ve seen too many applications where people have tried to do a vendor takeback, and it’s really considered a dirty word in the industry at this point.
So if you’re thinking of a vendor takeback, the only time you can really do it are on commercial transactions or when you already have a very sizable chunk of money from a percentage standpoint, 20%-plus for example, and are looking to maybe top that up by borrowing a bit back from the vendor.
There are number of ways we can structure this, and I can help you do that. If you have any questions on vendor takebacks, please call me with your situation, let me go through it with you, and we’ll see if we can make it work.
For the Mortgage Centre, I’m Rowan Smith.
Transcript of Video Blog:
Hey, everybody. It’s Rowan Smith with the Mortgage Centre. What I want to talk to you about today is getting out of your existing variable rate that you may have got at a higher rate than is available today, getting into today’s lower rates. Let’s look at what happened.
Back in 2008, with the fall of Lehman Brothers and a lot of the money in the capital markets seized up on us for a while there, our variable rate mortgages went from prime minus 0.9, or prime minus 90, to prime plus two percent in some cases.
Now a lot of advocates, not myself, were still selling variable rate mortgages, claiming that variable was always better than fixed. At that particular point in time, it was unclear how long those premiums on top of prime rate were going to remain.
But many people still took their variable rate mortgages, hoping to save money in the long haul, because that’s what they’ve been traditionally coached to do by either their financial planner or the media or what have you.
But times have changed since back in 2008, and fast forward to today, what you’re seeing is back to prime minus 0.75 or prime minus 0.8. Not quite the full prime minus 0.9 that was available before, although it’s probably on the horizon.
Now if you’re in one of those mortgage rates at prime plus, or maybe even if it’s just prime minus a quarter, that’s a full half percentage point difference. It’s worth looking into whether or not you should pay it out, eat the penalty, and get the new lower rates.
Now you may say, I’ve heard these penalties are huge. It’s not necessarily the case. The reality is that variable rate mortgages are paid, your penalty is paid on a three month interest penalty. It’s never more than that.
So if you’re looking at getting out of it, basically take whatever your payment is, and a rough number is to multiply that number by 2.6. That’ll give you just a ballpark calculation that you can use.
If you look at that, now figure out what your savings would be on the remainder of your term. If it’s perhaps one, two, or even three percent lower than when you got that mortgage, there could be some staggering savings available to you.
All you have to do is pick up the phone and give me a call. I’m happy to give you a free analysis and look at the situation and see if I can save you that money.
For the Mortgage Centre, I’m Rowan Smith.
Transcript of Video Blog:
Hi, everybody. It’s Rowan Smith with the Mortgage Centre. I want to talk today about interest rate differential penalties, mortgage penalties, and non banks. The reason I’m bringing this up is a lot of people have said to me, “Rowan, how come you don’t fund more mortgages with TD Bank or Bank of Montreal and all the big banks?”
The reason is, amongst many other things, but one of the primary ones, and the one I want to talk about today, is their penalty calculation. In my experience, the big banks have a more punitive form of interest rate differential calculation than that that we get through a non bank.
The reason being is most financial institutions, most of the big banks, will base their penalty that you’re going to pay on a fixed rate mortgage off of their posted rate, which is much higher than, say, a discounted rate. The difference right now can be the difference between 5.29 being posted and 3.49 or thereabouts being their discounted rate.
Well, if you were to add that up over five years, the difference between 5.29 and 3.49, figure out what that portion is, it can be pretty huge. So you want an institution that’s not going to use a high posted rate or not going to use a high rate on their IRD, interest rate differential, penalty calculation.
Now most non banks don’t even have posted rates, so when they’re calculating their IRD, they’re basing it off of a much lower rate. In other words, you’ll be paying a penalty between 3.79 and 3.49 for the remainder of the term versus 5.29 and 3.49. It’s a very big difference between the way those penalties are calculated.
This is all nuts and bolts stuff that goes on the back end. You won’t be aware of it until you go to pay out your mortgage and are horrified by the penalty with your big bank. So if you’ve been dealing with the same institution for many years and you’re fiercely loyal to them, understand they are in it to make a buck, and they’ll make it on you.
For the Mortgage Centre, I’m Rowan Smith.
Rowan Smith is an independent Vancouver Mortgage Broker with The Mortgage Centre - Citywide...
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