Tag Archives: mortgage broker

9 tips for buying profitable investment condos in Toronto

Photo: Jenny Henderson

Real estate is not a one-size-fits-all strategy. Pierre Carapetian, a top 1 percent agent in Toronto and an avid real estate investor himself, shares what we should know about buying an investment property in Toronto. Here are his tips to profitable purchases.

1. Understand your goals

The type of product you invest in will depend on your goals as an investor. Are you investing for equity gains or are you looking for an investment that generates cash flow?

Cash Flow

Toronto’s lucrative condo market and rising interest rates have raised carrying costs, making it more challenging to find cash-flow positive properties. There are, however, strategic ways to improve your margins, like a higher downpayment or purchasing the right product. Your Realtor will know best.

Type of property to invest in: Resale

Equity Gains

If it’s equity gains you’re after, you’ll need to think long-term. Toronto condos are a great option as prices in the core have been stable and rising substantially. An experienced Realtor can help guide you to the right product and the right neighbourhood so that you can achieve higher equity gains.

Type of property to invest in: resale or pre-construction

2. Know your budget and closing costs

Ensure you know how much cash you will need and how much mortgage you can afford to carry. This will influence the types of properties to evaluate when investing. If this is your principal residence you are allowed to purchase with as little as 5 percent down. However, as an investor purchasing a secondary property you must have at least 20 percent down.

5 Percent vs. 20 Percent Downpayment

Different products have different downpayment structures:

Type of property to invest in with < 20 percent downpayment: resale
Type of property to invest in with 20 percent + downpayment: resale or pre-construction

Closing Expenses

Beyond your downpayment, you’ll also need to account for closing expenses. These include Land Transfer Taxes and, on pre-construction condos specifically, HST (capped at $24,000).

Use this Land Transfer Tax Calculator to find out how much you’ll owe. First-time buyers are also eligible for a partial Land Transfer Tax rebate.

When investing in a pre-construction condo, you’ll need to pay HST on the registration date (approximately four years after purchase) to a maximum of $24,000. With a one year lease in place though, this amount is fully refundable as you’re able to file for a full HST rebate.

3. Understanding price per square foot averages in the neighbourhood

Paying attention to the price per square foot is a great indicator of an investment’s profit potential. Look for properties that have a low price per square foot compared to a comparable unit trading in that same neighbourhood. This will also help you determine if the best deal is pre-construction or resale.

“If the average resale condo in King West is trading for $900 per square foot and the current pre-construction deal is selling for $1,100 per square foot, you’re likely going to generate higher returns investing in resale,” says Pierre.

Photo: Jenny Henderson

4. Know how to spot a good deal

Beyond the price per square foot, there are many other factors to consider when spotting a profitable investment condo. Some of these include:

  • Does the builder have a good reputation?
  • Does the location or floorplan allow you to rent for a premium?
  • Is there future infrastructure development coming to the area?

We aren’t all real estate whisperers — if you don’t know how to spot a good deal, or maybe don’t have the time, hire an experienced Realtor to help you.

“I’m always scouring the market for profitable purchases that I can send along to my investor clients.”

5. Purchase investments where you can charge a premium in rent

There are key factors to look for as you search that will help guide you to a profitable investment property.

Rental prices favour condos along major transit/subway lines. You can also typically charge about the same rent for a two-bed, two-bath, 750-square-foot condo as you would a two-bed, two-bath 800-square-foot condo if they are in the same building. That 750-square-foot condo, however, will cost less to purchase, so you actually will improve your margins and lower your carrying costs.

6. Buy in gentrifying neighbourhoods

When it comes to equity gains, the biggest wins to be had are in pre-construction properties in up-and-coming neighbourhoods. If you can invest in areas when prices are low, you’ll reap the benefits in years to come as the area becomes more desirable.

Leslieville is a great example of how gentrification impacts property values. Condo prices there have increased 50 percent since 2014.* Investment opportunities in up-and-coming neighbourhoods where rental inventory is low will also allow you to charge a premium in rent.

PRO-TIP: Be on the look-out for investment opportunities on the Danforth along the subway line.

7. When purchasing, think long-term

When it comes to investing, it’s always wise to think long-term. The longer you hold your investment, the more equity you amass. As your investment’s market value goes up and your mortgage goes down, you’re able to leverage that equity into other investment condos. Learn about Pierre’s leveraging strategy and building a real estate portfolio.

PRO-TIP: Borrowing to invest can dramatically improve ROI.

8. Understand the tax implications

Knowing how your investment will affect your taxes — and the amount you owe — can make all the difference when purchasing property.

Capital Gains

When you sell your investment property, you are required to pay Capital Gains Tax. This means that 50 percent of your net profit will become taxable income. You are entitled to deduct expenses incurred during the investment from these gains (like interest on a loan and cash-flow losses).

HST

As we mentioned earlier, when investing in a pre-construction condo you’ll need to pay HST to a maximum of $24,000 when the building registers with the city (typically four years after your initial purchase). Your lawyer can file for a full HST rebate, refunded approximately four to six weeks later, provided you have a one year lease in place.

If you do not rent out your property for the minimum one year, you are not eligible for the HST rebate.

9. Ensure you’re playing by the rules

Ensure you play by the rules when investing. This includes understanding the rules regarding short-term rentals (eg. Airbnb) in the building to flipping condos and the financial consequences that come with it.

If you sell your investment too quickly you run the risk of being taxed as a trader rather than as an investor, which means you can be taxed on 100 percent of your profits as it’s seen as business income. It is best to get legal and property advice from your lawyer and/or accountant regarding tax implications as a flipper.

When it comes to spotting profitable investment opportunities in Toronto, just remember: it’s not about buying something, it’s about buying the right thing. Equipped with these nine investment tips, you can rest assured you’ve invested with sound advice and guidance from one of Toronto’s top real estate brokers.

You can read more on Pierre’s investment strategies here.

*Based on E01’s average condo price for 2018 compared to 2014

 

Source: Livabl.com – Feb 11, 2019

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What does a mortgage broker do? Your step-by-step guide

What does a mortgage broker do? A mortgage broker is a licensed individual who helps you select the mortgage product that best suits your financing needs. They do this by comparing mortgage products offered by a variety of lenders. A mortgage broker acts as the quarterback for your financing, passing the ball between you, the borrower, and the lender.

To be clear, mortgage brokers do much more than help you get a simple mortgage on your home. They can help you access equity, refinance current properties, purchase investment properties, and a myriad of other tasks to support your financial well-being.

When you go to the bank, the bank can only offer you the products and services it has available. A bank isn’t likely to tell you to go down the street to its competitor who offers a mortgage product better suited to your needs. Unlike a bank, a mortgage broker often has relationships with dozens of lenders (oftentimes some lenders that don’t directly deal with the public), making his chances that much better of finding a lender with the best mortgage for you.

Now that you have a better understanding of what does a mortgage broker do, let’s look at how a typical mortgage application looks.

Step-by-step guide to a mortgage application

What does a mortgage broker do to win your business? Your relationship with a mortgage broker will usually start with an introduction from someone you trust like a family member or friend. Or, you may find your mortgage broker online. You’ll often set up an initial phone call to go over your mortgage financing needs.

Your mortgage broker will typically ask you some basic questions about how much you’re looking to spend on a property, how much you earn and how much you intend to put down on the property. If you’re looking to refinance, access equity, or obtain a second mortgage, they will require information about your current loans already in place.

Once your mortgage broker has a good idea about what you’re looking for, he can hone in on the best mortgage solutions.

In many cases, your mortgage broker may have almost everything he needs to proceed with a mortgage application at this point. If everything goes well, he’ll ask you to provide some documentation, such as a letter of employment, notices of assessment and pay stubs to submit your application to a lender.

If you’ve already made an offer on a property and it’s been accepted, your broker will submit your application as a live deal. Once the broker has a mortgage commitment back from the lender, he’ll go over any conditions that need to be met (an appraisal, proof of income, proof of down payment, etc.).

Once you’ve completed the mortgage commitment, your broker will usually submit the paperwork and any additional documentation to the lender to sign off on. Once all the lender conditions have been met, your broker should ensure legal instructions are sent to your lawyer. Your broker should continue to check in on you throughout the process to ensure everything goes smoothly.

This, in a nutshell, is how a mortgage application works.

Why use a mortgage broker

You may be wondering why you should use a mortgage broker. Isn’t it better to just go down to the local bank branch and get help with your financial needs there?

The main advantage of using a mortgage broker is that they deal with dozens of lenders and hundreds of products. Your broker should be well-versed in the mortgage products of all these lenders. This means you’re more likely to find the best mortgage product that suits your needs.

If you’re an individual with damaged credit or you’re buying a property that’s in less than stellar condition, this is where a broker can be worth their weight in gold. Since they have access to many lenders, they are more likely to find you a lender that can assist you, unlike the banks, which may turn down your mortgage application or offer your a higher interest rate.

Even if you’ve been offered a decent mortgage from your bank, using a mortgage broker means you’re doing your own due diligence. Your broker may be able to find you a better lending solution than your bank is offering. You won’t know unless you pick up on the phone and contact a mortgage broker.

Free service: When you work with a mortgage broker, in most cases you won’t have to pay them a dime. That’s because your broker is usually compensated directly by the lender. You can get unbiased mortgage advice at zero cost – it doesn’t get any better than that!

Just be aware that some lenders offer more compensation than others. You’ll want a broker who is honest and will put you with the best lender for you, despite another lender paying a higher finder’s fee.

Save time and money: By using a mortgage broker, not only can you save money, but you can save time. When you shop on your own for a mortgage, you’ll need to apply for a mortgage at each lender. A broker, on the other hand, should know the lenders like the back of their hand and should be able to hone in on the lender that’s best for you, saving you time and protecting your credit score from being lowered by applying at too many lenders.

Negotiate on your behalf: Your broker can negotiate on your behalf with various lenders to help find you the best mortgage solution. Be sure to ask your broker how many lenders he deals with, as some brokers have access to more lenders than others and may do a higher volume of business than others, which means you’ll likely get a better rate.

This was an overview of working with a mortgage broker. By working with a broker, you’ll better your chances of negotiating a better deal on your mortgage with a lender of your choosing.

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The main reason Canadian homeowners refinance

 

The main reason that 15% of Canadian homeowners refinanced their homes was to consolidate debt.

That’s according to the CMHC Mortgage Consumer Survey which shows that debt consolidation outranked home improvements and that one third of refinancers say that their debt, including their mortgage, is higher than expected.

That said, 69% say they are comfortable with their current level of mortgage debt and 63% said that, if they run into financial problems, they have other assets they can tap to meet their needs.

The survey also showed that 68% were satisfied with their broker and 79% were satisfied with their lender but would have liked to receive more information from their mortgage professionals about mortgage or purchase fees, types of mortgages, closing costs and interest rates.

Refinancer facts
The CMC survey revealed the following insights about refinancers:

  • 24% are Generation Xers (35 – 44 years old) and 35% are baby boomers (55+ years old)
  • 54% are married
  • 61% are employed full time, 7% are self-employed and 17% are retired
  • Refinancers, along with repeat buyers, represent the highest proportion of self-employed mortgage consumers
  • 72% own a single-detached home
  • 23% have a household income of $60,000 – $90,000

Source: Canadian Real Estate – by Steve Randall 19 Nov 2018

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Rent-to-Own Homes: How the Process Works

If you’re like most home buyers, you’ll need a mortgage to finance the purchase of a new house. To qualify, you must have a good credit score and cash for a down payment. Without these, the traditional route to homeownership may not be an option.



There is an alternative, however: a rent-to-own agreement, in which you rent a home for a certain amount of time, with the option to buy it before the lease expires. Rent-to-own agreements consist of two parts: a standard lease agreement and an option to buy. Here’s a rundown of what to watch for and how the rent-to-own process works. It’s more complicated than renting and you’ll need to take extra precautions to protect your interests. Doing so will help you figure out whether the deal is a good choice if you’re looking to buy a home.

You Need to Pay Option Money

In a rent-to-own agreement, you (as the buyer) pay the seller a one-time, usually nonrefundable, upfront fee called the option fee, option money or option consideration. This fee is what gives you the option to buy the house by some date in the future. The option fee is often negotiable, as there’s no standard rate. Still, the fee typically ranges between 2.5% and 7% of the purchase price. In some contracts all or some of the option money can be applied to the eventual purchase price at closing.

Read the Contract Carefully: Lease Option vs. Lease Purchase

It’s important to note that there are different types of rent-to-own contracts, with some being more consumer friendly and flexible than others. Lease-option contracts give you the right – but not the obligation – to buy the home when the lease expires. If you decide not to buy the property at the end of the lease, the option simply expires, and you can walk away without any obligation to continue paying rent or to buy.

Watch out for lease-purchase contracts. With these you could be legally obligated to buy the home at the end of the lease – whether you can afford to or not. To have the option to buy without the obligation, it needs to be a lease-option contract. Because legalese can be challenging to decipher, it’s always a good idea to review the contract with a qualified real estate attorney before signing anything, so you know your rights and exactly what you’re getting into.

Specify the Purchase Price

Rent-to-own agreements should specify when and how the home’s purchase price is determined. In some cases you and the seller will agree on a purchase price when the contract is signed – often at a higher price than the current market value. In other situations the price is determined when the lease expires, based on the property’s then-current market value. Many buyers prefer to “lock in” the purchase price, especially in markets where home prices are trending up.

Know What Your Rent Buys

You’ll pay rent throughout the lease term. The question is whether a portion of each payment is applied to the eventual purchase price. As an example, if you pay $1,200 in rent each month for three years, and 25% of that is credited toward the purchase, you’ll earn a $10,800 rent credit ($1,200 x 0.25 = $300; $300 x 36 months = $10,800). Typically, the rent is slightly higher than the going rate for the area, to make up for the rent credit you receive.But be sure you know what you’re getting for paying that premium.

Maintenance: It May Not Be Like Renting

Depending on the terms of the contract, you may be responsible for maintaining the property and paying for repairs. Usually, this is the landlord’s responsibility so read the fine print of your contract carefully.  Because sellers are ultimately responsible for any homeowner association fees, taxes and insurance (it’s still their house, after all), they typically choose to cover these costs. Either way you’ll need a renter’s insurance policy to cover losses to personal property and provide liability coverage if someone is injured while in the home or if you accidentally injure someone.

Be sure that maintenance and repair requirements are clearly stated in the contract (ask your attorney to explain your responsibilities). Maintaining the property – e.g., mowing the lawn, raking the leaves and cleaning out the gutters – is very different from replacing a damaged roof or bringing the electric up to code. Whether you’ll be responsible for everything or just mowing the lawn, have the home inspected, order an appraisal and make sure the property taxes are up to date before signing anything.

Buying the Property

What happens when the contract ends depends partly on which type of agreement you signed. If you have a lease-option contract and want to buy the property, you’ll probably need to obtain a mortgage (or other financing) in order to pay the seller in full. Conversely, if you decide not to buy the house – or are unable to secure financing by the end of the lease term – the option expires and you move out of the home, just as if you were renting any other property. You’ll likely forfeit any money paid up to that point, including the option money and any rent credit earned, but you won’t be under any obligation to continue renting or to buy the home.

If you have a lease-purchase contract, you may be legally obligated to buy the property when the lease expires. This can be problematic for many reasons, especially if you aren’t able to secure a mortgage. Lease-option contracts are almost always preferable to lease-purchase contracts because they offer more flexibility and you don’t risk getting sued if you are unwilling or unable to buy the home when the lease expires.

Who’s an Ideal Candidate for Rent-to-Own

A rent-to-own agreement can be an excellent option if you’re an aspiring homeowner but aren’t quite ready, financially speaking. These agreements give you the chance to get your finances in order, improve your credit score and save money for a down payment while “locking in” the house you’d like to own. If the option money and/or a percentage of the rent goes toward the purchase price – which they often do – you also get to build some equity.

While rent-to-own agreements have traditionally been geared toward people who can’t qualify for conforming loans, there’s a second group of candidates who have been largely overlooked by the rent-to-own industry: people who can’t get mortgages in pricey, nonconforming loan markets. “In high-cost urban real estate markets, where jumbo [nonconforming] loans are the standard, there is a large demand for a better solution for financially viable, credit-worthy people who can’t get or don’t want a mortgage yet,” says Marjorie Scholtz, founder and CEO of Verbhouse, a San Francisco–based start-up that’s redefining the rent-to-own market.

“As home prices rise and more and more cities are priced out of conforming loan limits and pushed into jumbo loans, the problem shifts from consumers to the home finance industry,” says Scholtz. With strict automatic underwriting guidelines and 20% to 40% down-payment requirements, even financially capable people can have trouble obtaining financing in these markets.

“Anything unusual – in income, for example – tosses good income earners into an ‘outlier’ status because underwriters can’t fit them neatly into a box,” says Scholtz. This includes people who have nontraditional incomes, are self-employed or contract workers, or have unestablished U.S. credit (e.g., foreign nationals) –  and those who simply lack the huge 20% to 40% down payment banks require for nonconforming loans.

High-cost markets are not the obvious place you’ll find rent-to-own properties, which is what makes Verbhouse unusual. But all potential rent-to-own home buyers would benefit from trying to write its consumer-centric features into rent-to-own contracts: The option fee and a portion of each rent payment buy down the purchase price dollar-for-dollar, the rent and purchase price are locked in for up to five years, and participants can build equity and capture market appreciation, even if they decide not to buy. According to Scholtz, participants can “cash out” at the fair market value: Verbhouse sells the home and the participant keeps the market appreciation plus any equity they’ve accumulated through rent “buy-down” payments.

Do Your Homework

Even though you’ll rent before you buy, it’s a good idea to exercise the same due diligence as if you were buying the home outright. If you are considering a rent-to-own property, be sure to:

  • Choose the right terms. Enter a lease-option agreement rather than a lease-purchase agreement.
  • Get help. Hire a qualified real estate attorney to explain the contract and help you understand your rights and obligations. You may want to negotiate some points before signing or avoid the deal if it’s not favorable enough to you.
  • Research the contract. Make sure you understand:
    • the deadlines (what is due when)
    • the option fee and rent payments – and how much of each applies towards the purchase price
    • how the purchase price is determined
    • how to exercise your option to buy (for example, the seller may require you to provide advance notice in writing of your intent to buy)
    • whether pets are allowed
    • who is responsible for maintenance, homeowner association dues, property taxes and the like.
  • Research the home. Order an independent appraisal, obtain a property inspection, make sure the property taxes are up to date and ensure there are no liens on the property.
  • Research the seller. Check the seller’s credit report to look for signs of financial trouble and obtain a title report to see how long the seller has owned it – the longer they’ve owned it and the more equity, the better.
  • Double check. Under which conditions would you lose your option to buy the property? Under some contracts, you lose this right if you are late on just one rent payment or if you fail to notify the seller in writing of your intent to buy.

The Bottom Line

A rent-to-own agreement allows would-be home buyers to move into a house right away, with several years to work on improving their credit scores and/or saving for a down payment before trying to get a mortgage. Of course, certain terms and conditions must be met, in accordance with the rent-to-own agreement. Even if a real estate agent assists with the process, it’s essential to consult a qualified real estate attorney who can clarify the contract and your rights before you sign anything.

Source: Investopedia – Jean Folger Nov. 6, 2018

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Stress Test Impacts Measured

The government’s latest mortgage rule changes have caused an imbalance between supply and demand in almost every region of the country, and will result in an estimated 200,000 fewer jobs being created over the next three years.

Those are among the findings of Mortgage Professionals Canada’s newly released Report on the Housing and Mortgage Market in Canada.

“…the cumulative impact of rising rates, a 2% or greater stress test, provincial government rules in Ontario and British Columbia, and further lending restrictions are negatively suppressing housing activity, not just in Toronto and Vancouver, but throughout the country,” said Paul Taylor, President and CEO of Mortgage Professionals Canada.

Will Dunning, the report’s author and the association’s chief economist, added that aside from the new mortgage lending policies “unduly suppressing” housing activity, consumers are now taking a materially more negative outlook towards housing.

“Our consumer survey has found that sentiment regarding the housing market has shifted decisively downwards during the past year and a half, reflecting the impacts of increased interest rates and government policies that are making it more difficult for potential homebuyers to obtain the mortgage financing they need,” he wrote.

While an increasing number of first-time buyers are receiving down payment assistance from their parents, many young people are adapting to the idea that they may never own a home and will become permanent renters.

The following are highlights from the report:

 

New OSFI Regulations

  • 100,000: The number of Canadians who have been prevented from buying a home bythe stress test.
  • 18%: The percentage of prospective buyers, who could currently afford their preferred purchase, who would fail a stress test. Of those affected, the average adjustment needed is $28,750.
  • 32%: The percentage of consumers who would expect the stress test to have significant negative impacts on their ability to buy a home. This increases to 54% for those who aren’t currently homeowners but who expect to buy within the next five years.
  • 29%: The percentage of consumers who would expect to be negligibly impacted by the stress test. This figure falls to 11% for non-homeowners who plan to buy within the next five years.
  • 12.5%: The amount that resale activity in Canada has fallen compared to last year (down 16.5% from 2016).
  • 59%: Percentage of consumers who had been “aware of the changes before today.” (65% for homeowners and 47% for tenants).

 

Housing Market Trends

  • 229%: The percentage increase in average house prices from 1997 to 2017 (or 6.2% per year).
    • This is more than twice as fast as the increase in wages (2.6% per year).
  • 67.8%: The home ownership rate in Canada. This is down from 69% in 2011, and largely a result of the delay for first-time buyers to save up their down payments to make their purchase.

 

Economic Impact of Slowing Housing Activity

  • 120–140k: The reduction in employment that could be expected due to the current forecasted reduction in new home starts and home sales for 2019.
  • 200k: The estimated number of fewer jobs that will be created over the next three years as a result of the mortgage stress test.
  • 2.45: The number of full-time jobs created by each new housing unit started in Canada.

 

Sources of Down Payments – Family to the Rescue

  • 85%: Percentage of down payments that come from personal savings. This figure has been consistent over time.
  • The top sources of down payment funds for homes bought from 2015 to 2018 were:
    • 85%: Personal savings (vs. 92% last year)
    • 39%: Gifts from parents or other family members (vs. 43% from 20142017)
    • 25%: Loan from parents or other family members (vs. 19% from 20142017)
    • 43%: Loan from a financial institution (vs. 27% from 20142017)
    • 38%: Withdrawal from RRSP (vs. 29% from 20142017)
  • The report notes a “remarkable amount of stability” in down payments among first-time homebuyers. The average first-time down payment in the 1990s was 22%, compared to 26% for first-time purchases made from 2014 to 2017.

 

Consumer Sentiment

  • 6.84: The score (out of 10) given by consumers who agree that “low interest rates have meant a lot of Canadians became homeowners over the past few years who should probably not be homeowners.” This score is below the average of the eight previous surveys of 7.00 and the second-lowest ever.
  • 3.54: The score given by consumers who “regret taking on the size of mortgage I did.” This is at an all-time low and below the prior average of 3.80.
  • 7.14: The average score given by Canadians on their confidence on their ability to weather a downturn. This is the highest score in the history of the survey.
  • 6.12: The average score given by consumers who are optimistic about the economy in the year ahead. This is slightly below average, with confidence highest in Quebec and lowest in Atlantic Canada.
  • 75%: The percentage of non-owners aged 25 to 34 who expect to buy a home within the next five years.
  • House price growth: Expectations for growth are highest in Quebec, Ontario and B.C., and lowest in Alberta and Saskatchewan.
  • 67%: The percentage of consumers who expect interest rates to rise. 31% gave a neutral response. The report notes that these expectations have not been good predictors of what will happen to interest rates.

 

Reasons Against Owning

  • 31%: Renting is a better option
  • 29%: I’m comfortable in my current situation
  • 28%: Need more time to save for a down payment
  • 24%: Lack of financial/employment stability
  • 18%: Waiting for home prices to decrease
  • 11%: Living with parents/family is all I can afford

 

Mortgage Renewals

  • The increasing interest rates over the past year are expected to have “negligible” effects on the rate of credit growth.
    • “Most people renewing mortgages this year will be completing a 5-year term, and for most of them their new interest rate will be very close to the old rate.”
  • 3.32%: The average 5-year fixed “special offer” rate for the first half of 2018 (vs. 3.31% in 2013).
  • 2.50%–2.75%: The average 5-year variable rate this year (vs. 2.73% in 2013).

Source: Canadian Mortgage Trends – STEVE HUEBL

 

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Can’t Get a Bank Mortgage? How Do Private Mortgages Work?

It’s often said that housing is the bedrock of the Canadian economy. But for years, federal regulations have clamped down on the ability to qualify for a mortgage. The self-employed, individuals living in rural areas and those with past credit troubles have long struggled with home financing. Now that struggle is extending to other segments of the population.

Against this backdrop, more and more Canadians are turning to private mortgage lenders for their home financing needs. Although many borrowers think of private mortgages as a last-resort option, they are a viable option for many people.

Private Mortgage Lenders Operate Differently from Banks

A private mortgage is simply a home loan offered by an individual or company other than a bank or traditional finance provider.

One of the biggest benefits of working with a private lender is they operate differently from traditional banks on many levels. Since they get their money through individual investors or groups of investors, they have the freedom to set their own lending criteria. This means they are more flexible in the application process and don’t have to deal with the stringent guidelines set forth by the major institutions. This means that if your situation falls outside conventional lending guidelines, a private mortgage could be your best bet.

Private mortgages are often suitable if you:

  • Are self-employed
  • Want to purchase raw land or unique property
  • Have less than ideal credit
  • Want to invest in real estate
  • Need access to equity in your home, but don’t want to refinance your first bank mortgage due to excessive penalties
  • Need to consolidate high interest rate debt
  • Are looking to renovate existing property
  • Looking for a short-term loan

How Private Mortgages Work

If you’re exploring a private mortgage, the first step is to seek out a broker who provides alternative lending services. The broker will assess your situation and determine if you are eligible for a loan. In particular, they will assess your ability to make the loan payments on time.

From there, the broker will then search for the best mortgage solution that meets your specific needs. They will then structure the deal and put in place an exit strategy so that you know how long the private mortgage will last.

It’s important to note that private lenders usually lend on location. That’s because private mortgages are uninsured, which means the lender falls back on the property should a default occur. That’s why location of the property is extremely vital in determining whether you qualify for a private mortgage and the rate that you’re offered.

Broker fees and legal fees generally apply when securing a private mortgage.

Private mortgages are growing in popularity as more borrowers fall outside the traditional lending guidelines set forth by the major banks. The good news is there are plenty of options for those looking for an alternative lending solution to finance their next property or major purchase.

Source: Canadian Mortgages Inc. – 1 September, 2017 / by Bryan Jaskolka

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What is a mortgage broker, and should I use one?

But what is a mortgage broker exactly, and what can they do for you?

A mortgage broker is a licensed professional – a person who serves as a bridge between a homeowner and a lender.

As a middleman, a mortgage broker evaluates the financial capacity of a borrower. A broker looks for top quality lending products and handles all transactions for their clients. A broker gathers the necessary documents to apply for a mortgage and then facilitates the underwriting and approval process. They ensure that the transactions are valid and complete.

The Lending Process

When should I see a mortgage broker?

Now that you know what a mortgage broker is, you also need to determine when the right time is to consult with one. If you fall in any one of the categories below, you might need to see a broker:

  • You are a first-time home buyer.
  • You want to purchase a second property
  • You want to free up funds for things like renovations, a child’s education, investments, and more.
  • You have very limited time left to purchase a house.
  • You are not comfortable with the idea of negotiating with lenders.
  • You have a weak credit score.
  • You want access to exclusive rates and deals from banks which are offered only to brokers.
  • You prefer to have an expert who provides you with an educated and confident analysis of the current housing market.
  • You need help in deciding on a financing structure that is advantageous for you in the long run.

Take the case of Maureen:

Maureen is an interior design artist who moved to Toronto with her husband. After doing her research, she signed an agreement to buy a house. A bank approved her mortgage, and she was ready to make the deposit of her first mortgage. However, knowing that the bank was willing to lend her thousands of dollars, she was skeptical if she was getting the best offer.

While considering the offer, a friend suggested that she consult with a mortgage broker. Her friend recommended a broker whom she transacted with before. After talking to the broker, Maureen realized that the rates presented by the broker are better compared to the bank’s offer.

Though Maureen was initially unaware about the important role that a mortgage broker plays in home buying, she made the decision to close the deal for her new home through one whens she realized the undeniable advantages.

Mortgage brokers are very convenient to work with. They have extensive networks of investors, lenders, and real estate companies. Just like in the abovementioned case of Maureen, mortgage brokers are committed in providing you housing options that match your requirements.

The benefits of working with a professional mortgage broker

Licensed mortgage brokers are professionals who are well-trained and knowledgeable at what they do. Most of them have a proven track record when it comes to handling mortgage transactions. Moreover, given their extensive experience in the housing industry, their network is just as vast.

Access to critical industry information

Working with a mortgage broker means gaining access to first-hand information on your market and lending options. Brokers are part of a broad community where members share valuable data. These details include real property values, new home releases, new financing rules, pricing, and among others.

Access to the best lending rates

Because most mortgage brokers have access to an extensive network of lenders, borrowers who tap their expertise widen their options.

Customize your loan plan

Brokers have access to traditional and non-traditional lenders which may be able to offer creative financing solutions for your situation.

Your quarterback

Mortgage brokers are there to work for you. They will handle many of behind-the-scenes paperwork and negotiation that will help ensure you get the achieve the most favorable loan solution.

Factors to consider when choosing a mortgage broker

Not all mortgage brokers are the same. Some may be more equipped to meet your needs than others. Therefore, you need to consider the following:

License and affiliation of a mortgage broker

Be sure to consult only with a licensed broker who is officially registered as a member of Canada’s National Association of Professional Mortgage Brokers. These associations spread advocacy, share knowledge, and disseminate relevant information to mortgage clients.

Canadian resident and knowledge of the locality

Your chosen licensed mortgage broker should be a resident of Canada, and must be familiar with the housing market of the specific location where you intend to purchase a new home.

Mortgage lender portfolio

A comprehensive mortgage lender portfolio is proof of all the hard work the mortgage broker has put in. Moreover, access to as many lenders as possible means a broker has the means to help you find the right funding.

Recommendations

Word-of-mouth is a handy marketing tool because it means people have already transacted with a particular mortgage broker and they are overall pleased with his performance. Seek recommendations from family and friends, and check the broker’s online star ratings and reviews.

Integrity and open communication

All forms of investment involve money, effort, and time. A professional mortgage broker must be reliable and trustworthy to handle your investments. Likewise, these middlemen must maintain constant communication with lenders and borrowers alike.

It’s easy to get intimidated when big numbers come into the picture. But with Canadian Mortgages, Inc., whether it’s customizing a loan or looking for alternative lending options, interest rates, home equity opportunities, or debt consolidation plans, the help that you need is readily available with a professional mortgage broker.

Source: Canadian Mortgages Inc. – 23 July, 2018 / by Glenn Carter

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