A down payment is one of the most essential aspects of every mortgage application and new home purchase. In Canada, home purchases require a minimum cash payment from your own funds that is put towards the purchase. This is your down payment and is considered your stake in the deal.

Many home buyers understand that a certain amount of money down will be required on a home. However, most don’t realize the ins-and-outs of down payments, such as where the funds are allowed to come from and ensuring a proper paper trail.

Here are a few things to keep in mind while preparing your down payment and working towards your perfect home!

SOURCES OF DOWN PAYMENT

Most home buyers are aware that they will require a certain amount of money for a down payment. What many do not realize, is that lenders are required to verify the source of the funds. This allows them to ensure that they are coming from an acceptable source. Sources that further contribute to indebtedness are less-likely to be considered (such as line of credit or credit card). Instead, the best and most traditional options for your down payment are:

SAVINGS ACCOUNT

The first and most traditional method is your savings account, where you have been pinching your hard-earned pennies to save up for this day!

If you are utilizing your personal savings for a down payment, note that lenders will require three months of full bank statements. This includes name, account number, transactions and balance history. For any large deposits made in that time (sale of a car, work bonus, etc.), explanations and supporting documents will be required.

GIFT FROM FAMILY MEMBER

If you are fortunate enough to receive help from the Bank of Mom and Dad for your down payment, there are certain requirements:

• A signed gift letter from the immediate family member contributing the fund
• Proof of the transfer into your bank account. This can be a bank statement documenting the money being moved from the donor’s account and into yours. The statements must include names, account numbers and the full transaction history during the time period in question.
• Important note: If money is being received from immediate family overseas, most lenders will require copies of the wire transfer. In addition, they may ask for account history.

RRSP WITHDRAWAL

Another option for down payment is the use of Registered Retirement Savings Plan (RRSP), but only if you are a first-time buyer. This is part of the Home Buyers’ Plan (HBP), which allows first-time buyers to borrow up to $35,000 from their RRSP’s (tax-free!) -as long as the money is repaid within 15 years. Please note: The minimum repayment is 15 equal instalments paid once per year.

HOW MUCH DOWN?

When it comes to putting money down on your new home, you need to consider the minimum down payment required as well as additional fees.

The minimum amount required in Canada is 5% for the first $500,000, with 10% down on any amount beyond that threshold. For example, on a $600,000 house you would need to put $35,000 down at minimum ($25,000 on the first $500,000 and $10,000 for the additional $100,000 purchase price).

Keep in mind, if your down payment is less than 20% of the price of your home, you will be required to purchase mortgage loan insurance in case of default. These premiums range from 0.6% to 4.50% of the total amount of your mortgage. Using the example above, this would mean $3,600 to $27,000 in mortgage insurance premiums.

If you are able to put 20% down on your new home (which is the recommended amount), you would be looking at an investment of $120,000 down with no mortgage insurance premiums required.

ADDITIONAL COSTS AND FEES

One component of the purchase process that homeowners often forget about, are the closing costs. These are typically 1.5% up to 4% of the purchase price.

Closing costs can include:

– Legal fees
– Property tax adjustments
– Disbursements
– Home inspection fees
– New fire insurance coverage
– Title insurance
– An estoppel certificate (if a condo)
– Possible penalty if breaking another mortgage
– Appraisal costs
– GST (if a new build)

In order to get financing, you are required to show that you have enough to cover these costs.

When you have collected the funds for your down payment and closing costs, you must ensure those funds remain in your bank account once you’ve provided confirmation. They should only leave your account when they are provided to your lawyer to complete the purchase. This is because lenders will often request updated statements closer to the closing of the sale, to ensure nothing has changed. If money has been moved around, or if there are new large deposits or withdrawals, they will all need to be confirmed and could affect approval.

The last thing that anyone wants when purchasing a property is added stress or for something to go wrong late in the process. Consider contacting a Jencor Mortgage Professional today to help guide you through the process! Make sure you are upfront about your down payment amount, and where it is coming from. This will help me determine whether or not it is suitable, and allow them to find the best lender and mortgage product for you!

I am always available to help!  Contact me anytime.

Cheers,

Cory Lewis – Jencor Mortgage Advisor

Original Post – Jencor Mortgage October 25, 2021

HOW CAN WE GET THESE FINANCED?

As with all mortgages there are general guidelines, no guarantees, and all applicants are considered on a case by case basis. There may be exceptions made by the lenders and insurers. Both the applicant and the property must meet their criteria.

MOBILE HOMES ON THEIR OWN LAND

1. The home needs to be permanently affixed to the property.
2. Applicants can purchase with a minimum down payment of 5%.
3. CMHC insurance is typically required regardless of the loan to value.
4. Interest rates in most cases are fully discounted. Regular mortgage insurance premiums apply.

CHALLENGES

1. AGE : All lenders have a cap on how old the mobile home can be, most prefer not to finance anything older than 15 More aggressive lenders will do an appraisal to determine the remaining economic life of the mobile home, and then offer a maximum amortization of 5 years below this number.

For Example: If the Mobile home is from 1980, however has undergone renovations (new windows, siding etc.) the appraiser may give it another 25 years of economic life. The bank will then offer a maximum amortization of 20 years and the client must qualify for payments based on this amortization.

2. RENTALS: Very few lenders will consider a mobile home as a rental property. The mobile will likely have to be a newer one and the clients very strong. Owner occupied properties or second homes for (family members) are preferable.

1. SIZE: Certain lenders will only finance double wide mobile homes. All lenders have minimum square footage requirements.

MOBILE HOMES ON LEASED LAND

Most of the same principles as above apply, however these properties are less desirable to the banks and can be more difficult to finance for the following reasons:

1. The lenders must add the lot fees to their debt servicing calculations. This will have a large impact on a buyer’s loan approval limit
2. Buyers will pay posted rates 2-3% higher than current discounted mortgage rates.
3. Though the minimum down payment is technically 5%, most lenders will require more.
4. Without land ownership, this is a chattel loan. The bank assumes the asset will depreciate.

Call me anytime, I am always available to answer questions you may have.

Cory Lewis

Jencor Mortgage

The Bank of Canada, this morning, released its January Monetary Policy Report (MPR), showing they expect to keep overnight interest rates at its “effective lower bound” of 0.25% until 2023. To reinforce this commitment and keep interest rates low across the yield curve, the Bank will continue its Quantitative Easing (QE) program–buying $4 billion of Government of Canada bonds every week until the recovery is well underway. The central bank indicated it could pare purchases once the recovery regains its footing.

According to the Bank’s press release, “The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In our projection, this does not happen until into 2023.” Officials are apparently optimistic about the economy’s prospects once the vaccine is sufficiently distributed and injected. There is no indication that they are planning additional measures to ease monetary policy.

This is particularly noteworthy for two reasons: 1) some economists had been speculating that the Bank would lower the overnight rate by 10-to-15 basis points to help mitigate the impact of continued and broadening lockdowns; and, 2) others thought the early development of the vaccine would trigger sufficient growth to warrant a rate hike in 2022. In the Bank’s current view, neither is likely to be the case. Why mess with a minute cut in already record-low interest rates when mortgage lending is still strong? The slow rollout of the vaccine and the mounting second wave of cases assure weak economic activity in Canada at least until the second half of this year.

As well, inflation remains surprisingly muted. In a separate release today, Stats Canada revealed that price pressures in Canada unexpectedly slowed in December as the country endured a new wave of lockdowns. After climbing to the highest since the pandemic in November, the latest reading shows price pressures are still well below the Bank of Canada’s 2% target. That’s consistent with the view from policymakers that inflation will remain subdued for some time.

The pandemic’s second wave has hit Canada very hard, and the vaccine rollout has been disappointing (see chart below). Today’s MPR predicts that the economy will contract in the first quarter of this year. Economic weakness could be exacerbated by the Canadian dollar’s strength, which moved to above 79 cents US following today’s BoC announcement. Ten-year yields edged up modestly as well.

Bottom Line

For the year as a whole, economic growth is expected to be around 4% in 2021, compared to a contraction of -5.5% last year. As the inoculated population grows, the Bank forecasts an acceleration in growth to just under 5% in 2022 and a more-normal 2.5% in 2023. According to the January MPR, “The medium-term outlook is stronger than in the October Report because of vaccines’ positive effects, greater fiscal stimulus, stronger foreign demand and higher commodity prices. Meanwhile, potential output has also been revised up, reflecting an improved projection for business investment and less scarring effects on businesses and workers. There is considerable uncertainty around the medium-term outlook for GDP and the path for potential output. Thus, while the output gap is expected to close in 2023, the timing is particularly uncertain.

“Concerning housing activity, the report said, “Demand for housing has continued to show resilience, despite increasing case numbers and tightening restrictions. Housing activity should remain elevated into the start of 2021, supported by low borrowing rates and resilient disposable incomes. Changes in homebuyers’ preferences have also played a role. For example, price growth has been strongest for single-family homes and in areas outside city centres,” 

Posted January 20th , 2021

Dr. Sherry Cooper

Chief Economist, Dominion Lending Centers 

drcooper@dominionlending.ca 

Originally Posted by:

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres

The Insured Secondary Homes Program is a popular one this time of year.  You may be dreaming about owning a lake front cottage or condo in one of your favorite local holiday spots.

Or perhaps you, like me, have children making plans to head off to University in the fall – and those tuition and residence fees are adding up fast!

As a qualified buyer, you can purchase a second home as a recreational property for yourself or as a home for an immediate family member (university student child, elderly parent etc) with as little as a 5% down payment.

These properties are considered ‘owner occupied’ by the lender and insurance companies, are subject to standard insurance premiums and the very best rates on the market.  Because rental income cannot be included in the application process for qualifying purposes, applicants must be strong financially and have unblemished credit.

Second homes for a family member are most commonly properties purchased for children, perhaps while in university or to help out during a difficult divorce.  It is also a common program for purchasing a home for a senior parent who may be retired on minimal pension income unable to secure a mortgage.

If you don’t quite qualify on your own for a second home, you may consider co -purchasing with friends or family. For example, siblings can pitch in together to buy a home for mom and dad with 5% down.  Good friends can pool their resources to purchase a property with 5% down for their kids who attend University together to save on residence fees.  These are just some of the many possible scenarios that would apply to this program.

For a vacation or recreational property there must be reasonable security for the mortgage lender. The property must be located in Canada and this program cannot be used for time shares or rental pools. If the property is not fully serviced , winterized, or does not offer year round access , larger down payment requirements will apply.

Call anytime if you would like to chat further or run numbers,  I appreciate hearing from  you and am always grateful whenever  you recommend me.

Divorces can be difficult and expensive, however good mortgage advice early can save you considerable stress and money. The first thing I will tell my clients who are starting the separation process is to continue with keeping all joint loans and payments up to date. If it is a less than amicable situation, we will often find that disputes over financial responsibility will result in payments being missed and as a result credit ratings being affected negatively. By not paying a joint debt you are sabotaging your own credit worthiness and ability to qualify for mortgages and loans in the future on your own. Keep good records of payments and if necessary, you can seek reimbursement through your lawyers at the time of negotiation and divorce.

Marital Home Buyout

When it comes to the marital home, if one party would like to remain in the property and buyout their spouse, there are a couple of options.

Option 1

•  Refinance the home conventionally.

• One party can refinance the property up to 80% of the value of the home. This person will need to qualify for the mortgage and any other liabilities on their income alone or with a possible cosigner.

Option 2

•  Refinance through Genworth or CMHC’s spousal buyout program.

• Qualified clients can refinance the home to up to 95% of the value of the property.

• CMHC’s spousal buyout program will allow the equity to be used only to pay out the spouse and not for any other debts or penalties.

• Genworth will allow the funds from the refinance to be used to pay off other matrimonial debts and mortgage penalties as long as they are specified in the separation agreement.

• For refinances over 80% loan to value clients will be subject to mortgage default insurance premiums. If the mortgage was originally CMHC or Genworth insured clients may just face a smaller top up premium, however if not, a full premium will apply.

Requirements

At the time of mortgage approval, in addition to income verification and other standard conditions most lenders will require:

-A Separation Agreement. Lenders will not want to finalize a mortgage approval until there is a separation agreement in place outlining the split of assets. This protects both the lender and the client as a soon to be ex spouse could make a claim against any assets in your name.

-Proof of Support Payments: If there are child or spousal support payments and these are needed as income for the buyer to qualify, further documentation will be required. The payment amounts should be specified in the separation agreement and most lender will request up to 3 months worth of bank statements showing that the support payments are being made / received.

-An Offer to Purchase between the two spouses for the subject property (in the case of a spousal buyout).

-An Appraisal (in the case of a spousal buyout): As this transaction is not at arms length the bank or insurer will order an appraisal be completed on the property to confirm market value.

As always, I am available to help and answer any questions you may have. Please contact me anytime.

Cory Lewis – Jencor Mortgage   1

Minister Morneau Announces New Benchmark Rate for Qualifying For Insured Mortgages

The new qualifying rate will be the mortgage contract rate or a newly created benchmark very close to it plus 200 basis points, in either case. The News Release from the Department of Finance Canada states, “the Government of Canada has introduced measures to help more Canadians achieve their housing needs while also taking measured actions to contain risks in the housing market. A stable and healthy housing market is part of a strong economy, which is vital to building and supporting a strong middle class.”

These changes will come into effect on April 6, 2020. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.

This follows a recent review by federal financial agencies, which concluded that the minimum qualifying rate should be more dynamic to reflect the evolution of market conditions better. Overall, the review concluded that the mortgage stress test is working to ensure that home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses.

This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.

The Office of the Superintendent of Financial Institutions (OSFI) also announced today that it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages.

The existing qualification rule, which was introduced in 2016 for insured mortgages and in 2018 for uninsured mortgages, wasn’t responsive enough to the recent drop in lending interest rates — effectively making the stress test too tight. The earlier rule established the big-six bank posted rate plus 2 percentage points as the qualifying rate. Banks have increasingly held back from adjusting their posted rates when 5-year market yields moved downward. With rates falling sharply in recent weeks, especially since the coronavirus scare, the gap between posted and contract mortgage rates has widened even more than what was already evident in the past two years.

This move, effective April 6, should reduce the qualifying rate by about 30 basis points if contract rates remain at roughly today’s levels. According to a Department of Finance official, “As of February 18, 2020, based on the weekly median 5-year fixed insured mortgage rate from insured mortgage applications received by the Canada Mortgage and Housing Corporation, the new benchmark rate would be roughly 4.89%.”  That’s 30 basis points less than today’s benchmark rate of 5.19%.

The Bank of Canada will calculate this new benchmark weekly, based on actual rates from mortgage insurance applications, as underwritten by Canada’s three default insurers.

OSFI confirmed today that it, too, is considering the new benchmark rate for its minimum stress test rate on uninsured mortgages (mortgages with at least 20% equity).

“The proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates,” OSFI said in its release.

“In addition to introducing a more accurate floor, OSFI’s proposal maintains cohesion between the benchmarks used to qualify both uninsured and insured mortgages.” (Thank goodness, as the last thing the mortgage market needs is more complexity.)

The new rules will certainly add to what was already likely to be a buoyant spring housing market. While it might boost buying power by just 3% (depending on what the new benchmark turns out to be on April 6), the psychological boost will be positive. Homebuyers—particularly first-time buyers—are already worried about affordability, given the double-digit gains of the last 12 months.

If you have any questions, please feel free to contact me anytime. Cory Lewis – Jencor Mortgage

Blog Posted February 18th, 2020 by Dr. Sherry Cooper – Chief Economist, Dominion Lending Centers

THINGS YOU SHOULD NEVER TRUST:

1.Gas Station Sushi

2.Emails from Nigerian Princes

3.60 Second Online Mortgage Pre-Approvals

Not all mortgage pre-approvals are created equally.

Many lenders offer quick and easy pre-qualification numbers for their clients and others will issue written pre-approval letters without any documentation requirements. As we all know, this can lead to heartache down the road when a deal goes live and an offer to purchase is in place.

My clients are offered a fully underwritten Pre-Approval.

The Top 3 Questions clients have about Mortgage Pre-Approvals:

1. What is an Underwritten Pre-Approval?

A fully underwritten preapproval ensures that not only we take a full application, but we collect and review the client’s paperwork upfront. This is not standard practice in the industry unfortunately.  A client’s ability to qualify for a mortgage hinges on 4 main criteria– Their provable income, their down payment, AND their credit bureau showing their ratings and liabilities. Collecting and reviewing this information upfront helps us avoid any confusion or disappointment at the time of purchase. Through no fault of their own, clients often misrepresent their information on a mortgage application.

For example, with an online application a client may advise that their annual income is $120k, (understandably basing this on their tax return info from the previous year). However, every lender has their own rules and document requirements for proving and accepting various income sources. Unless this is 100% salaried income – we need to investigate further to determine the income that can be used – IE: Hourly rates, shift premiums, taxable benefits, support payments, child tax credits, and  self-employment income are all handled differently.

2. If I am Pre-Approved, Why do I need a Finance Condition in my Offer?

I will always advise any client who requires a mortgage, preapproved or not –make their offer conditional to financing. The reason for this is that the client themselves is only half of the equation. The lender also has to approve the property in question, and this cannot happen until a written offer to purchase is in place. A lender may approve a client but decline a property. This could be due to any number of reasons, for example, a lower appraised value or special assessments that are disclosed once reviewing the condo documents.

Clients also need to be aware that a preapproval is based on their information at the time of application. If there are any material changes to their information (new debts, income or employment changes etc.) this can also affect their approval at the time of purchase. I always advise my clients contact me before making any material changes or applying for any new loans or liabilities.

3. Does a Pre-Approval come with any Obligation?

The answer is NO.

Most Pre-Approvals are good for 120 days and come with a rate hold for that period. If you decide not to purchase or use this preapproval it simply expires after that 4 months. It can be cancelled at any time or renewed at expiry if desired. The main benefit to the rate hold is that it does protect the client from any rate increases over the 120 period.

Another great advantage to working with a Mortgage Advisor who has access to  many lender options is that we will always shop around again for our clients  at the time of purchase . If some time has passed since the pre-approval was issued, we may find a better rate or product on the market and opt not to proceed with the lender who pre-approved you.

One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, different frequencies may end up saving you less interest over time.

Monthly Payments

Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.

$500,000 mortgage

3% interest rate

5-year term

$2,366.23 monthly payment

$427,372.90 remaining over 20 years

$69,346.70 paid to interest

$72,627.01 paid to principal

Semi Monthly

Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.

$500,000 mortgage

3% interest rate

5-year term

$1,182.38 semi monthly payment

$427,372.99 remaining over 20 years

$69,258.59 paid to interest

$72,627.01 paid to principal

Bi-Weekly

Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.

$500,000 mortgage

3% interest rate

5-year term

$1,091.38 bi-weekly payment

$427,372.36 remaining over 20 years

$69,251.76 paid to interest

$72,627.64 paid to principal

Accelerated Bi-Weekly

Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.

$500,000 mortgage

3% interest rate

5-year term

$1,183.11 accelerated bi-weekly payment

$414,521.40 remaining over 17 years 4 months

$68,325.70 paid to interest

$85,478.60 paid to principal

You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.

The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.

If you have any questions, please do not hesitate to reach out to me anytime. Cory Lewis – Jencor Mortgage

Original post by Ryan Oake – Dominion Lending Centers – Accredited Mortgage Professional

Every so often I have a client who does not qualify for a standard mortgage and will look at a rent to own as a potential option. Though I only have limited involvement in these transactions until the very end, I do try to educate my clients on the process and potential risks involved so they can make an informed decision.

The most common reasons for not qualifying would be that they either do not yet have a down payment OR perhaps credit issues that need some work before qualifying.

The property owner and the tenant will come to an agreement on the  purchase price and the contracts are usually set up with the tenant paying an initial deposit and a premium on regular monthly rent. For example, if market rent should be $1200 per month the client may pay $1600. The additional $400 per month is typically held in a trust account for the term of the rent to own contract, say 3 years. After the 3 years is up the cash in the trust account can be used for their down payment upon qualifying for a mortgage.

What could possibly go wrong? 

Property Value Issues: If at the end of the term the value of the property is not at least equal to the original agreed upon purchase price – the banks may not finance the home. For example, if the contract sets the price at 300K and values drop within the 3 years to 280K the client will now need both a minimum 5% down payment on the 280K value AS WELL as an extra 20K to make up for the value discrepancy. Appraisals are almost always required on ‘rent to own’ homes and this is the biggest issue I have seen over the last few years.

Qualifying Issues: Again, at the 3 year mark the tenant will have to qualify to buy the home. Mortgage rules are constantly changing so a buyer who qualifies based on today’s guidelines may not qualify in 3 years time. If the tenant happens to develop some credit issues within the 3 year contract or lose their jobs/take a pay cut ,they may not qualify to get a mortgage at all. Most rent to own contracts are based on 5% down payments at the end of the term. With less than a 20% down payment in the trust account – the mortgage default insurers (CMHC  / Genworth / CG) have to approve the buyers , property  and contract as well as the lender.

Owner Defaults: What kind of protection does the tenant have if the current owner of the home stops paying his mortgage or property taxes? Usually NONE. If the current owner stops paying the bank the property could be foreclosed upon while the tenant is occupying the property and fulfilling their end of the bargain.

What does the tenant have to lose? Often these contracts are drawn up in favor of the owner, not the tenant. If the tenant misses a rent payment or does not qualify at the end of the rent to own contract the tenant may lose some or all of their deposit and down payment in trust.

What should one do if considering a rent to own property? ALWAYS seek legal advice. Do not use the seller’s lawyer, It may cost you extra to have your own lawyer review the contract but it is important to have your own representation. Also, speak with a mortgage professional in advance. You will want to ensure that after the rent to own term is up that you have the best chance possible at qualifying for a  mortgage.