26 Feb

Everything You Need To Know About Mortgage Insurance

General

Posted by: Roberto Pelaccia

Whether you are a first-time home buyer or you already have a home, it’s always good to brush up on mortgage insurance to make sure you’re covered in the way that you need to be. Depending on your situation, you may not qualify for a particular type of mortgage insurance and need to go with another. But, don’t worry, we are going to go through that.

In this article, we are going to be discussing the different types of mortgage insurance and which ones apply to which situations.

Mortgage Default Insurance

This type of insurance is for people who have less than a 20% down payment for the home that they’re looking to buy. This means that you needs to purchase mortgage default insurance as it covers the lender should you not be able to make your mortgage payments. The government requires people in this situation to purchase this type of insurance. This particular type of insurance is for the benefit of the lender as it only protects them.

Mortgage Insurance

At the end of the day, this is the kind of insurance that would protect you and your family should something happen to one of you. Basically, you want to make sure that your mortgage insurance will cover the cost of your mortgage should there be a fatality to one of the mortgage holders. Keep in mind that this is not mandatory to have when buying a home, but it’s a form of protection for you and your family.

Life Insurance

This is another option when you’re looking at protection should something happen to one of the mortgage holders. You do not want to be leaving your family with a mortgage payment that perhaps they cannot afford on their own. Life insurance is a great way to insure your family would be taken care of. Just make sure that your life insurance amount is sufficient for the amount you currently owe against your mortgage. Keep in mind that life insurance can take some time to put into place, sometimes up to three months, and a full medical exam needs to be performed in order to determine the state of your health.

Disability Insurance

This is insurance that will protect you while you are still alive.  If you are off on long-term disability and can no longer work you can make a claim and have 50-100% of your monthly mortgage and property tax payment paid for.  This is until you can go back to work, or two years of you life.

 

The bottom line is that you not only need to think about insurance for your lender – should you have less than a 20% down payment – but you also need to think about insurance to protect you and your family.

Buying a home is almost always the biggest purchase of people’s lives, so you need to make sure you have the proper protection in place should life throw something at you that you didn’t expect.

 

5 Feb

Do You Owe The CRA? What Does That Mean For Refinancing?

General

Posted by: Roberto Pelaccia

At the end of the day we all have to do taxes. But, it’s one of those things that is dreaded every year. You have to take the time to get all your paperwork in order. You have to go to the accountant. Who has time for that?

Well, if you’re looking to refinance your home, making time for it is extremely important. Why? A lot of banks simply won’t help you refinance your home to pay off the CRA because the CRA is always the first one in line to when it comes to snagging your home and/or assets. So, banks don’t want to take that kind of risk. Especially if you’re someone who has gotten those threatening letters from the CRA. You know the ones. You open it up and everything is in red. Fun!

So, what do you do if you find yourself behind on your taxes, owing money to the CRA, and no idea how you’re going to pay it back? Well, we have some options that we can look at.

Here are a couple things that we can do to finance your CRA debt:

Alternative Lenders

The first option is to use an alternative lender. We may be able to find you a different lender that will agree to lend you enough for your current mortgage as well as the CRA debt. It’s good to keep in mind that the interest rate will be significantly higher because it is higher risk, however, this is an option for you if the banks have refused to touch your mortgage.

Short Term Second Mortgage

The second option is to take out a short-term mortgage of two years, which you would use to pay off your CRA debts. Once your CRA debts are paid off, you would then refinance back to your original lender.

So, don’t assume that you don’t have options. If this situation sounds familiar, then get in touch with us to find out how we can help you.

22 Jan

Mark Changed His Life Through Cash Flow Planning. You Can Too!

General

Posted by: Roberto Pelaccia

At some point in everyone’s life, there are hard times. Whether it’s the death of a loved one, losing your job, or even getting a divorce. I’ve worked with many people going through divorces and one of the most common problems is that they simply don’t know where to start financially. For years they’ve had this other person to collaborate and share finances with. And now, all of a sudden, it’s all on them to do it solo.

So, it can be overwhelming to have to plan your finances and figure out how you’re going to afford everything on your own. Especially on top of everything else you have to deal with.

When I think of all the people I’ve worked with in this particular situation, one person really comes to mind, and that’s Mark.

Mark came home on a normal day to find out that his wife of 14 years was leaving him. Of course saying that it came as a shock is an insane understatement. They had not only been together for 14 years, but they had two children together. Now, they were going their separate ways.

He knew he needed to move and be able to manage his bills. He wasn’t necessarily worried about being able to pull it off, he just didn’t know where to start from a financial standpoint.

His wife was going to be staying in their current home and knew that she would be able to take over the mortgage on her own. So, she came to me to see what she would qualify for so she could also figure out what she would be paying Mark as part of their separation. And, as I’m sure you can guess at this point, this is how I met Mark.

He was told that he would be getting $200,000, which he thought would be enough to start over and buy another home in their neighbourhood. But, he still didn’t know what kind of mortgage ge would be able to afford since he would be adding child support payments to the mix.

We decided that completing a cash flow plan would be the best way to go for him. And, the plan that we created for Mark had him paying off some of his debts, setting up an emergency fund, and had him pre-qualifying for a mortgage.

Now, this is where it gets really exciting…

Just two-months after setting him up with his brand new cash flow plan, he happily moved into a new home just down the street from his kids. He had an effective method of operation to handle his new shelter costs and child support payments. He had three months of his net income set aside in an emergency fund. He knew exactly what his spending should look like for the amount he was earning. And finally, he had a plan that had him admitting that he had never been so confident about his finances before.

The bottom line is that money and finances are a very real stressor for people. And, with Mark, we were able to create a personalized cash flow plan that not only decreased that stress, but created confidence. Could you just imagine not worrying about paying your next bill or dealing with an unexpected expense? How much more joy would you experience is those stressors weren’t there?

Cash flow planning isn’t a budget. Budgets are restrictive! Cash flow planning is a way for you to achieve your goals and make the most out of the money you have today. Who doesn’t want to be able to do more and achieve more!?

 

 

8 Jan

Does Having A Co-Signer Mean You’ll Qualify For A Mortgage?

General

Posted by: Roberto Pelaccia

This is an option that many people look at, especially if they don’t have strong credit or if they don’t make enough money. This issue here is that a lot of people look at it as the same as cosigning on a lease for an apartment when you’re in your early 20s. People think that it’s a simple case of someone signing on the dotted line to basically say that you’re not as high of a risk for defaulting on payments.

When cosigning for a mortgage, this is not the case. It is a much more extensive process.

In this article, we talk about why someone would have someone cosign on a mortgage, what it means for the cosigner, and some critical things you should know before having someone sign on the dotted line.

Why you would use a cosigner

The reality is that qualifying for a mortgage is getting tougher. If you have some dings on your credit, if you’re not bringing in enough of an income, or if you don’t have a large enough down payment, could result in you not qualifying for a mortgage on your own. It could also be something as simple as switching employers or professional fields. Going through those kinds of transition periods can make lenders pause when deciding whether or not to give you a mortgage.

As a result, some people make the decision to bring in a family member or close friend to cosign on their mortgage.

What does it mean for the cosigner

Putting someone’s name on your mortgage is a big deal. Not only are they putting their name and credit on the line but  they are basically offering up security for the lender. If you default on a payment or can no longer pay your mortgage, then it’s the cosigner who has to step up and make sure things get paid. This also means that default payments will show up on your co signer’s credit as well.

So, to make sure everyone is protected, I would suggest seaking out independent legal advice prior to agreeing to either accepting a cosigner or agreeing to be a cosigner. No matter who the person is!

Should you proceed with a cosigner, you can give it some time and then request that the lender reevaluate your application as an independent and potential have the cosigner removed. Until then, keep in mind that it’s both of your names and credit on the line.

Things you should know before signing!

When you’re thinking of recruiting a cosigner, you need to keep in mind that they will go through the exact same vetting process you have. They will have to provide all the same documentation and prove they they are a strong enough applicant to hold a mortgage. Just the same as you.

In addition, by having their name on your mortgage, it will have an impact on their ability to borrow anything while their name is attached to your mortgage. It’s also the case if they already have a mortgage. They may not qualify as a cosigner because that would mean that they need to be able to carry two mortgages.

When it comes time for you to remove your cosigner from the mortgage, make sure you check with your mortgage broker to make sure that removing the cosigner won’t be seen as breaking your mortgage. Because, there could be some large penalties if that’s the case. So, just make sure you’re covering all your basis.

 

Cosigning is definitely an option available. Especially for someone who might be a first time home buyer who is building up their credit and starting their career. But, just like anything else, it’s important to have all the information before you make a decision. So, consult a mortgage broker if this is the avenue you’re thinking of taking.

21 Dec

What Does Getting Pre-Approved For A Mortgage Really Mean?

General

Posted by: Roberto Pelaccia

Have you been pre-approved for a mortgage? Has anyone actually reviewed your income, and down-payment documents, or looked at your credit bureau? Being pre-approved often just means a few questions were answered regarding your income, and voila you have a rate being held for the next 120 days. This does not mean you have been pre-approved for a particular mortgage amount. That process is what I call being Pre-Qualified. It means a mortgage expert has verified your income, and down-payment and has also examined your credit bureau. They would then find where you would fit with many lender’s policies, or maybe just the 1. Its a specific process and sometimes at the end of it we can get a rate hold for you.

Getting pre-qualified for a mortgage is great, congratulations if you have been. But, that doesn’t mean that your mortgage is completed locked in. There are many factors at play that could have an impact on you when you actually go to put through your application and want to use the loan for your offer.

Some of these factors include:

Changes to your application

This means that there have been some kind of major changes to your application. Perhaps you decided to get a jump on furniture shopping, so you took out a small loan for some new items. Perhaps you changed jobs. The list goes on. But, these changes can have a significant impact on whether or not a lender ACTUALLY gives you the amount you were pre-approved for.

The lender isn’t a fan of the property you’re buying

Just because you love the property, doesn’t mean the lender will. What a lot of people don’t know is that there are quite a few property types that lenders don’t always lend on. Some of those include:

  • Leased land or co-op
  • Age-restricted property
  • Any reference to water or leaks in the minutes
  • A “fixer upper”
  • Contains asbestos, vermiculite insulations or has (even partial) knob-and-tube or aluminum wiring
  • Is on land with a commercial zoning component
  • Livestock is present, etc.
  • Size of the property- below 500 sq. feet,
  • Doesn’t use municipal sewage or waste
  • Over 1 Acre and/or multiple buildings
  • Ongoing or upcoming assessments or legal proceedings

So, if you’ve been pre-qualified, but then go to put your paperwork through with a property the lender doesn’t like, they have every right to turn down your application. This is why it’s SO IMPORTANT to include a “subject to financing” clause. Pre-qualified or not, you always need to have this component!

Always have a subject to financing clause

At the end of the day, financing can be very subjective. So, if you include a “subject to financing” clause, then you’re 100% protected if you can’t find a lender for the property you’ve put in an offer on. Being pre-qualified for a mortgage doesn’t guarantee you will be approved, but it will give you your spending ballpark. You know what you qualify for, so you can tell your real estate agent, and start looking at homes that are within your price range. Have close contact to your Mortgage Expert when you want to put offers can really make a difference on your outcome. They will be able to update your file, and examine the property, so the end result of you winning your offer is much higher.

It is not a green light to start throwing out offers. So, make sure you take the proper steps to make sure you are protected. And, keep in mind that mortgage pre-approval does not mean that you are guaranteed to get your mortgage.

4 Dec

The Expectations Versus The Reality Of A First Time Mortgage

General

Posted by: Roberto Pelaccia

It’s an exciting time when you’re looking at buying your first home. So much so that we often create expectations in our head that clash with the reality of the situation.

Often times, first time home buyers walk into the mortgage and home buying process thinking it’s going to be a breeze, that they have enough money, that buying is the best option for them, but really, they haven’t spoken to an expert – a mortgage agent – to find out is those thoughts are actually true.

Here are some of the most common expectations – or thoughts – first time home buyers have, that sometimes don’t match up with their reality. Give it a read to make sure you’ve covered all your basis and are making sure your expectations are setting you up for success.

1. Going from renting to owning a home can cost the same or less

We’ve all heard the phrase that owning a home is more worthwhile because you’re putting money into something that you will one day own, versus dumping money into rent. While this is true, it’s also often said that a mortgage costs the same, and sometimes less than rent. I would like to take the time to officially debunk this theory.

Firstly, yes, you can find a cost-efficient mortgage that is comparable to what you are paying in rent. Of course that depends on how much your rent is. If you’re only renting a room and are only paying a few hundred dollars then chances are your monthly living cost will increase by quite a bit. But, if you’re renting an apartment or a house, then mortgages can sometimes be around the same price. Keep in mind that this is not always the case. So, setting the expectation that buying a home will actually save you money is not the reality.

The reality is that owning a home comes with more expenses than first time buyers realize. Some of these extra costs include repairs – you no longer have a superintendent fixing things up for you – home insurance, property taxes, utilities, etc. This is why it’s smart to sit down and build out a budget for yourself. Cash flow planning is a great option to make sure that you’re using the money you have in the best way that you can.

2. You qualified for a certain loan amount and you should use all of it

Just because you qualified for a certain amount, doesn’t mean you should use all of it. Prior to applying for a mortgage, you should have established a budget with a cash flow planning specialist to determine what you can afford on a monthly basis. And, once you’ve done that, you stick within your budget to make sure you’re not overextending yourself financially.

It’s always smart to give yourself a price range. For example, let’s say you qualify for a mortgage of $600,000.00, you can say that you would like to find a home between $450,000.00 to $550,000.00. That way, if you end up getting into a bit of a bidding war for the home of your dreams, you have some wiggle room.

3. You have enough saved for your down payment

So many people come in after saving for years, only to realize that their down payment isn’t necessarily enough. They think their down payment is quite sizeable, and it probably is, but the general rule is to have at least 5% saved for a home that is worth less than $500,000.00. But, the higher you can get that percentage, the better off you will be.

So, make sure you’re well-informed about the amount you need to be saving. And, in order to get there, you can use effective cash flow planning to make sure you are saving enough money in the amount of time you want. So, if you have a goal to save up a $25,000.00 down payment in three years, cash flow planning can look at how much you need to save and how you can use the money you’re making now to actually make that happen.

4. Once you’ve saved for your down payment, there are no other fees

Saving for a down payment is a big task and it takes time. A lot of first time home buyers think that once they’ve saved for their down payment, they just need to apply for the mortgage and they’re good to go. This isn’t the case. People often forget about all the other fees that come with buying a home.

Some of these fees include:

  • Realtor fees
  • Legal fees
  • Moving costs
  • Inspection fees
  • And so much more

These fees need to be paid before you take ownership of your home, and therefore need to be accounted for when you’re looking at applying for a mortgage and buying your home.

The Reality

I know that this blog may make it seem like there are a ton of obstacles and hoops to jump through in order to qualify for a mortgage, but the reality is, as long as you’re prepared and you know what to expect, you’ll be set up for success. So, get in touch with a mortgage agent, learn the reality of applying AND qualifying for a mortgage, and start preparing for that home you’ll get into faster than you know it.

13 Nov

Things To Consider If You’re Self-Employed And Applying For A Mortgage

General

Posted by: Roberto Pelaccia

Are you self-employed? Are you feeling overwhelmed by everyone saying that it’s going to be next to impossible to get a mortgage as a result. Don’t worry, we’ve got you covered!

Just because you’re self-employed, doesn’t mean that you can’t get into the house of your dreams. In this article, we walk you through the different things you need to consider when you’re applying for a mortgage as someone who is self-employed.

Have a strong work history

Whether you’re self-employed or not, having a strong work history is extremely important. Lenders want to see that you’ve been generating a steady income for at least two years. Basically, they want to make sure that you are going to be able to pay your mortgage and not default.

One thing to note is that if you have recently become self-employed, but have stayed within the same professional field, some lenders will make an exception and allow you to use your previous employment as proof of steady income as well.

All the paperwork you’ll need

When you’re self-employed, there are a few more pieces of paperwork that need to be provided when you’re applying for your mortgage. Some of this paperwork could include your tax returns, both personal and professional, for the last two-years, bank statements, recent invoices you’ve been paid for, and a list of assets, etc.

While all of this can seem overwhelming, this is all information that you should be tracking anyways, and would simply compile to provide the lender, or mortgage agent you’re working with.

Watch your tax deductions

When you’re self-employed, you have the luxury of claiming expenses. This helps lower your taxable income and your overall tax bill. But, what you really need to consider is that when applying for a mortgage, lenders tend to look at your after tax income. So, that means if you’re claiming a lot of deductions, you’re decreasing the amount of taxable income these lenders are going to look at when deciding whether or not to give you a mortgage.

If you’re claiming a large amount of deductions, it may cause your application to be declined or you may end up with a lower amount than you were hoping for. So, keep this in mind when you’re making your tax deductions.

Build up your credit score

Just like anyone else who is applying for a mortgage, you need to have a healthy credit score. So, best practices is to pay off any significant debt before you go to apply for your mortgage. I would also suggest that you have a detailed look at your credit statement to make sure there are no mistakes. That way, if there are mistakes, you can have them rectified before you go to apply.

Also, it’s beneficial to have a look at your debt-to-income ratio. Lenders will look at what portion of your monthly income goes towards paying off other debts, such as, student loans, cars, etc. You will need the help of a mortgage expert for this, but it’s the only way to know how much you would currently be approved for.

In the end…

Applying for a mortgage is overwhelming in general, but applying when you’re self-employed can seem impossible. The reality is, it’s not. There are a couple extra steps you need to take in order to apply and get approved, but it’s not nearly as complicated as people make it out to be. If you get all your ducks in a row and you make sure you put your best foot forward, chances are you won’t have any issues.

3 Oct

Is A CHIP Reverse Mortgage Right For Your Loved Ones?

General

Posted by: Roberto Pelaccia

Thanksgiving weekend is upon us and that means spending time with family. You’re all sitting together, having conversations, and enjoying yourselves. But, does your family ever talk about the hard topics? Such as, where your parents, or older relatives, will live out the rest of their lives?

Will be in the house they are living in now, or is a move essential?

Will they have enough money to get by when they rely on a fixed income, or would you have to supplement their incomes?

These are tough ideas and questions to ask ourselves, but necessary if we want to see our family taken care of as they get older. The fastest growing segment of mortgagors in Canada are in their retirement years and the reverse mortgage is the reason why.

A reverse mortgage is simply a mortgage that uses the home’s equity to maintain the loan. Hence why you hear there is no payments required to be made, but actually the interest owed on the loan is paid by the equity in the home, and later when the mortgage is paid off it all gets paid off. This is the big reason why reverse mortgages are only for 50% or less of the value of the property. That gives plenty of room in the current equity. And, as the value of the property

grows every year it will be enough to keep that loan to value lower over time.

What makes this a great option for older people on fixed incomes is that it allows them to get access to home equity without the traditional payments, and qualifying terms. So, if you wanted to down-size but still need a mortgage to do so, this can help make the down-

sizing option a reality. The mortgage payment does not have to be barrier to get qualified and

most importantly the reverse mortgage will allow your cashflow to be left alone.

So, retiring and moving into that bungalow, or other, more mobile friendly homes, becomes possible.

As per Statistics Canada, 1 in 3 retirees have debts still on the books, and 20% of people over 70-years-old are still paying something off. Debt repayment on a fixed income can really derail plans during retirement. Their limited resources and repaying a loan can really take away from someone’s lifestyle. Unlike an RSP, all money taken from home equity is tax free, making a reverse mortgage a solution that can finally pay off these debts, and will help make those later years in life a little more golden.

Being prepared for retirement requires managing the liabilities and equity side of your balance sheet. In other words, you need to look at not just your savings but your debts and equity as tools to live more comfortably in your golden years.

If this is something that you think could help your elderly loved ones, don’t hesitate to reach out to see what the options are!

27 Sep

A Recap Of Summer Real Estate and Heading Into Fall

General

Posted by: Roberto Pelaccia

Summer 2018 has officially come to an end and looking back on it, summer was great for real estate. In this article, we are going to do a quick recap of what we saw in the summer and what we can expect in the fall months of 2018.

We saw sales increase and ending with the month of August having a 8.5% increase in sales volume from last August. We also saw home prices increase 4.7% year-over-year this August with the average price in the GTA being $765,270.00.

This summer’s GTA real estate market has grown tighter with sales outpacing new listings and it is a sure sign that supply is not keeping up with demand. But, we are certainly not in an overheated market, which we saw between 2015 to 2017. Well, at least not yet.

Rate market

In terms of rates, they held steady in the month of September but there is anticipation of more increases coming. The decision to not increasing in September has been mainly from trade uncertainty.

We have seen the stress test come in January of this year. This created varying rate scenarios that individuals can qualify for. This left the lending market segmented into price points based on credit score and loan to value, and being able to qualify under restrictive guidelines getting you better rates. But Credit Unions – who don’t adhere to federal lending regulation – were still available to offer non-stress options to those that really needed it. I expect Credit Unions to play a bigger role in mortgage lending in Ontario for as long we are dealing with stress testing guidelines.

What to consider in the fall?

It’s important that we prepare for what is ahead. Some of these things include saving for the holidays. You should try to get ahead in the game by thinking about saving for the holidays now versus putting money on your credit cards that you can’t pay off right away. It’s all about avoiding putting yourself in a situation where you’re spending more than what’s within your budget.

You can also do this by setting financial goals that you can start to implement now and continue into the new year. You’ll find that you avoid overspending in December and you’ve set yourself up for an amazing financial year in 2019. This is where cash flow planning comes in. It can get you to your goals that mean the most to you. That could be paying off debt, taking a family vacation, finally doing that basement renovation, and so much more. Why not start now and get yourself on the right track to achieve your goals as early as spring and summer of 2019. It’s really not that far off!

Enjoy the fall time activities in your community.

Call me if you need anything.

11 Sep

Understanding Down Payments When Buying A Home

General

Posted by: Roberto Pelaccia

One of the biggest hurdles when you’re looking to purchase a home is coming up with the down payment. This is on top of all the other expenses people have in their day-to-day lives. But, at the end of the day, it’s something that needs to happen to become a homeowner.  Most people think that having a 20% down payment really has its benefits.

In this article, I am going to through some of the reasons why people should take a look at their finances, so that they can effectively decide what size of a down payment is right for them.

1. Save more up front to pay less per month

The reality is, the more you save for a down payment, the less you have to pay per month on your mortgage. The simple math shows that the more you put down means the less you borrow and the less you have to pay back. The challenge is saving more to put down and still have more for other things you’d like to invest in or do.

2. Mortgage default insurance

If you have less than 20% for a down payment, you are required to have mortgage default insurance. This allows the banks to give mortgage applicants who have less than a 20% down payment lower interest rates, as that default insurance decreases the bank’s cost to lend and they pass that down to the borrower. The lower your down payment, the higher your insurance premium will be though. Typically between 5-10% down-payment means you will pay 4% of your loan amount as the premium, and a low interest rate of 2.8% if you have 15%-19.99% down.  Most people pay for the insurance by adding it to their mortgage, which they will therefore pay over the course of their mortgage. If you have 20% or more you can avoid this extra expense.

3. Lower Interest Payments

Pure interest savings can be achieved with a lot of different strategies. Your sticker rate is typically lowest with more than 20% down payment.  

4. Easier To Debt Service

Having a down payment that 20% or more can make it easier to qualify for a mortgage. You can extend the amortization of the mortgage up to 30 years, which can make your payment lower.  Banks want to know that you will be able to successfully service your debt, and they believe you can do that by looking at whether or not your monthly housing costs are below 39% of your combined gross monthly income and if your total debt accounts for less than 44% of your gross monthly income. A lower mortgage payment can help you get there.  

 

As you can see, there are some real pros and cons to having more or less of that key 20% down payment when you go to purchase a home. If you’d like to understand your options, or if you like to talk about planning your finances so you can get the right down payment amount, then feel free to get in touch with me.