Tightened lending guidelines are particularly affecting one type of homebuyer in major cities, according to one broker.
“In my marketplace … we are surrounded by so many condos, and a lot of our clients trying to purchase with bad credit are having a tough time,” Phil Edwards, a Toronto-based broker with MorCan Direct told MortgageBrokerNews.ca. “They put their deposit down four or five years ago and then they’re ready to register the unit and get a mortgage and they’re walking into tough times because over those four or five years something may have happened with their credit and they can’t now get approved for a CMHC insured mortgage.”
It’s an issue homebuyers – who may have been pre-approved in a less strict environment a few years ago – are having as they try to get their finances in order to officially move in upon completion.
According to Edwards, the problem can be avoided if clients approach a broker early on in the buying process, as opposed to merely getting pre-approved with the lender’s bank affiliate.
“If the client comes to us (beforehand) we let them know that obviously we can’t hold rates for that amount of time but if they can be pre-approved we usually tell them to keep their credit up because it’s obviously based on credit being in good standing,” he said. “Pay your bills on time; simple things like that will keep credit where it needs to be and for the most part they follow along with that.”
Issues arise, however, when clients are late in approaching brokers; though there are some creative workarounds Edwards has figured out to help clients secure financing.
“The problem is when a client hasn’t met us and their building comes up for registration,” Edwards said. “There are some lenders that will do a boost credit score with the insurer just because they have a little more relaxed guidelines, like a Bridgewater, for example. But it’s still pretty stringent on how bad the credit is.
“(In) most cases you’re still looking at first and second mortgages, trying to help them repair their credit and then afterwards trying to refinance them out of that mortgage because the property has appreciated in value so we may be able to finance at 80 per cent loan-to-value and get them out of that product.”
Though he admits it can be difficult and it requires a number of puzzle pieces to fall perfectly in place.
“It’s kind of tricky because they have to have certain things like other properties or equity in the property, appreciation in value on the existing property,” Edwards said. “So things have to kind of align in order for that to happen.”
About Me
- Mortgages Made Easy - Erica Wells
- As a professional mortgage consultant with Complete Mortgage Services, I am passionate about helping my clients achieve their financing goals while maximizing their value. This means lower rates, the best terms and paying off your mortgage as fast as possible. I have the knowledge, expertise and relationships to ensure that you get the best mortgage product at the lowest possible rates
Thursday, February 20, 2014
Tuesday, February 11, 2014
Consumer debt swells to $1.4-trillion, but Canadians able to pay it!
LINDA
NGUYEN
TORONTO —
The Canadian Press
Published
Monday, Feb. 10 2014, 4:42 AM EST
The love
affair Canadians have with debt is still going strong, according to a new
report by credit monitoring agency Equifax Canada.
Equifax
said Monday that its figures show that consumer debt, excluding mortgages, rose
to $518.3-billion through the end of November 2013. That was up 4.2 per cent
from $497.4-billion a year earlier.
Despite the
increase in debt, however, the overall delinquency rate — bills due past 90
days — declined to a record low of 1.12 per cent from 1.19 per cent in the same
period of 2012.
“The real
pattern that we’ve been observing is that Canadians are taking on more debt,
but they can handle it well and are making those monthly payments,” said Regina
Malina, director of analytics for Equifax.
Meanwhile,
overall consumer debt, including mortgages, also continues to rise — up 9.1 per
cent to $1.422-trillion from $1.303-trillion a year earlier.
Malina says
the data shows that Canadians are willing to take on more debt — from car loans
to credit card purchases — but are more aware of how important it is to keep
their debt levels under control.
High debt
levels are not a big concern in current conditions, which signal a stabilizing
economy, improvement in the unemployment rate and an anticipated gradual
increase in interest rates.
But Malina
says if any or all of these conditions change, Canadians should reconsider how
much debt they are piling on.
“That is
the reason why we should remain vigilant,” she said. “It’s easy to get
complacent. Even if the debt is up, and the delinquency is going down, it is no
cause for alarm but as I said, we have to watch out for these other economic
factors.”
Equifax uses
data from 25 million files on consumer credit history, including national
credit cards, loans and mortgages in compiling the report each quarter.
Monday, February 3, 2014
Buying a house? Here’s how to get a big tax refund!
The $25,000 Ottawa allows you take out of your retirement
fund to buy your first home sure doesn’t go as far as it used to.
The Financial Post’s Melissa Leong explains why RRSPs are much like your
beloved social media and as deserving of your attention.
Under the home buyers’ plan, Canadians can take $25,000
out of their registered retirement savings plan and pay it back over the next
15 years without incurring any penalty. For a couple that means $50,000.
But the dollar amount has been stuck at $25,000 since
1999 while house prices have continued to escalate. At $50,000, you’re barely
making the minimum downpayment if you are buying a home in Vancouver with
a mortgage backed by the government.
The Canadian Real Estate Association says the average
price of a home will climb to $391,000 next year, meaning that $50,000 is less
than 13% and not enough to avoid costly mortgage default insurance.
“I don’t know how effective the plan is now, so I’m not
sure what would happen, if you increase the amount,” says Don Lawby, chief
executive of Century 21 Canada.
It’s not just the amount. The tax-free savings account is
now just as an effective savings vehicle. As of 2014, Canadians were allowed to
contribute $31,000 and the amount increases every year. You can also withdraw
money from a TFSA and put it an equal amount back later.
“I think you almost need a combination of the two plans
together to fund that kind of investment,” said Mr. Lawby, about buying a house.
“It depends on where you live in Canada.”
The home buyers’ plan was launched with a $20,000
withdrawal limit and it jumped to $25,000 in 2009.
One of the arguments against increasing the limit is it
will encourage young Canadians to rob their retirement savings to buy a first
home. Paying the money back over 15 years — there are significant penalties if
you don’t — means you might not have the money to make current contributions.
“Some people say the RRSP is not the most efficient way
of saving for a house,” says Benjamin Tal, deputy chief economist with CIBC
World Markets.
He says there hasn’t been an acceleration in the use of
the home buyers’ plan because first-time buyers are being squeezed out of the
market.
“Older people and people buying second properties don’t
use their RRSPs to buy homes,” says Mr. Tal. “You would expect given rising
prices there would be more use [of the plan.].”
This is the most popular time of the year to do it. They
manipulate the system to deliver a tax return on the downpayment they will
[already be] making on their purchase.
If you know you are buying your first home in the next 90
days, you make a $25,000 contribution or $50,000 for two people. That means a
big refund in April. You then withdraw the $25,000 or $50,000 to pay for that
initial home.
“Most people have the RRSP room. If you are buying a
house by June and you have the downpayment in cash, you make the contribution
to trigger the the refund,” said Mr. Gaetano, noting the $25,000 has to be in
the plan for 90 days before you can take it out.
“You can garner $20,000 in refunds,” said Mr. Gaetano,
pointing out it will depend on what your marginal tax rate is.
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