16 Dec

Mortgages for the Self-Employed

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Posted by: Alexander Slobidker

Did you know? Approximately 15%+ of Canadians are self-employed, making this an important segment in the mortgage and financing space. When it comes to self-employed individuals seeking a mortgage, there are some key things to note as this process can differ from the standard mortgage.

For self-employed individuals with an established business seeking best rate financing, the business must have a minimum of two years of history. This includes self-employed applicants who own a full or part-time business and covers sole proprietorships, incorporations, and partnerships.

In order to obtain a mortgage when self-employed, most lenders require Revenue Canada personal tax Notices of Assessment and respective T1 Generals be included with the mortgage application for the previous two years. For individuals in Quebec, you will be required to provide NOAs (Notice of Assessments) from Revenue Canada, Relevé 1 from Revenue Quebec and T1 Generals. Typically, individuals who can provide these documents – with acceptable income levels – should have little issue obtaining a mortgage product and rates available to the traditional borrower.

One primary benefit of being self-employed is the privilege of writing your income down. You enjoy less tax because you get to write-off expenses, but you lose borrowing power. It is important to be aware of this because you can either pay less tax or have more borrowing power.
As a self-employed individual, you will fall into one of the following three categories:

  1. You can provide the tax documents and you have a high enough income, so there aren’t any initial impediments to your application.
  2. You can provide the Revenue Canada / Revenue Quebec documents, but don’t have enough stated income due to write-offs. In this case, you need a minimum of 10% down with standard interest rates.
    a. If you put down less than 20% down payment when relying on stated income, the default insurance premiums are higher.
  3. You cannot provide the Revenue Canada / Revenue Quebec documents, which means you will be required to put down 20% and may have higher interest rates.

For a typical borrower, lenders often require a letter of employment and recent pay stubs to confirm and calculate income. When it comes to calculating income for a self-employed application, lenders will either take an average of two years’ income or your most recent annual income if it’s lower.

When it comes to submitting your mortgage application, you will need to provide the standard documentation in addition to the following:

  • For incorporated businesses – two years of accountant prepared financial statements (Income Statement and Balance Sheet)
  • Two most recent years of Personal NOAs (Notice of Assessments) and tax returns
  • Potentially 6-12 months of business bank statements
  • Confirmation that HST/Source Deductions are current

If you’re self-employed and looking to qualify for a mortgage, or simply have some questions for when you are ready in the future, please don’t hesitate to reach out today! I would be happy to work with you to ensure you have the necessary documentation, understand your options and can obtain a pre-approval to help you understand how much you qualify for!

5 Feb

5 Tips To Increase Your Chances Of Getting A Mortgage Approved

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Posted by: Alexander Slobidker

Article by Huffingtonpost

If you’re planning to buy a home, you’ll probably need to get a mortgage. Comparing mortgage rates is a good first step, but applying and getting approved for a mortgage is the most important part of the process. While it may seem difficult and daunting, with the right preparation, getting a mortgage approval can be a relatively smooth process.

1. Check (and improve) your credit score

Your credit score is a number between 300 and 900 that indicates your overall credit-worthiness. Whenever you make a late payment, apply for credit, or default on a loan, credit reporting agencies will note it on your credit history and lower your credit score. A higher score shows that you’ve been committed to making loan repayments in the past and are therefore less likely to default. This indicates to mortgage lenders that you’re more likely to pay back your loan on time and makes them more willing to lend you money.

Here are the typical ranges for credit scores in Canada:

  • Below 599: Poor credit
  • 600 to 679: Fair credit
  • Above 680: Very good credit

If you have poor credit, mortgage lenders will assume that you’re less likely to make repayments on time, which makes lending to you riskier. Most major banks won’t take that risk and thus, won’t approve you for a mortgage if your credit score is under 600. Instead, you may need to use a “B lender” or even a private lender, which will charge you a higher mortgage rate to compensate for the extra risk.

In order to have access to better mortgage lenders and lower rates, you should try to improve your credit score before you apply for a mortgage. Here are a few steps you can take:

  • Check your credit score, so you can measure your progress. There are online tools that will let you do this for free.
  • Pay your bills on time and in full, especially for credit cards and loans.
  • Try to use less than 30% of your overall credit limit.
  • Don’t apply for more credit than you need. Lots of applications for credit can hurt your credit score.
  • Keep your oldest credit card active, even if you don’t use it. Having a long credit history is good for your credit score.

2. Pay down your existing debt

Lenders will look at your debt-to-income ratio when deciding whether to lend to you. They’ll want to know that your income can cover your mortgage payments, even after paying off your existing debt. That means existing debt can impact how much you’re able to borrow.

The first part of this ratio is your income, which you’ll want to keep as high and as stable as possible. Being in a full-time job for a long time is ideal. Aside from increasing your income, paying off your existing debt is the best way to maximize your mortgage affordability. This includes car loans, student loans, credit cards, and any other credit line with regular payments. By paying as much of your debt off as you can, you’ll have a higher income-to-debt ratio when you apply for a mortgage.

More detail on debt ratios: Your mortgage provider will use two different kinds of debt ratios to determine how much you can afford to borrow, your Gross Debt Service Ratio (GDS) and your Total Debt Service Ratio (TDS). The general guideline from the Canada Mortgage and Housing Corporation (CMHC) is to have a GDS of less than 35 per cent and a TDS of less than 42 per cent. Your GDS is the percentage of your monthly income that pays for your housing costs under your new mortgage. Your TDS is similar to your GDS in that it factors in your housing costs, but it also includes your other debts such as car payments and credit card loans.

The takeaway is that with a higher income and lower existing debt you’ll be able to apply for a larger mortgage. If you can’t easily increase your income, then paying off as much of your existing debt as possible will help improve your debt service ratio.

3. Save more for a larger down payment

In Canada, the minimum down payment required is determined by your home’s purchase price.

  • For homes with a purchase price of $500,000 or less, the minimum down payment is five per cent
  • For homes with a purchase price between $500,001 and $999,999, the minimum down payment is five per cent of the first $500,000 of the purchase price plus 10 per cent of the remaining portion
  • For homes with a purchase price of $1,000,000 or more, the minimum down payment is 20 per cent

Of course, you always have the option to put in a down payment that is above the minimum requirement. This has a few key benefits:

  1. A larger down payment increases your maximum affordability. Because of the minimum down payment rules, increasing the size of your down payment also increases the maximum purchase price you can afford.
  2. Increasing your down payment while maintaining the same home buying budget means you’ll need to borrow less and take out a small mortgage. A smaller mortgage attracts less interest over time, saving you money. Your monthly mortgage payments will also be lower, which will make budgeting easier.
  3. A down payment of at least 20 per cent saves you the cost of mortgage default insurance, which is mandatory for mortgages with down payments of less than 20 per cent. This can result in savings of several thousands of dollars.

4. Know what you can afford

Before you start house hunting, it’s important to have a realistic budget, so that you can contain your search to homes that you can actually afford. This will allow you to save time and avoid disappointment.

Once you’ve set aside as much as you can for your down payment and minimized your existing debt, you have everything you need to calculate how much you can afford. When you do, make sure you consider all the additional expenses associated with a home purchase, also known as closing costs. A few closing costs you may not immediately think about are:

  • Legal fees
  • Home inspection and appraisal costs
  • Land transfer taxes
  • Title insurance
  • Provincial Sales Tax (PST) on mortgage insurance (if your down payment is under 20 per cent)

Using Ratehub’s mortgage affordability calculator is the easiest way to understand how much you can truly afford, as it will not only show you the maximum home price you can afford, it will also show you how much additional cash you’ll need for the home purchase.

5. Get a mortgage pre-approval

Once your financials are in order and you’re ready to start your house hunt, the first thing you should do is get a mortgage pre-approval. A mortgage pre-approval shows the mortgage amount a lender is willing to loan you and the mortgage rate they’re willing to hold for you. It gives you certainty on what you can afford, thereby allowing you to move quickly when making an offer on a house you like. Although a pre-approval does not guarantee that your actual mortgage application will be approved, if your financial situation and employment remain unchanged between the time you get your pre-approval and apply for your actual mortgage, then getting approved should not be too difficult.

There are some key benefits to getting a pre-approval:

  • It forces you to get your application together early, so you’re prepared when you actually apply for your mortgage.
  • Most lenders will hold your pre-approved mortgage rate for 90 to 120 days. This protects you from rate increases within that time frame, allowing you to shop for a home without having to worry about rates increasing. If rates go down by the time you purchase a home, the lender will usually offer you the lower rate.
  • A pre-approval lets you know what your actual home buying budget is, and is a way to prove that you’re a serious buyer when you’re ready to make an offer.
  • There’s no obligation to get your actual mortgage with the lender you got your pre-approval from. Once you make an offer to purchase a home, it’s a good idea to shop for the best mortgage rates at that time so you can get the best deal.
  • Getting a mortgage pre-approval is free.

The bottom line

Getting approved for a mortgage may feel overwhelming if it’s your first time, but it doesn’t have to be too stressful if you’re well prepared. If you get ready in the ways we’ve outlined, including getting a mortgage pre-approval, getting approved should be fairly straightforward.

For personalized advice and information on the mortgage process, it’s best to consult with a mortgage professional such as a mortgage broker. Mortgage brokers can give you expert, personalized advice, and don’t charge a consultation fee.

 

Article by Huffingtonpost.ca

13 Jan

5 Tips to Reduce Heating Costs

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Posted by: Alexander Slobidker

When it comes to the winter season, it can be easy to go overboard when it comes to heating – but there is a better way! With a little awareness – and the right preparation – heating your home this winter won’t have to cost you a fortune. To help you save, we have put together a few helpful tips to reduce heating costs:

  1. Inspect Your Heat Sources – Regardless of whether you rely on a fireplace, gas or baseboard heating, it is always a good idea to have all heat sources inspected for efficiency.
  2. Check Your Fireplace – It is recommended to keep your fireplace damper closed, unless there is a fire burning. Otherwise, it is the same as having your window wide-open during the winter! For those of you with a fireplace you never use, now might be a good time to plug and seal the chimney to keep warm air from escaping.
  3. Manage Your Thermostat – As tempting as it is to turn your heat all the way up in the winter, proper thermostat management will help you save costs in the long run. A thermostat with a timer is a great option to help you save this winter. Turn it on earlier so the room heats up in time for use, instead of cranking the heat when you need to get warm quickly and have it turn off 30 minutes before bed or before leaving the home. If you find you are chilly at night, a safely positioned space heater and closed door is a far more inexpensive choice.
  4. Close The Door – To keep your heating system from working too hard, close doors when rooms are not in use. This prevents heat transfer in and out of vacant rooms, and will ensure the space you’re currently using remains warm and cozy.
  5. Be Mindful of Drafts – Checking for drafts is another important way to reduce heating costs. If you notice any issues, using a weatherstrip or caulking to seal doors and windows is a relatively inexpensive fix that can have a huge savings impact on your heating bill.
10 Oct

Budgeting for the Holidays

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Posted by: Alexander Slobidker

Everyone knows that it can be easy to go all out when it comes to the holidays. Unfortunately, this often means that you end up saddled with a bunch of holiday debt. To avoid a sleigh-size tab, plan ahead to save money and maximize the payoff! To help you make the most of the holiday season, I have put together a few tips for you:

  1. Order Online – Most people already order online to avoid getting stuck in the hustle and bustle of holiday shoppers. However, before you do any transactions ensure that you are ordering from a secure and trusted source. Any websites that provide order tracking will also save you stress as you can keep an eye on your package and know when it will arrive!
  2. Be Thrifty – Start early and keep an eye out for special sales! Many retailers have Black Friday and Cyber Monday sales, which can help you get a jumpstart on holiday shopping. Get inspired with coupons and get into the routine of flipping through flyers delivered to your home and online to get the most out of your money.
  3. Trust Your Budget – Your budget keeps you on track during the rest of the year, so why not lean on it now? Starting the season with a plan and a maximum spending limit will help alleviate stress while shopping. There are plenty of free budget-tracking apps that connect right to your bank accounts and can be pulled out of your pocket for reference at any time – especially when you’re feeling overwhelmed at the mall.
  4. Get Crafty – Everyone appreciates the handmade touch in a gift, and DIY-ing this holiday can help you save money. There are wonderful options that can be found online, even for beginners. Examples include homemade wreaths, body scrubs, and fun photo scrapbooks that can be done alone or in a group, and you’ll end up with a gift that money can’t buy. If you’re not sure where to find these clever and cost-effective ideas, Pinterest is a great place to start.
  5. Give the Gift of Time – Instead of buying gifts, spend quality time with your friends and family while you give back to others. Sharing the experience and splitting the cost of hosting a dinner for a family in need will offset the cost of spending money on each person and double the amount of joy spread during the holidays. It feels good to pay in kind.
    Whatever you choose to spend this holiday season, remember that the holidays are not solely about the gifts. The holidays are a time for celebration and creating memories; not for going into debt. This year, make the most of the incredible holiday season YOUR way – within your own limits – and enjoy how much more affordable and less stressful it can be.
7 Oct

Renewing Your Mortgage

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Posted by: Alexander Slobidker

If you are coming up to your mortgage renewal date, you may have already received a letter from your lender. Typically, these are sent out when there are 3 months remaining on your term. While nearly 60 percent of borrowers simply sign and send back their renewal, did you know that this is actually the best time to shop around for better rates and options?

Most standard terms are 5-year terms and, with that much time having passed since signing, the market rates could be very different once the term is up! Despite this, lenders tend to provide higher rates on renewals versus new clients as they are hoping that the ease of renewal will prevent you from seeking out new rates. However, shopping around for a better rate is not as difficult as it sounds – especially with the help of a mortgage broker – and you could end up saving hundreds a month, depending on your situation!

Ideally, you should be keeping track of your own mortgage term end date as shopping for a new rate between four and six months before your expiry will ensure you are able to find the most affordable option for you.

After shopping around, you may find that your bank is actually offering a great rate – in

which case you can simply submit the renewal. On the other hand, if you are able to seek out a lower rate, you will be glad you put in the effort to find out! It is also good to note that renewal time is a great opportunity to make an extra payment on your mortgage, if you are able.

Beyond renewing your mortgage, home owners also have the option to transfer or switch the mortgage when the term is up. While this can be done any time throughout the course of the mortgage, there may be penalties associated with changing the mortgage before the term is up as this is considered breaking the contract. Transferring to another lender is generally done to get a better rate, but you will need to go through the entire mortgage process again – including the ‘stress test’ – which makes shopping around at renewal time an even smarter option.

If your mortgage is coming up for renewal and you want to find out if there is a better mortgage product with lower terms out there for you, contact me today! I can help you find the best option for where you are at in your life now and help you to ensure future financial success.

11 Jul

What Your Banker Won’t Tell You!

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Posted by: Alexander Slobidker

Did you know the biggest difference between getting your mortgage from a bank vs. a mortgage broker is that the bank only has access to their products, while I, your mortgage broker, have access to hundreds of different lending institutions and mortgage products to fit your unique needs?

Here are a few things to keep in mind while doing business with your bank – from opening chequing and savings accounts to personal loans and mortgages, I’ve got you covered!

Bank Fees Add Up
One of the biggest money makers for a bank is the fees; this is especially true with overdraft charges. It is important that you are always checking your accounts and loans to ensure that you are aware of all extra fees (and any interest rate changes), as well as staying on top of your bank account balance. Overdraft and banking fees can add up quickly! Fortunately, these fees can often be negotiated and reduced, especially when addressed early.

Penalties Hurt
Banks are a business and the mortgages and loans you sign with them are contracts. If your mortgage is with a traditional bank, they can often come with steep penalties when broken. When signing for a mortgage or loan, be sure to always read the contract thoroughly and make note of any penalties. Generally speaking, big banks typically have higher penalties to break a mortgage than alternative lenders. Most bank loans have terms of five years or more – but a lot can happen in that time! Even if you don’t think so, you just have to take a look at the current situation in the world to realize just how quickly things can change. While your bank may compete on rates, the high break penalty is built in. As your mortgage broker, I would be happy to help you locate the best mortgage contract with minimal penalties.

Your Credit Health
Most of you have received a letter from your bank, at least once, offering you a line of credit; or a letter from your credit card company urging you to increase your credit card limit, or maybe even sign up for their new card. What these letters typically leave out is how this will affect the health of your credit and where you currently stand. You might be paying extremely high-interest rates on all your financial products, not realizing that your credit score (and other credit-related factors) could be earning you a more reasonable rate for your mortgage, credit card or lines of credit! This is where I can help you to review your financial situation and ensure that you get the best mortgage – at the best rate – based on your current credit health.

You Should Shop Around
A bank only has access to their own mortgage rates. While most people will stay with the same bank for years, there can be a cost for that convenience. More often than not, it’s true that individuals who are renewing will be offered a higher rate than a new customer. Shopping around, especially at renewal time, is a great way to ensure that you are getting the best rate available to you. When you are a few months away from renewal, contact me and I would be happy to help you determine if you are getting the best mortgage before you renew.

When dealing with a bank for your mortgage, it can help to get third-party expert advice. As a mortgage broker, I have access to additional mortgage products beyond your current bank and access to even more options to best suit your needs. Contact me today to book your virtual appointment or download the My Mortgage Toolbox App!

11 Jul

Mortgage Insurance and Your Borrowing Power

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Posted by: Alexander Slobidker

As a Canadian homebuyer or homeowner, your borrowing power is impacted by a few factors. Recent changes to the lending policies announced by CMHC, The Bank of Canada’s qualifying rate and your banks’ Prime Rate and mortgage stipulations are all things to consider when thinking about purchasing a home.

If you have less than 20% down, mortgage default insurance is required (known as a high ratio mortgage). This insurance policy protects lenders in the event you, the borrower, ever stop making payments and default on the mortgage loan. What you might not know is that mortgages in Canada are insured by one of three companies: CMHC, Genworth Canada or Canada Guaranty. In addition, both the lender and the insurer need to approve your application once you have qualified. In order to qualify, all insured mortgages use the Bank of Canada’s Conventional 5 year fixed posted rate (also referred to as the Benchmark Rate), which has recently dropped to 4.94%! Once you’ve qualified, we can then start to shop the market for you to get the best financing options.

While homeowners are not able to specify the mortgage insurer they prefer, it is important to know what is going on with these companies as every mortgage is covered by one of these three – depending on your bank – and their policies directly affect you as a homeowner. Recently, falling home prices and a stalled economy due to COVID-19 have resulted in some policy changes to insured mortgages, specifically from The Canada Mortgage and Housing Corporation (CMHC).

The recent changes announced by CMHC on June 4, 2020 relate specifically to new applications for homeowner insurance, such as new purchases, as well as renewals; refinancing is not included. So, what are these changes and how do they affect you or a potential homeowner you know?

  • Credit Score Increase: Previously, the minimum credit score was 600 but has now been increased to a 680 mandatory credit score for at least one applicant. This is important as 80 points is a considerable jump when the score can only range from 300-900!
  • Down Payment Sources: The source of down payment options have changed. Now, you can no longer utilize borrowed funds towards the down-payment. This includes funds from credit card, line of credit or a loan with repayment terms of any kind. Your down payment must come from your own savings.
  • GDS/TDS Ratio: This is a ratio of “Gross Debt Service” / “Total Debt Service” and represents how much debt one can have in relation to income. The requirements for this have been decreased from prior potential of 39/44 to a more conservative 35/42. The result is reduced borrowing power in relation to existing debt and size of mortgage request to the allowed income.
  • Overall, these changes represent an approximate 9% – 13% reduction in what you may qualify for, which primarily impacts first time homebuyers. This is a large reduction in borrowing power and may seem quite restricting in terms of new qualifying policies.

    Thankfully, there is some good news! These changes have only been adopted by the CMHC. Canada’s other mortgage insurers, Genworth Canada and Canada Guaranty, have both announced they have no plans to make changes to their debt service ratio limits, minimum credit score and down payment requirements.

    While there is still more information to come, and more changes may yet be made, it is a good idea for any potential homeowner to remain educated on the marketplace, especially those with upcoming renewals or plans to purchase.

    If you are looking to renew your mortgage, or are a first-time home buyer wanting to make the most of your borrowing power, please contact me today. I would be happy to discuss these changes further and help you to find a mortgage provider that best suits your individual needs.

6 Jun

CMHC New Mortgage Rules

Latest News

Posted by: Alexander Slobidker

When buying a home with less than 20% down, you are required to purchase default insurance on your mortgage loan. This stipulation is not new, but recent policy changes to the insured mortgage space by The Canada Mortgage and Housing Corporation (CMHC) are.

These are significant changes made as result of the potential effects of the COVID-19 pandemic on the Canadian economy. CMHC is a federal Crown Corporation that provides default insurance.  It’s mandate is to help Canadian’s access affordable housing options.  To read the full article published by CMHC on June 4, 2020, please click here.

What are these changes and what does this mean for you?

  1. An increase in the mandatory credit score for at least one applicant. The mininimum score was 600 previously, but it has now been increased to a firm – no exception – score of at least 680. This is important as 80 points is a considerable jump when the score can only range from 300-900!
  2. The source of down payment options have removed one popular option – an applicant can no longer use borrowed funds towards their down-payment. This means an applicant cannot use funds from a credit card, line of credit or a loan with repayment terms of any kind.
  3. Finally, the gross debt service ratio (how much debt one can have in relation to income) has been DECREASED from prior potential of 39/44 to a more conservative 35/42. This simply means an applicant has lower borrowing power in relation to existing debt, size of mortgage request to the allowed income.

Overall, these new changes represent an approximate 9% – 13% reduction in what you may qualify for – primarily impacting first time homebuyers.  All the changes noted above only speak to purchases or renewals. Refinancing is not permitted in the insured mortgage space.

Whether you have plans to purchase, renew or refinance, it is a good idea to review your options today!