This is an article by Benjamin Tal, one of CIBC’s top economists who answers this question. I found it to be a great write up that expresses the differences between the US and Canadian housing economies.
“House prices in Canada will probably fall in the coming year or two, but any comparison of the American market of 2006 reflects a deep misunderstanding of the credit landscapes of the pre-crash environment in the US and today’s Canadian market.
The Canadian housing market has more distinguishing attributes that separate it from the pre-crash US market. Yes, the debt-to-income ratio in Canada just broke the American record set in 2006, but comparing the three years heading into the US crash to the past three years in Canada reveals that the debt-to-income ratio in Canada has been rising at half the speed seen in the pre-crash US market. Even more important than the amount of debt is its quality. The distribution of the credit score in Canada has not changed dramatically in the past four years. That is very different than the experience seen in the US in the four years heading into the recession.
In the US an astonishing one-third of mortgages taken out in 2005 and 2006 were in negative equity position, and more than half had less than 5% equity. In Canada, the negative equity position is nil, and only 15-20% of new originations have an equity position of less than 15%.
In a final analysis, not all is well in the Canadian housing market. Home prices are overshooting their fundamentals, mainly in large cities such as Toronto and Vancouver. The recent slowing in sales activity will probably be followed by price adjustments in many cities across the country. But the Canada of today is very different than a pre-recession US. Therefore, when it comes to jitters regarding a US-type meltdown here at home, the only thing we have to fear is fear itself.”
Hi everybody. Rowan Smith from the Mortgage Centre. I want to talk today about credit, specifically someone that doesn’t have a reporting credit score. I had a client call me this week who has tons of assets. They ran two different companies. The companies, the companies not her, have fantastic credit. The companies themselves have several hundred thousand dollars in clear assets cash. Now, she came into her bank before she spoke to me and the bank looked at her and said, “I’m sorry, we can’t help you. You don’t have a credit score.” She said, “Why not? I’ve got all these assets.”
Well, assets don’t report on your credit bureau. It doesn’t matter if you have $10 million in the bank. The credit bureau is about just that: credit. They want to specifically see that you know how to manage monthly payments without missing them, without falling into arrears or getting write-offs. If you’ve been paying cash your whole life for something I applaud that and think that that’s fantastic.
You haven’t had to borrow to live most of your life, certainly not the trend in Canada. Unfortunately, it’s not great for borrowing because you have no proof that you have a capacity to make payments or to manage a debt at all even though you’ve managed your savings fantastically. How do you get out of this trap?
First off, go and get a credit card. If you’ve got good assets and you’ve been paying everything with cash then your credit score will be nil for the most part. Apply to get a Visa. Start with that. Do you have to use it all the time? Not necessarily. Use it from time to time, make sure you pay it off. Try to keep that limit over $1,000, though. Ideally you want to get up over $5,000 because when the credit lenders look at you, especially if you’re applying for a mortgage, they want to make sure you can handle a payment that’s more than $50 a month.
If you’re looking to build and establish credit start with one card. You might want to get a couple. Don’t go crazy. 10 of them is not better than three or four and it just has more chances that one of those payments will get forgotten. Establish that score, get going on it, and then after a couple of years, or realistically even just one year of on time payments and reporting history, we should be able to get you into something.
That will establish that much needed credit history for vehicle loans, vehicle leases, commercial loans, all that type of thing.
If you need any help with this or if your bank is telling you you can’t get a Visa even though you’re offering to put your own money up as security I have a solution for you so please give me a call. It’s Rowan Smith from the Mortgage Centre.
Hi, everybody. Rowan Smith from the Mortgage Center. I want to talk today about self-employed people and what the banks want to see from you in terms of the income documentation.
Like everybody else, they want to see notices of assessment to prove that you’re filing your income-tax, as in you have no arrears, and they want to see how much your filing on there.
But what about somebody who’s been a plumber for 25 years and finally decides to go out on their own. They go out on their own and they’re making way more money, but they’ve only been doing it for a year and a half.
Here’s the thing, that’s a tricky situation for a bank. The bank wants to see that you’ve got a two-year track record of income. But if you were employed back then and now you’re self-employed, how do they make the connection?
Now, not all banks, but several of them have a much more open idea here. What they’ll do is they’ll look at your historical earnings as a plumber, or whatever your job was. As long as you transitioned into self-employment in the same industry doing the same thing they’ll use an average of income over those years, including your start-up years, but also including your years as a salaried employee.
This is particularly important for a guy who’s been self-employed for only one year but has been doing something for 25 years. Often times they move to self-employment not because they were foolish but because they saw there was a lot more money to be made if they were the boss rather than just collecting a salary.
So, if you know somebody in this circumstance, someone who’s been told, “You haven’t been in business long enough,” but they’ve been doing the same job for a very long time, have them contact me. It’s Rowan Smith from the Mortgage Center.
Hi, everybody, it’s Rowan Smith with the Mortgage Center. I’m here to talk about biweekly payments and why they pay your mortgage down faster.
Now, I want to use a nice simple example to show you why this works, because it’s no magic and it has nothing to do with just making more frequent payments. You are, in fact, paying extra money when you pay a biweekly accelerated and you’re paying it down quickly.
So, here’s how it works. Let’s use a nice round number of 1,000 dollars. If that was your monthly mortgage payment, you would pay 12 times a year, you’d pay 12,000 dollars throughout the year. But if you were paying biweekly accelerated, they chop that payment in half.
So, 500 dollars times, times how many? Well, there’s 26 biweekly payments in the year. So, there’s not 24. People often confuse that, because they assume 12 months, 24 payments. There’s not. There’s 26 biweekly payments throughout the year.
It’s like when, if you’ve ever had a paycheck that comes in every 2 weeks, and then, twice a year, you’ll receive a paycheck, but you won’t have the corresponding obligations. It’s almost like found money. But it’s not. It’s just because the biweekly payments are 26 times throughout the year.
So, 26 times 500 is 13,000. So, like I said, on monthly, with 12,000. On biweekly, you’re at 13,000. So, you’re actually paying 1,000 dollars or one full extra payment per year. That has an effect of shaving several years off your mortgage. Depending on 25 or 30 years, it’s anywhere between 4 and 5 years that it knocks off right off the top.
So, if you want to pay it down a little bit quicker, accelerated, or biweekly accelerated, is the way to go. If you’d like that, and you know somebody else would like to pay down their mortgage faster, have them contact me.
Hi everyone. Rowan Smith at the Mortgage Center. Going to talk today about my favorite topic and probably my most popular one on all of my blogs, former marijuana grow ops. I want to talk about a specific program that’s come out for these because in most of my prior posts I’ve described what’s required when you’re financing a grow op. I’m going to do so today and cover the new program.
First and foremost, if you’re looking at a property that’s a former grow op it must be fixed. It must already be fixed. It’s not something that you’re going to be fixed, it has to be repaired and what we call remediated. If it’s not remediated your really only choice is to either purchase the property in cash or to purchase the property through a private lender. Usually the rates are much higher in those circumstances.
Let’s assume that the home is fixed. How do you prove that? First off, if you walk into your average bank, Scotia Bank or TD or something, you’re probably going to get declined right off the get-go if you announce that it’s a former grow op, even if it was a former grow op 10 years ago. If it shows up on the property condition disclosure statement or in any of the documentation it was a former grow op, and the seller’s under an obligation to report that, then it will probably be declined in most circumstances.
There are some lenders that I work with that offer the same rates as all the other financial institutions who have a much more open mind about former grow ops. They just want to make sure that they’re fixed and that there’s no potential problems in the future. Here’s what they want to see. First off, environmental air quality testing. Cost between $1,500 and $2,000 depending on where you get it done. There’s a couple of firms that I’d highly recommend over the rest because they’re more widely accepted amongst the financial institutions. If you need that information contact me.
You need the air quality testing. What they’re looking for is they want to see if there’s mold in the air and spores and whatnot. That will ensure that it’s a livable property. Depending on the city you’re in you may also need to get a re-occupancy permit. The city may have pulled the occupancy permit if it was a busted former grow op. Not all places are on-board with this system, though, so please speak to me if you think that may be an issue.
If the occupancy program is not in place then you’re also going to require, third, is going to be a letter from the city that confirms that your property confirms to all municipal bylaws. That’s essentially the same thing as the occupancy permit but a lot of times, in some cities, they don’t pull the permit. They’re not going to issue a letter that says the permit was never pulled. What they’re going to do is give you a comfort letter instead that says the property does not infringe on any bylaws.
Certain municipalities will also want some sort of letter from the electrical company saying things have been set back up and hooked back up to code. Again, you need to speak with me depending on the municipality you’re in. The bottom line here is that I don’t recommend trying to get these properties financed on your own. Chances are you’re going to walk in there and they’re going to either laugh you out of the property, out of the building, or they’re just not going to treat you with due respect, they’re not going to take it seriously.
Several former grow ops do have great value. They’re perfectly fine homes, especially when the grow op was out in the back garage, but to the banks if it’s in the garage or in the house or five years ago or last week, fixed or not, it’s a former grow op until you bulldoze it. That’s just the current state of the law right now.
The new program I’m talking about, effectively, if a property has been a former grow op more than five years ago and we can document that it’s been fixed and has been lived in for that period of time I have one financial institution which will waive a lot of those additional requirements I looked at. They may still want a full appraisal on the property and they’re still going to make sure you qualify under all normal guidelines. They’re still going to charge you full discounted rates but they’re not going to ask for that expensive air quality testing which often is the deal killer for many people.
Again, property must be fixed, environmental air quality, occupancy permit if it got pulled, if it did not get pulled comfort letter from the city, any other municipal bodies such as the hydro company that explains what’s been done, and chances are you’re going to need a full appraisal in all circumstances regardless. If it’s been over five years, we can chop that list down by a big amount, make it much more simple.
If you or someone you know is looking into a former grow op don’t go walking into your bank alone. Please call me. I can at least offer you solutions and suggestions on how to get this approved. There is no fee for my service so please call me. I’ll help you out. It’s Rowan Smith at the Mortgage Center.
Hi, everybody. It’s Rowan Smith from the Mortgage Center. I want to talk today specifically about lines of credit. More importantly I want to talk about lines of credit that you want to keep but you maybe want to renegotiate maybe the mortgage in front of it. This is something that comes up from time to time. Continue reading →
Hi, everyone. Rowan Smith from the Mortgage Center. I got a call today about a client who wanted to do some renovations on the home when they bought it. And they said to me, “But I don’t have the money for doing the renovations I’d like it built into mortgage. Is that possible?” Yes, there’s a few different ways to do it. One of the most common programs is “Purchase plus Improvements”. And under that program, the way it works is, you borrow money. Continue reading →
Everybody, Rowan Smith from the Mortgage Centre. I’m here today to talk again abut a topic that seems very popular among my blogheads, which is former marijuana grow ops. Can you finance them, or how to finance them? The answer is, “Yes, you can,” and the way to do it is this. There’s typically going to be extra underwriting that’s going to be required. Not all banks are going to be willing to do that… Continue reading →
In this video, I look at who is still offering 35 or 40 year amortizations and explain some recent changes in the market place.
Hi, everybody. It’s Rowan Smith from the Mortgage Center. It’s been a while since my last post and I wanted to provide an update on a couple of things that I get constant questions about in our market place.
Back in April when the changes the government handed down took effect it got rid of what most people thought would be all of the 35 and 40 year amortizations. So the question is, is a 35 or 40 year amortization still available? Short answer, yes. Now, the longer answer is a little more complicated… Continue reading →
Transcript of Video:
Hey everyone, Rowan Smith with the Mortgage Centre. I want to address a question a client came up with me on with the credit bureau. And that is, he wanted to know why his extra payments weren’t reflected.
The credit bureau is just a recording of debt payment history and how much your minimum payments are on a particular line of credit, and how your credit history is in terms of your repayment over the long last five years.
If your payment is only $300 on your credit card, and let’s say you owe $10,000. Typically, a credit card would be three percent of balance, so your payment should be $300. So are you getting further ahead by paying $450? Not on a credit bureau, it doesn’t really have a noticeable impact.
A bigger impact would be reducing the balance that you have, that will increase your score better. But even though you pay extra every month, it has no bearing on your actual credit score. It’s simply a factor of do you pay it on time, and what percentage of that credit facility is utilized.
So if you have a $10,000 line of credit, and you’re at $10,000, even though you’re making every payment on time, that’s more harmful than having a $20,000 credit card with only $10,000 outstanding. To that account, you’re only 50 percent utilized.
And again, it’s just a computer algorithm behind this, so the computer system can only make judgments based on that criteria. For the Mortgage Centre, I’m Rowan Smith.