Sometimes we face financial crises and let debt get out of hand.  If the situation becomes untenable, you may turn to bankruptcy or consumer proposal.

Consumer Proposal: A debtor makes an offer to creditors to modify his or her debt obligations. This can include lower payments over a longer period of time, or a percentage of what is owed.

Bankruptcy: A debtor who declares bankruptcy is discharged from his or her debts, subject to conditions.  A Licensed Insolvency Trustee (LIT) sells the debtors assets and the funds are distributed among creditors.  Declaring bankruptcy means your unsecured creditors will not be able to recover debts from you, such as by seizing assets or garnisheeing wages.

While bankruptcy and consumer proposal do not preclude you from applying for a mortgage, it does make obtaining a mortgage at a good rate more difficult. They will severely impact your credit score, and can stay on your credit report for up to 7 years.

While consumer proposal is preferable to declaring bankruptcy in a number of ways, in the eyes of lenders reviewing your mortgage application, they are the same. If you are looking to obtain a mortgage after paying your consumer proposal in full, you should expect lenders to treat you as if you have declared bankruptcy. Lenders will want to see that you have obtained re-established credit and most of them will want to see that re-established credit for at least 2- 3 years.

There are several factors lenders will consider when you apply for a mortgage following bankruptcy or a consumer proposal.  Lenders will want to know the reasons for declaring bankruptcy, the length of time since you have discharged your bankruptcy, and your new credit score.  

If you are looking for a mortgage approval, lenders will look for you to re-establish credit, reach minimum beacon scores, have saved a good down payment, have good job stability, and good debt servicing ratios.   Whether you have filed for bankruptcy or consumer protection, you should be aware that even if you meet the aforementioned requirements, you may be subject to a higher interest rate or extra fees.

A mortgage broker can help you get approved for a mortgage, even after bankruptcy or consumer proposal.  I know the right lenders, that will give you the best rate possible for your situation.  Call me to discuss how we can get you the best mortgage for you.

It’s not surprising that housing affordability has become a contentious election issue in BC.  Due to skyrocketing prices and unsustainable growth in the real estate market, many Vancouverites have a written off owning a home in Metro Vancouver, resigning themselves to owning elsewhere or a life of long-term renting. 

With speculation that Vancouver’s red-hot real estate market may be headed for a slowdown, some aspiring home-owners have been given a glimmer of hope, thinking that they will be able to buy in Vancouver if (or when, depending on who you ask) the market corrects.

While there are signs that Vancouver’s market may be slowing down, buyers shouldn’t expect  the foreign ownership tax to trigger a large correction.  DLC Economist Dr. Sherry Cooper notes that the tax of foreign owners will not make the market more affordable:

“The fact is, as other countries have seen, this [foreign ownership tax] might take some of the steam out of the markets, but it will not make housing affordable for average earners in Vancouver. It just won’t.”

She notes that even if prices fell 30%, we would simply be where we were a year ago, which many people also considered out of reach.

Instead of just waiting for the market to correct, those eager to become home owners should be actively preparing for their home ownership dreams.

First, prospective buyers should create a realistic budget of what they can afford, including if interest rates increased.  A mortgage broker can help you determine what you can afford, and get you a pre-approval before you start house shopping. A pre-approval will give you a much better idea of what you can afford and how much your monthly payments will be. 

Prospective buyers should also continue to save up as much of a down payment as possible.  Buying a home costs a lot of money, and even if the market corrects, it will still be very expensive to buy a home.  If you are serious about buying a home, you should be have a serious plan to save for a down payment.  For more on how much of a mortgage you can afford, check out my First Time Home Buyers Series on how much  you can afford  and the down payment.

Building and maintaining your credit score is also crucial to getting approved for a mortgage.   Having a great salary and good down payment may not be enough to secure a mortgage approval.  While you are saving or waiting for the market to slowdown, you should be actively working to improve your credit.  First, you should check your credit score for free with Equifax or TransUnion, to know exactly where you stand.  If you decide to go ahead with a pre-approval, a mortgage broker may also do a credit check,  in case there are issues you may have to address.   Lenders are changing the way they evaluate credit, so it is important that you don’t wait until you have a down payment ready before you look at your credit.

If prices drop in the future, the most important thing you can do is to take concrete steps towards home ownership now.  If you are serious about buying a home, start preparing now, even if you are not in a position to buy just yet.  Prepare now to put yourself in a much better position to realize your home ownership dreams.  Call me today to let me help you prepare to buy your home.  

Evaluating your credit score has just become more complicated.  Today, more than ever, lenders are placing  huge importance on your credit score when deciding to lend you money.    

Old system = Beacon 4,  New system = Beacon 9. 

With Beacon 9, every 10 points = higher probability of default.  For example, a score of 660 is 20% more likely to be delinquent than a score of 670.

Some key Differences between Beacon 9 and Beacon 4 include:

• Beacon 9 uses much more recent (2009-2011) data.
• Beacon 9 includes mortgage data, including mortgage repayment history.
• Beacon 9 includes telecommunications data.
• Beacon 9 treats the utilization of lines of credit (LOC) different from credit cards.  If you have a large secured LOC, that should not negatively affect your credit.
• Multiple mortgage inquiries for mortgages = one hit during a  45 day period.
• Inquiries can only affect the score for 12 months.
• Trade level analysis vs. consumer level—consumers who are delinquent on isolated accounts are treated less severely than consumers delinquent on multiple accounts.

Beacon 9
Beacon 9 is more predictive of mortgage default. Under Beacon 9, mortgage repayment is weighted much more heavily than the occasional R2 or R3* on low limit/low utilization cards.

Beacon 9 really focuses on high utilization of credit cards and finance trades. Previously, under Beacon 4, even if you had lots of trades and they were repaid on time, you would have a good score. Beacon 9 will no longer reward that.  If you have a lot of utilization on credit cards, your score will drop.

Sporadic R2s on low limit cards are not given much weight.  Furthermore, paying the total balance due vs. the minimum payment is not taken into account.

*”R” means you have “revolving” credit, where you make regular payments in varying amounts depending on the balance of your account, and can then borrow more money up to your credit limit. Credit cards are a good example of “revolving” credit. If you always pay on time, it will be coded an R1. If an amount was written off because you never paid it back, it is coded R9 and shows a balance owing. The R ratings are a coding system that translates “on time”, “one month late”, “two months late”, etc., into two-digit codes.  See https://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02179.html for more information.

Scores
Only 30% of consumers have credit scores over 820, and 25% of consumers have scores between 720 – 819.

This new system will inevitably have benefits and drawbacks, and will impact your ability to secure a mortgage at a good rate.  A mortgage broker will be able to walk you through your mortgage application, including presenting your credit score and income to lenders.

Building and improving your credit history takes time, so it’s important that you call a mortgage broker as soon as you are considering buying your home.  By preparing a pre-approval, a mortgage broker can not only analyze your credit and financial situation, but also provide you with valuable information on what you can do to improve your credit score, so that you don’t miss out on your dream home.

Call me today!

Home buyers who are self-employed may face many added challenges when applying for a mortgage.  Before 2012, applicants with a credit score of 680 or higher and a high enough stated income could expect to get approved for a mortgage. Since the government tightened lending rules with Guideline B-20, it has been increasingly difficult for self-employed applicants to provide adequate documentation for lenders and secure the best mortgage for their situation. B-20 called on banks to look more closely at incomes before approving a mortgage application.

For self-employed applicants, proving income can be difficult, as they typically lower their taxable income by maximizing business expenses and personal deductions, creating a discrepancy between tax returns and actual earnings.  While some lenders still accept stated income declarations, B-20 only allows them to borrow up to 65% of the purchase value without requiring default insurance.

What can self-employed applicants do?

If you are self employed, the first thing you should do when looking to purchase a home is call a mortgage broker.  A mortgage broker will discuss your options with you, and will tell you exactly which documentation you will need to be ready to provide.  Some documents may take a lot of time to provide, so it is important that you talk to your mortgage broker as soon as possible so that you have enough time to gather all necessary documentation.

There are some documents most banks will expect of self-employed applicants.  Bank statements, previous two years’ tax returns, and business documents may be expected.  Notice of Assessments for the previous two years should be available and if there was a balance owing to Revenue Canada for the last tax year, that should be paid and proof of payment should also be provided.  As noted above, it is important to recognize that lenders will be looking at declared income more closely and how that compares to the income that the client is stating, and less discrepancy between these two amounts is preferred. 

 All applicants, especially those who are self-employed, should be sure to pay down debts and maintain a high credit score, and have as big of down payment as feasible, to make their application more attractive to risk-averse lenders. 

I specialize in helping self-employed applicants secure the best mortgage for their situation.  Call me today to discuss how I can help you!

Your credit score is an important tool banks will consider when deciding whether or not to give you a mortgage, as well as the type of mortgage and rate. 

Your credit history begins when you first apply for credit or borrow money.  Your credit score is a judgement on your credit history and financial health at a specific point in time.  It lets lenders know the risk in lending to you.   Credit scores range from 300 to 900, in which the higher the score represents the lowest risk to the lender.

Lenders may set their own standards as to how low a credit score they will accept, and what rate they will offer depending on a potential borrower’s credit history.

Here are some tips on how you can repair or improve your credit score:

1. Keep track of your credit history and score by getting a free copy of your credit report.

The first step in improving your credit score is actually knowing what it is.  You can inquire about your credit history with Equifax or Transunion without affecting your score.  Ensure that your credit history is correct, and contact the creditor to rectify any issues, such as fraudulent or incorrect transactions.

2. Always pay at least the minimum amount by the due date.

You should try to pay the full amount by the due date, but at the very least you should be paying the minimum amount due on time.  Your ability to pay on time will be reflected in your credit score, and if you miss payments, it will be reflected in your score.  When making payments on-line, don’t wait until the due date as it may take a few days for your payment to reach the creditor.  I always aim for 5 days before my due date.

3. Pay your debts as quickly as possible, and don’t go over your credit limit on your credit card.

You should aim to keep your balance as low as possible, as a higher balance will have more impact on your credit score.  Generally, once your balance is above 50% of the limit, that will start to drop your score.

4. Don’t apply for too much credit.

When potential lenders do a credit check inquiry, it will lower your score by a few points, therefore, only allow credit inquiries that are absolutely necessary.  Using a mortgage broker for your mortgage application will allow you to have only one credit inquiry on your history that the broker can use for multiple applications to different lenders.  If you shop around yourself, you will find that each lender will want to perform a credit check on you, which could negatively affect your score.

5. Make sure you have a credit history.

Your credit score demonstrates your risk to the lenders in loaning you money.  However, if you are not a primary on a credit card or do not have a history of receiving and paying back credit, you may have a low score.  When applying for a mortgage, you would ideally want two sources of credit history in your name with at least $2,500 credit limit. This can include a line of credit and a credit card, or two credit cards.

Your credit history is a big part of your score so if you have old credit cards that you don’t use often, keep them open anyway, which will positively contribute to your score. If you have very few active credit facilities, cancelling a credit card can actually lower your score.

A mortgage broker can discuss your financial situation with you and help you build the strongest application possible.  Credit scores take time to build and changes on your credit report do not happen overnight so it’s important to contact your mortgage professional as soon as possible in the buying process.

Contact me today to discuss how I can help you build the best mortgage application for your situation!

In hot real estate markets like Vancouver, first time buyers may find it difficult to come up with enough of a down payment to buy a home.  However, sometimes buyers can be lucky enough to have family able and willing to “gift” them some money to assist with their down payment for their home purchase.

What is a “gifted” down payment?

A gifted down payment is essentially what it sounds like – a monetary gift that is put towards a down payment.  A gift can be used to help a buyer make the minimum 5% payment, or it can be used to put down enough (20%) to avoid the mortgage from being high-ratio, so that the buyer does not have to pay   an insurance premium.

What documentation is required?

If you are using gifted money for a down payment, you and the person(s) gifting you the money will need to sign a gift letter, and possibly provide evidence that the giver has the funds. The borrower will also have to show that the funds have been deposited into their account.

What else do you need to know?

Gifted down payments can only come from immediate family members.  They are also strictly gifts.  It is important that family members giving money and buyers receiving money have a complete understanding that the funds being gifted are NOT a loan, and there should be no expectation that the funds be repaid to the giver.

A mortgage broker can help you decide what is best for your situation, and can walk you through the steps to prepare your mortgage application.

Call me today to discuss how I can help you get the best mortgage package for you!

Navigating the different programs and tax credits available to first time buyers can be overwhelming.  However, it is crucial that first time home buyers be aware of the ways in which they can offset some of the costs of home ownership.

First-Time Home Buyers’ Tax Credit (HBTC)

The HBTC is a non-refundable tax credit for qualifying homebuyers purchasing qualifying homes.  Basically, the HBTC can reduce the amount of taxes you owe.

The $5,000 non-refundable tax credit provides up to $750 of federal tax relief. It is based on a down payment of $5,000 and is calculated by multiplying the lowest personal income tax rate (15%) x $5,000 = $750.

To qualify, you, and anyone you are purchasing the home with, must be considered first time buyers, which means neither you nor your spouse or common-law partner have owned another home the year you purchased your home, or in the four preceding calendar years.  Furthermore, the home must be used as your principle residence, and must be occupied no later than one year after it has been acquired.

When two or more eligible individuals jointly purchase the home, the credit may be shared but cannot exceed $750.

If only one individual is eligible to claim the tax credit, the percentage of that individual’s ownership of the home can be used.  So, if you own 50% of the home, you can claim 50% of the tax credit (ie. 50% of $750= $375).

First Time Home Buyers’ Program

Not to be confused with the HBTC, the First Time Home Buyers’ Program is another way first time home buyers can offset some of their costs.

The First Time Home Buyers’ Program is a BC program that reduces or eliminates the amount of property transfer tax you pay when you first purchase your home.

To qualify for a full exemption, you must:

• Be a Canadian citizen or permanent resident;
• Have lived I BC for 12 consecutive months immediately before registering the property, or have filed at least 2 income tax returns as a BC resident in the last 6 years;
• Have never owned an interest in a principle residence anywhere in the world; and
• Have never received a first time home buyers’ exemption or refund.

 And your property must:

• Be located in BC;
• Be used as your principle residence;
• Have a fair market value o $475,000 or less; and
• Be 0.5 hectares or smaller.

 You may be eligible for a partial exemption if the property:

• Has a fair market value less than $500,000;
• Is larger than 0.5 hectares;
• Has another building on the property other than the principal residence.

And to keep the exemption, you must:

• Be moved into your home within 92 days of registering the property, and
• Continue to occupy the property as your principal residence for the remainder of the first year.*

*At the end of the first year that you own the property, you will receive a letter to confirm that you meet the occupancy and property value requirements.

For more information, visit the program’s website http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/first-time-home-buyers.

Or call me today to discuss the options available to you!

The Down Payment

The down payment may be the first thing first time home buyers consider when looking to make their first home purchase. 

A down payment is what you pay up front when you purchase your home, with the remainder of the cost being paid through a mortgage.

When you apply for a mortgage, you will need to determine (1) How much of a down payment you will be making and (2) Where the down payment is coming from.

How much?

Calculating your minimum down payment is no longer as simple as 5% of your purchase price.  In Canada, the minimum amount of money you need to put down on a home is determined by the purchase cost:

• – For homes costing $500,000 or less, the minimum amount needed to put down is 5%.
• – For homes costing more than $500,000 and less than $1 million, the minimum needed to put down is 5% of the first $500,000, and 10% of the remaining balance.
• – For homes costing $1 million or more, the minimum down payment is 20%.

If you put down less than 20% your mortgage will be considered to be “high-ratio,” which will require you to pay an insurance premium. 

Where is the down payment coming from?

In today’s hot market, it may be difficult for first time home buyers to pull together enough to make a down payment.  However, first time buyers should be aware that a down payment can come from a variety of sources, not just their savings.  A down payment can come from cash in the bank, RRSPs you may have, or even as a gift from family.*

*Note: if you are using gifted money for your down payment, the person gifting the money will need to sign a gift letter with you, and they may need to show evidence that they have these funds.  

First time home buyers should also be aware that if you are putting less than 20% down, the funds for the down payment will need to be in your account for at least 90 days and you will have to produce bank statements to confirm this amount. If you are putting more than 20% down, some lenders will accept a 30 day confirmation of funds. 

As a property owner you may think you know what to expect.  After all, you’ve already been through the purchase process before, and probably think it can’t be too different the second time around.

However, even if you are a seasoned property owner, there are three things you need to consider when you are buying AND selling:

1. You need a deposit    

If you have not sold your existing property yet, you probably have most of your cash tied up in your house.   So how do you come up with the deposit you will need when placing an offer on your new home?*   

• You can use a line of credit that is attached to your home, if you have one set up.  
• You can use a line of credit that is attached to your chequing account.
• You can ask your lender for a demand loan to cover the deposit and it gets paid out with the sale of the property.
• You can borrow from family and pay them back after the sale goes through.

*If none of these options are available to you, talk to your mortgage broker to come up with a different solution.

2. Do You Buy or Sell First?

Most people do not want to sell and risk being left homeless, especially in today’s hot real estate market where you are not guaranteed to have your offer accepted on your new purchase.   So you definitely need to talk with your realtor and mortgage broker about the best strategy for you.  

Make sure you have narrowed down the area you want to buy in and the price range you can afford.  Take a look at how much inventory is available that meets your criteria.  If you feel that your property will sell relatively easily and there is enough choice of inventory for your new property, then sell first with a long closing date (at least 3 months) and as soon as your buyer has removed subjects, get out there and start looking for your new home.  

The alternative is to find that new property first, again, go with a long closing date, and then put your place on the market ASAP and ensure that if you do NOT sell, you have a backup plan – and this is where your mortgage broker will have to advise as to whether you can carry both properties.

3. Bridge financing

Bridge financing is when you have sold AND bought but your dates don’t line up.   So your sale is going to go through AFTER your purchase.   Some lenders do an excellent job of bridging funds.  Some will only bridge your down payment, some will bridge the down payment and your closing costs – inquire with your mortgage broker about what’s possible for you.