The 5 C’s of Mortgage Lending

General Nazarina DiSpirito 10 Jun

Buying a property and securing a mortgage can be daunting tasks, especially in today’s hot Vancouver market.  When you apply for a mortgage, lenders will assess your credit risk based on a number of credit factors, known as the “5 C’s” of credit:

  • Collateral. This is the property you are hoping to purchase.  If there are issues with the property, such as former grow-ops, older wiring systems, size, presence of asbestos, presence of an oil tank, water repair issues, etc., that could have an effect on whether you are approved for a mortgage, and at which rate.   

  • Capital. One of the first questions lenders will ask is how are you coming up with the down payment.  Assets, such as savings and investments may be considered.  RRSPs can also be used, up to $25,000 per person if you have not owned a residence in the last 5 years.  Lenders also like to see that you have a rainy day fund to fall back on if something changes with your expenses or job situation. 

  • Credit History. What is your history of repayment?  Lenders will examine your established record of managing credit and making payments over time in determining whether to lend to you and at what rate.

  • Capacity. Are you able to pay for your mortgage?  Lenders will look at your income and employment history to determine your ability to repay your new mortgage and outstanding debt.  Lenders will want to see proof of income, which will vary depending on whether you are salaried, self-employed, or paid hourly.  You can expect to provide a job letter and a paystub as a minimum.  Previous years’ income tax returns and Notice of Assessments may also be required.

  • Character used to be an important factor, but is now the least important factor for lenders in today’s market.

While the 5 Cs give a basic understanding to factors determining whether a lender will grant you a mortgage and at what rate, securing the best mortgage requires extensive knowledge of what each lender is looking for in a mortgage applicant.  Each lender has different ways to evaluate potential customers, and a good mortgage broker will know exactly what lenders are expecting in order to give you the best mortgage package possible.

Top 4 reasons why a variable rate mortgage can put you further ahead

General Nazarina DiSpirito 6 Jun

When looking at your mortgage options, you will be faced with the decision on whether to choose a fixed or variable rate mortgage.  As a mortgage broker, it is my job to help you determine which option is better for your situation. 

However, there are compelling reasons as to why a variable mortgage rate may be best for you, outlined by my colleague, Teresa Martin Grier:

  1. 1. It’s usually a cheaper interest rate;
  2. 2. It’s always a better monthly P+I repayment distribution;
  3. 3. More flexible contract terms, and cheaper to get out of if you need to;
  4. 4. Banks are NOT going to increase your VRM payment severely. 

While a flexible rate is appealing, it is always best to speak with a mortgage broker which rate type will best suit your specific mortgage needs. 

Call me today to discuss your options!

You can read Teresa Martin Grier’s full article here

Should Parents Co-Sign or Not?

General Nazarina DiSpirito 1 Jun

Many young Canadians hoping to buy a home are discovering that their home ownership dreams may be out of reach.  Naturally, parents may want to make their children’s home ownership dream a reality by co-signing or guaranteeing their children’s mortgage.  However, there are some important factors parents should consider before they agree to co-sign their child’s loan:

  1. 1. The parents’ situation.  While parents may want to be generous with their children, it may not fit their situation.  Parents should ensure that their willingness to help their children won’t impede their own financial goals.
  2. 2. The child’s circumstances.  It is important that parents understand why their child doesn’t qualify for a mortgage on their own.  Does the child have the income to carry the mortgage, as well as home upkeep, and any other financial obligations that come with home ownership? Is their credit an issue? 

If parents co-sign a loan, they are on title to the property, sharing legal responsibility if something goes wrong.  This means that they are fully liable for the mortgage debt if their child defaults, risking their own credit ratings and borrowing ability in the future. 

Fortunately, co-signing or guaranteeing a loan are not the only options available to parents.  Parents may also choose to “gift” funds, which may put in the qualifying ratios more in-line if that’s the issue.  Gift funds may also be used to top up a down payment to 20%, allowing them to avoid paying for mortgage default insurance.  

The best thing you can do is seek professional guidance, and ensure that all parties are protected.  This is an important decision for both parents and their children, one that cannot be taken lightly by either party.

A mortgage broker will be able to go over your individual financial situation, and help you decide the best solution for your circumstances. 

Call me today to find out which options are best for you!

Sherry Cooper’s Insights on the Flow of Chinese Capital into Canadian Real Estate

General Nazarina DiSpirito 31 May

“Some believe the Chinese money ball will only grow, bouncing its way around the world. Many believe that China doesn’t need to stop the capital outflow, but just to contain it… However, everything about China breaks historical norms…. This poses a significant downside risk to Canada’s strongest housing markets”

In her latest article, DLC economist Sherry Cooper describes the influence of the “largest episode of capital flight in history” China is experiencing on the Canadian housing market.  She notes that there are varying opinions on what can and should be done about the outflow of Chinese money, as well as whether the Vancouver and Toronto housing boom can last.  As Chinese officials have intensified their crackdown on “underground banks” used to move money out of the country, Cooper notes that “a slowdown in the volume of Chinese capital moving into Canadian housing is a meaningful risk factor for the hottest markets in Canada.”

Read the full article