This week, OSFI (Office of the Superintendent of Financial Institutions) announced that effective January 1, 2018 the new Residential Mortgage Underwriting Practices and Procedures (Guidelines B-20) will be applied to all Federally Regulated Lenders. Note that this currently does not apply to Provincially Regulated Lenders (Credit Unions) but it is possible they will abide by and follow these guidelines when they are placed in to effect on January 1, 2018.

The changes to the guidelines are focused on
• the minimum qualifying rate for uninsured mortgages
• expectations around loan-to-value (LTV) frameworks and limits
• restrictions to transactions designed to work around those LTV limits.

What the above means in layman’s terms is the following:

OSFI STRESS TESTING WILL APPLY TO ALL CONVENTIONAL MORTGAGES

The new guidelines will require that all conventional mortgages (those with a down payment higher than 20%) will have to undergo stress testing. Stress testing means that the borrower would have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada (currently at 4.89%) or the contractual mortgage rate +2% (5 year fixed at 3.19% +2%=5.19% qualifying rate).

These changes effectively mean that an uninsured mortgage is now qualified with stricter guidelines than an insured mortgage with less than 20% down payment. The implications of this can be felt by both those purchasing a home and by those who are refinancing their mortgage. Let’s look at what the effect will be for both scenarios:

PURCHASING A NEW HOME
When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:

Current Lending Guidelines

Qualifying at a rate of 3.34% with a 25-year amortization and the combined income of $85,000 annually, the couple would be able to purchase a home at $560,000

New lending Guidelines

Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization and the combined annual income of $85,000 you would be able to purchase a home of $455,000.

OUTCOME: This gives a reduced borrowing amount of $105,000…Again a much lower amount and lessens the borrowing power significantly.

REFINANCING A MORTGAGE

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV.
The maximum amount available is: $560,000 minus the existing mortgage gives you $145, 0000 available in the equity of the home, provided you qualify to borrow it.

Current Lending Requirements
Qualifying at a rate of 3.34 with a 25-year amortization, and a combined annual income of $85,000 you are able to borrow $560,000. If you reduce your existing mortgage of $415,000 this means you could qualify to access the full $145,000 available in the equity of your home.

New Lending Requirements
Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization, combined with the annual income of $85,000 and you would be able to borrow $455,000. If you reduce your existing mortgage of $415,000 this means that of the $145,000 available in the equity of your home you would only qualify to access $40,000 of it.

OUTCOME: That gives us a reduced borrowing power of $105,000. A significant decrease and one that greatly effects the refinancing of a mortgage.

CHANGES AND RESTRICTIONS TO LOAN TO VALUE FRAMEWORKS (NO MORTGAGE BUNDLING)

Mortgage Bundling is when primary mortgage providers team up with an alternative lender to provide a second loan. Doing this allowed for borrowers to circumvent LTV (loan to value) limits.
Under the new guidelines bundled mortgages will no longer be allowed with federally regulated financial institutions. Bundled mortgages will still be an option, but they will be restricted to brokers finding private lenders to bundle behind the first mortgage with the alternate lender. With the broker now finding the private lender will come increased rates and lender fees.
As an example, we will compare the following:
A dual income family that makes a combined annual income of $85,000 wants to purchase a new home for $560,000. The lender is requiring a LTV of 80% (20% down payment of $112,000.00). The borrowers (our dual income family) only have 10% down payment of $56,000.. This means they will require alternate lending of 10% ($56,000) to meet the LTV of 20%.

Current Lending Guidelines
The alternate lender provides a second mortgage of $56,000 at approximately 4-6% and a lender fee of up to 1.25%.

New Lending Guidelines
A private lender must be used for the second mortgage of $56,000. This lender is going to charge fees up to 12% plus a lenders fee of up to 6%

OUTCOME: The interest rates and lender fees are significantly higher under the new guidelines, making it more expensive for this dual income family.

These changes are significant and they will have different implications for different people. Whether you are refinancing, purchasing or currently have a bundled mortgage, these changes could potentially impact you. We advise that if you do have any questions, concerns or want to know more that you contact a Dominion Lending Centres mortgage specialist. They can advise on the best course of action for your unique situation and can help guide you through this next round of mortgage changes.

Brought to you by:

Dave, Cindy, Amanda & Kimberly Walker

Iris Zhang

The Walker Real Estate Team

20 Year Emerald Medallion Winners

HomeLife Benchmark Realty

#1 1920 152 Street

South Surrey, B.C. V4A 4N6

604-889-5004 or info@WalkerRealEstate.ca

www.WalkerRealEstate.ca

Kimberly Walker

5 Year Mortgage Broker

Cindy Walker

15 Year Licensed Assistant

Dominion Lending Centers

Valley Specialists

#111 20434 64 Avenue

Langley, B.C. V2Y 1N4

604-889-5004 or cindywalker@shaw.ca

www.WalkerMortgages.ca

Why, why, why it is so challenging for entrepreneurs to obtain a mortgage in Canada?
If you’re among the 2.7 million Canadians who are self-employed, regrettably your income is not as easy to document as someone who’s traditionally employed.

Since 2008, mortgage regulations in Canada have made it more challenging for those who work for themselves to qualify for a mortgage due to tighter restrictions on “stated income” loans. In 2012, Canada’s Office of the Superintendent of Financial Institutions (OSFI) introduced Guideline B-20, which requires federally regulated banks to evaluate applications for residential mortgages and home equity lines of credit with more scrutiny. These rulings made it more challenging for the self-employed to prove income.

Here’s what Self-Employed home buyers need to know:

1. Most self-employed are motivated to decrease their earnings to avoid paying tax through legitimate expenses and personal deductions.
-Therefore, much of one’s self-employed income does not show up on paper.

2. I’m sorry… but you can’t have your cake and eat it too! If you choose to write off as much of your income as legally possible to avoid paying taxes, claiming low take-home pay, you will end up paying a higher interest rate on your mortgage.
– i.e. home buyer is a tradesperson, they earn $70,000/year and legitimately write off their business expenses to $40,000/year on Line 150 of their tax return. Lenders use income from Line 150… not gross income to determine affordability.
– Some lenders allow you to “gross up” your declared taxable income (as opposed to stated income) by adding up to 15%.
– i.e. if your declared income on your Notice of Assessment (NOA) is $40,000, the lender could add 15% for a total of $46,000. In most cases this doesn’t really help the business owner, as their income is still too low to qualify for the mortgage they want.

3. The new mortgage rules mean the assessment of a self-employed applicant’s income has become far more rigorous. Lenders now analyze the average income for the industry a self-employed candidate works in, and study the person’s employment history and earnings in the field. Their stated income should be reasonable, based on:
– industry sector
– type of business
– length of time the operation has been in business

4. Work with professionals. You need to hire a qualified book keeper and a Chartered Professional Accountant (CPA). Their job is to know the ins and outs of taxes so that you can put your focus on growing your business.
– You need to keep all your financial affairs up to date. That means getting the accountant prepared financials, filing your annual tax returns and most importantly paying your taxes. Government always gets first dibs on any money. Lenders won’t be interested in you haven’t paid your taxes.
– I recommend having a discussion with your CPA. Let them know that you want to buy a home. Come up with a budget of what income you need to be able to prove on your tax returns.

Suggestion: you could choose to pay more personal income tax this year, to push your line 150 income up and help you qualify for any mortgage transactions you hope to make. Please note: most lenders will want to see 2 years history, to prove consistency in earnings.

5. For self-employed borrowers, being able to document income for the past 2-3 years gives you more lending options. Some of the documents your lender may request include:
– Credit bureau (within 30 days of purchase)
– Personal tax Notice of Assessment (NOA) for the previous two to three years.
– Proof that you have paid HST and/or GST in full.
– Financial statements for your business prepared by a Chartered Professional Accountant (CPA).
– Contracts showing your expected revenue for the coming years (if applicable).
– Copies of your Article of Incorporation (if applicable).
– Proof that you are a principal owner in the business.
– Business or GST license or Article of Incorporation

6. If you have less than 20% down payment, Genworth is the only option of the 3 mortgage default insurers that still has a stated income program.

Self-employed home buyers, who can document proof of income, can generally access the same mortgage products and rates as traditional borrowers.

Tips for self-employed applying for a mortgage to ensure the process goes smoothly:

1. Get your finances in order. Pay down your debt!!
– Every $400/month in loan payments lowers your mortgage eligibility by $100,000
– Every $12,000 in credit card debt lowers your mortgage eligibility by $100,000
– Do you see a theme here? Pay down your debt! Resist buying/leasing a new vehicle or taking on any additional debt prior to buying your home

2. 3 “Rules of Lending” what Banks look at when you apply for a Mortgage in Canada
– Debt-service ratios are a major factor in a loan-approval assessment based on your provable income (Line 150 – what you paid taxes on)
– Maintain good credit. Solving the Puzzle – 5 factors used in determining your Credit Score
– Consider a larger down-payment.
– If you run into difficulty qualifying on your own, consider having someone co-sign for your mortgage. Would a Co-Signer Enable You to Qualify for a Mortgage?

3. Have two to three years’ worth of your self-employed supporting documentation available so your mortgage broker can work with you to set up your Mortgage Preapproval.

4. Be consistent and show stability. Lenders prefer self-employed borrowers who work in a business that’s established and have expertise in that field.

What happens if the banks still don’t want you for a conventional mortgage?

Many high net worth business owners with low stated incomes turn to private mortgage lenders for financing, since they can’t prove their income.
It is difficult to navigate which lenders specialize in self-employed mortgages. Using a mortgage broker has obvious advantages, since mortgage brokers have access to multiple lenders and have a broad knowledge of the mortgage market.

If you have any questions, contact a Dominion Lending Centres mortgage specialist for help.

Brought to you by:

Dave, Cindy, Amanda & Kimberly Walker

Iris Zhang

The Walker Real Estate Team

20 Year Emerald Medallion Winners

HomeLife Benchmark Realty

#1 1920 152 Street

South Surrey, B.C. V4A 4N6

604-889-5004 or info@WalkerRealEstate.ca

www.WalkerRealEstate.ca

Kimberly Walker

5 Year Mortgage Broker

Cindy Walker

15 Year Licensed Assistant

Dominion Lending Centers

Valley Specialists

#111 20434 64 Avenue

Langley, B.C. V2Y 1N4

604-889-5004 or cindywalker@shaw.ca

www.WalkerMortgages.ca

The process of getting a development permit in the City of Vancouver has improved over the past year and is expected to continue to do so.

The city’s mayor says that efforts to speed up processing times for new permits have proved successful even as the City deals with a record level of development.

Single-story lane way home permits can now be expedited within a week and further improvements are being implemented this fall.
These include:

• a single point of contact to all projects;
• service-level agreements and committing to specific customer return times for permits for affordable housing and low-density housing projects, to ensure projects move forward in a timely way;
• setting time limits and separated queues to reduce lineups for permit applicants.

“Delays to get basic permits are frustrating, and not acceptable. A swift and simple permitting process at the City is critical for addressing Vancouver’s housing challenges and to help facilitate housing delivery of all kinds across the City,” said Mayor Gregor Robertson.

Brought to you by:

Dave, Cindy, Amanda & Kimberly Walker

Iris Zhang

The Walker Real Estate Team

20 Year Emerald Medallion Winners

HomeLife Benchmark Realty

#1 1920 152 Street

South SNewurrey, B.C. V4A 4N6

604-889-5004 or info@WalkerRealEstate.ca

www.WalkerRealEstate.ca

Kimberly Walker

5 Year Mortgage Broker

Cindy Walker

15 Year Licensed Assistant

Dominion Lending Centers

Valley Specialists

#111 20434 64 Avenue

Langley, B.C. V2Y 1N4

604-889-5004 or cindywalker@shaw.ca

www.WalkerMortgages.ca

There was a slight increase in home sales in September compared to August but most markets were down from a year ago.

Figures from the Canadian Real Estate Association show a 2.1% rise in sales through the MLS system month-over-month but sales were lower than September 2016 in three quarters of local markets.

Activity was varied across markets with gains led by Greater Vancouver and Vancouver Island, the GTA, London and St Thomas, and Barrie. Nationally, actual activity was down 11% year-over-year.

“National sales appear to be stabilizing,” said CREA President Andrew Peck. “While encouraging, it’s too early to tell if this is the beginning of a longer-term trend. The national result continues to be influenced heavily by trends in Toronto and Vancouver but housing market conditions vary widely across Canada.”

New listings were up in September with a national rise of 5% driven by a jump in the GTA. With a national sales-to-new listings ratio of 55.7%, the market is considered balanced.

For the first time in almost 7 years benchmark home prices were up in all 13 markets tracked by CREA’s MLS Home Price Index.

Apartments saw the largest year-over-year price rise – up 19.8% – with townhouse/row units up 13.5% and single-family homes up 7.9% (one storey) and 7.2% (two storey).

The average national sales price (not seasonally adjusted) was up almost 3% from a year ago to $487,000 ($374,500 excluding Greater Vancouver and the GTA).

I’ve heard brokers say more than once that mortgages are a commodity, by definition a commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. That doesn’t sound like mortgages to me.

While the core product is always the same, money lent that is secured by real estate, the nuances of a mortgage can vary a lot. When we look at what the client is looking to do with that property and what their life style is composed of, we have to be sure that we aren’t just placing them for the sake of placing them in a mortgage. We have a duty to the client to make sure that even though they are looking for that lowest rate that it doesn’t tie them into a mortgage they can’t get out of in a reasonable manner. I recently had a client whose parent had gotten a mortgage on a property that the kids were living in with the idea that down the road when the kids had some money they would buy the house from Mom and Dad. Problem was that when I read the original commitment the bank representative had not explained that the sale had to be arm’s length sale; sorry kids you need to move out.

By some standards the comparison for commodities that a barrel of oil is a barrel of oil, when as an Albertan I already know that the heavy crude from Fort McMurray sells for a discount because while it is needed to toughen up the Texas oils, they just don’t need as much of it. By mortgage standards the same applies, if the rate is lower than the market there has to be a reason. The reasons can range from as simple as the yearly buy down is only 10% instead of 20% and range up to the office doing it pays their staff a salary and they use the extra money to buy down the rate. Regardless of the reason we still need to make sure the product we recommend to our clients fits their needs and plans for the future. And if you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

Another organisation has added its voice to those opposing OSFI proposals to introduce tougher lending restrictions for uninsured mortgages and warns it could harm competition in the mortgage industry.

The Fraser Institute says that requiring a stress test with a margin of 2 percentage points above the agreed rate for those homebuyers with at least a 20% downpayment, is unnecessary and could negatively affect buyers across Canada.

In a study called Uninsured Mortgage Regulation: From Corporate Governance to Prescription, author Neil Mohindra says there are several potentially negative effects from the proposed rule-tightening:

• Access to mortgages may become more limited, especially for buyers in high-price markets;
• Buyers may be forced to abandon preferred homes for less-desirable options;
• Increased use of unregulated lenders with higher interest rates;
• Buyers may opt for shorter term variable rate loans.

The report also suggests that the mortgage industry could become less competitive from the OSFI rule as those lenders that are niche players in the residential market may find their business is impaired.

This, the report concludes, runs counter to the federal government’s objective of promoting more competition from smaller lenders.

“OSFI’s emphasis on corporate governance worked well during the financial crisis. Shifting towards more prescriptive rules is an ominous sign,” Mohindra said.

Deciding to borrow money to launch your small business startup is a big decision. It’s the second biggest decision after deciding to start the business. Since it is a big decision, it requires much thought and research before taking the leap. There are multiple ways to fund a small business startup, and it’s important to know and understand all of them before making a final decision.
Not only can you borrow money to launch your small business startup, you can also invest your own personal savings or give up a percentage of ownership in the company to investors in return for funding. Before making the final decision to borrow money for your small business startup, here are a few things you should know:

Types of Financing

There are a number of different ways you can finance your small business startup. Depending on the amount of revenue the business is generating, how many years the company has been in business, and the business industry, you may or may not qualify for certain types of financing.

Pay Back & Defaulting

When you borrow money to launch your small business startup, you will be required to make monthly payments. You will also have a set “term” to pay back the financing. The term is the period of time you will have to make monthly payments toward the total financing amount you borrowed. This is important because you need to be comfortable making the monthly payments. It has to be something you can afford. I suggest developing a business plan with at least three years of financial projections to estimate what your expenses will be and the amount of revenue the business will generate. This will help you determine if there will be enough money to go around (to cover business expenses and paying back a business financing).
If you default on a financing for any reason it can ruin your personal and business credit. Having a good understanding of how much it will cost you to borrow money to build the business will enable you to plan better and avoid defaulting. It’s good practice to ask a lender what their average interest rates and terms are before you apply so you can estimate what your monthly payments will be. The bottom line is that paying back financing has to be something you are ready for and capable of handling.

Maximum Amount of Debt

Your debt to income ratio and the amount of outstanding debt you have on the business is important in the lender’s decision to give you a small business loan. If your company is a small business startup with no revenue, lenders will pay close attention to your debt to income ratio. As a rule of thumb, your outstanding debts should equal no more than 28% of your total income. (Depending on who you talk to, some people will say it should be no more than 32% to 36% of your total income however, 28% is playing it safe). If you have a high debt to income ratio, you may not be able to borrow money to launch your small business startup.
If your small business startup has some revenue, and you’ve already borrowed money for the business, if you apply for additional financing, the lender may also look at outstanding business debt. As a rule of thumb, you usually can’t borrow more than 15% of your total annual revenue. This all depends on the lender, but keep that in mind if you decide to take out multiple business loans from different lending sources for the business.

How You Will Spend the Money

Some types of financing are restricted to certain business expenses. For example, equipment financing must be spent only on equipment purchases. This includes computers, office furniture, etc. However, financing such as unsecured business lines of credit can be spent on any business expense. This is why it is important to develop a business plan and at least three years of financial projections. Financial projections outline what the money will be spent on. Knowing what the money will be spent on will help you determine what type of business financing will work best for you.

Need Expert Help? Let Us Assist You

If you still need helping figuring out if borrowing money will be right for your small business startup, Dominion Lending Centres Leasing can help. Our team can advise you and will help you analyze your situation to determine whether or not borrowing money to launch your small business startup makes sense. They will also help you figure out what type of financing will work best for you.

By the end of October we should have a clear idea of proposed changes to mortgage lending regulations with updated B-20 rules implemented within two to three months.

Speaking at an event in Toronto, OSFI superintendent Jeremy Rudin said Tuesday that much of what will become the updated regulations will be what the regulator set out in July which includes a stress test for all uninsured mortgages.

He told the Economic Club of Canada audience that the Office of the Superintendent of Financial Institutions is concerned about the high levels of consumer debt and high real estate prices in some markets.

“We are not waiting to see those risks crystallize in rising arrears and defaults before we act,” Mr Rudin stated.

The superintendent says that it has never been more important for mortgage lending underwriting criteria to be strong and that the system needs a “certain integrity.”

Mr Rudin said that although there is a risk of more borrowers using unregulated lenders for mortgages that did not preclude OSFI from taking necessary steps within its mandate.

This story is from the Fall edition of Our House Magazine

Moving on up from condo to house, these young homeowners prove age is just a number

For Jordan Rothwell and Karissa Roed, the timing to find their forever home couldn’t be more perfect. The couple, who recently moved to Mission, B.C., are expecting their second child and are ready for the family to grow.

It’s quite the responsibility for Jordan and Karissa, aged 23 and 24, respectively. But it’s a challenge the young couple has been preparing for since they first resolved to get into the housing market a couple of years back. And the pair see their story as motivation for what other young people can achieve if they set their minds to it.

“If younger people would just set goals for themselves, especially when it comes to buying property, it’s such a blessing when you do it. You’re instantly further ahead as an adult when you do it,” Jordan says.

Their property story began when Jordan’s grandfather offered to match the couple’s savings for a down payment on a condominium. So Jordan and Karissa went about saving money wherever they could. That meant a lot of sacrifice—especially missing out on trips and events they might have attended.

“It basically became an addiction for a while, just saving up every penny to try and get to the point where we could go in and buy a condo,” Jordan notes.

It paid off. By 2014, they saved up $5,000 and, with matching funds, moved into a two-bedroom condo in Port Coquitlam, B.C.

Fast forward a couple of years, and Jordan and Karissa were looking to upsize. By then, they had some equity, in part because they bought their condo at the right time, taking advantage of the hot Metro Vancouver real estate market, and were ready to move into their forever home.

Once again they looked to family, partnering with Karissa’s mother and stepfather to purchase a 3,000-square-foot, six-bedroom house in Mission for $605,000. Jordan, Karissa and their young family will live upstairs, while her parents will take the ground floor.

The couple couldn’t be happier in their new home. “It’s definitely nice moving from a condo to a house,” Karissa says, adding they have nearly double the square footage as their old condo, along with a backyard for her children to play.

Dominion Lending Centres mortgage specialist Pauline Tonkin says she couldn’t be more impressed by the couple’s smart financial habits. Tonkin helped them secure a mortgage for their first condo and wasn’t surprised to see them make a jump to a house.

“I wasn’t concerned for them because they really do the right things. They really get it,” Tonkin says. “Age is not indicative of how people handle finances.”

She describes the couple, especially Karissa, as very diligent at considering all the costs involved in the purchase. The pair wanted all the details, something Tonkin says isn’t often the case with young buyers.

Besides securing the proper financing, Tonkin helped Jordan and Karissa through the process, giving them a “road map” to where they wanted to be. It was help the couple appreciated. “When you’re buying a condo or a house, it’s such a blur,” Karissa says, adding that their mortgage broker was someone they could trust and call at all hours if they needed to.

Jaclyn LaRose has enjoyed similar success as a homeowner. This spring, she sold her first condo to upsize to a bigger one in Surrey, B.C., close to her work as a schoolteacher.

LaRose was 26 when she and her sister decided to buy their first place with a little help from their parents. Her parents didn’t like seeing them throw away money on rent, she explains, so they helped out with a five per cent down payment for an apartment in nearby Coquitlam, B.C.

“I definitely considered at the time that I was young because I hadn’t been thinking about it for a few more years at least,” she says.

Not having even hit the age of 30, Larose is now on her second home. She said she has friends who believe it’s impossible to get into the market, especially in B.C.’s Lower Mainland. But she also points out those friends are looking in prime spots where the prices are highest. LaRose chose to look a little further afield to get into the market. She’s gone from a 500-square-foot, one-bedroom apartment to a two-bedroom with more than 800 square feet.

While Larose points out there is a sacrifice related to home ownership, she now feels lucky to be in her position. “It’s just about getting in when you can,” she said. There are places out there where you can get in.” And now that she has home ownership all sewed up, she’s able to focus on her career and personal goals.

“For the short term I feel settled,” LaRose says.

Back in Mission, Karissa and Jordan have settled into their new home. They are also way ahead of their peers and looking forward to the future. A lot of people his age look at owning a home as something they’re not supposed to do, or able to do at their age, Jordan says. But he doesn’t see it that way at all: “If you just stick to your guns and build a goal of what you want to accomplish… you’ll get there.”