Two e-mail messages that stood out yesterday...

Yesterday I received two e-mails that stood-out in my inbox: one from Scotiabank letting me know that they are discontinuing their no-downpayment mortgage; and, the second message came from MCAP (a wholesale bank) letting me know that their maximum loan-to-value on a secured-line-of-credit would only be to 65% of the value of a home, instead of the 80% value traditionally lent.

While I was anticipating these changes later this year, they've come as a surprise because they happened quickly and without much notice.  Normally, when drastic changes happen in lending there is usually a lead-up of several weeks.  This allows borrowers to get their applications approved before the cut-off dates.  This time there was no far-advance warning.

What are the main implications on these changes?

• For real estate investors who would normally use the equity that they've built up in their homes to purchase investments, the amount that they can use from their home has decreased by 25%. Although there are other lenders who will still allow you to access 80% of the value of your home through a secured-line-of-credit, I think we'll be seeing most lenders drop their maximum loan-to-value to 65% down from 80%.
• For those who wanted to buy a house and had good job stability and credit, but have had difficulty saving for a downpayment, their chances of buying a home and getting good financing is limited.  Although there are lenders who will still do "no downpayment" mortgages, we'll likely see this program being cancelled with most mortgage lenders.

Your feedback and comments are welcomed! If you have any further questions that you'd like to discuss please give me a call or send me an e-mail:

Tel: 519-763-3900 ext.1001
E-mail: lastovic.s@mortgagecentre.com
www.guelphmortgagecentre.com

Think you can't qualify to buy a home...think again...

I just had a BBQ at my house and invited some of my clients to it. It was a great opportunity to get to know them better and to thank them for their business.  One message that kept coming up during friendly conversations at the BBQ, was that they were surprised they could get a good mortgage. A few of my clients had mentioned to me that they were turned-down for a mortgage at their own bank and even discouraged by their friends or family.

Have you wanted to buy home, but think you can’t qualify for a mortgage? Here are some common misconceptions about qualifying for a mortgage.

Myth:               I don’t have a down payment I can’t qualify for a mortgage.

Fact:              There are mortgage options for people with good credit history and job stability, but don’t have the full 5% for the minimum down payment. Some mortgage lenders will lend you the money for the down payment.  Rates are normally about 2% higher than the best discounted rate.  The rate would still be below 5.5% but you would not need a down payment!  This is a great way to get into a home, if you’re having a hard time saving for the down payment.

Myth:               I was turned down by my own bank before for a mortgage – I won’t be able to get one now.

Fact:             There are options for people who have been turned down by their bank, that are cost effective. For example, some banks will turn you down for a mortgage, if you haven’t been employed with the same company for a three full years. As a mortgage broker, if you have a full-time job and are no longer on probation, even if you’ve only been at the job for a few months, you likely would be able to get a mortgage.

Myth:               Mortgage brokers charge a fee. I should go to my bank first.

Fact:              Mortgage brokers have become one of Canada’s top choices for people looking to buy a home or investment property.  That’s because they offer great rates. If you have good credit and job stability you can get better rates through mortgage brokers and there are no extra fees!

If you're interested in how you can qualify for a mortgage please call me at 519-763-39 ext.1001 or e-mail me at lastovic.s@mortgagecentre.com

The Ant Philosophy and Real Estate

While waiting at my chiropractor's office yesterday, I watched Jim Rohn, talk about his "Ant Philosophy".  Jim Rohn is kind-of-like a preacher for business people and entrepeneurs. The Ant Philosophy is based on the habits of a common ant.  In the summer, ants work hard, and persistantly to gather up as much as they can for the winter.  In the winter they sit back and enjoy the fruits of their labour.

Many people who work in real estate, do the exact opposit of the common an.  It's natural to work hard during the spring real estate market and then do little in the summer. That's where I see real estate professionals, be it realtors, other mortgage professionals, home inspectors run into financial difficulty.

The Ant Philosophy is similar to Warren Buffet's mantra of doing the exact opposit of what others do.  If you've ever tried this in your own life, you'll see how challenging it can be.  Peer pressure is intense.

How does this relate to real estate and mortgages? For example, if you have a variable-rate mortgage with an amazing rate of under 3%, instead of riding out the mortgage because everyone is complementing you on the rate, look at locking in before rates go up...try the ant philosophy.

If you'd like to discuss your mortgage (or the Ant Philosophy), please call me at The Mortgage Centre 519-763-3900 ext.1001 or e-mail at lastovic.s@mortgagecentre.com.

Guelph’s unemployment rate dips once more

When it comes to buying real estate, it's important to be objective especially if you're considering it for an investment.

There are many key drivers that influence the phases of the real estate cycle.  Employment is one of the demographic drivers.  Other key demographic drivers include:

-Net migration;
-Vacancy rates;
-Housing Constructions; and,
-First-time homebuyers.

Today Stats Canada released unemployment rates for Canada, and Guelph as usual, has one of the lowest rates on unemployment in the country.

What does this mean for the local real estate market? When people have jobs, they buy homes.  That's one of the reason's why home sales are up year-over-year in Guelph.  Furthermore, when unemployment is low, people migrate to these cities for employment.  Guelph's vacancy rates are also at record lows.
 
GuelphMercury - Guelph’s unemployment rate dips once more

Buying a rental property for the wrong reasons...

One of my specialities is helping people build their their real-estate-investment portfolio. Because I'm in the business of owning and managing rental properties myself, most of my clients appreciate the fact that I have first-hand experience of what to do (and what not to do).  I've made several mistakes over the last ten years where I've lost money, but I have also had several success.  I'm proud to say that I'm finally making a decent profit.

I love Don Campbell's quote from the Real Estate Investment Network (REIN), "Real estate is not a get-rich-quick-scheme, it's a get-rich-slow-and-steady strategy". 

Here are some typical reasons people give for buying a rental property, that may be the wrong reason for purchasing (I'd love your feedback):

1. I want to supplement my income now. If you purchase a rental property and need to put a mortgage on the property to 80 per cent of it's value, you're likely not making more than $500/month on it.  I'm referring to the marketplace which I know best KW, Cambridge, Guelph, Brantford, and Niagara.

2. You want passive income. Owning a rental property is not a passive business.  There's allot of work that goes into managing a property and making money.  Depending on the property, it should take you an hour each week BUT you need to do some work each week per property.

3. You're retiring in a year. If you're retiring shortly and you're looking for something fun to do, then a rental property may be the way to go.  I've also helped retires buy properties to leave a legacy for their children.  If you have money to invest and want to make a "dividend" or supplement your monthly income, investing in a private mortgage is a good alternative.

Implications of new mortgage-lending guidelines...

With little surprise in Canada, the Minister of Finance has finally made a formal announcement that there will be significant changes to mortgage lending. The main changes are a decrease in maximum amortizations from 30 to 25 years and a maximum loan-to-value refinance amount for your primary residence to 80% of the home's value (down from 85%).

What are some of the practical implications?

1. For first-time home buyers (especially in Guelph or the surrounding area), it's difficult to find a detached, suitable home for under $260,000. The shorter amortizations will decrease a person's borrowing capacity and purchase price by approximately $40,000. The exact date of the changes is unknown yet; however, if someone has been pre-approved for a mortgage 4 months ago, be sure they call their mortgage broker and speak to them about their maximum purchase price.

2. Qualifying to purchase a rental property has tightened in the last 6 months.  We have seen most lenders go to sticker uses of how rental income is used in qualifying someone for a new mortgage loan. The shorter amortizations will also limit one's ability to purchase rental homes.  In Guelph, we've seen a surge in prices for rental properties.  The change in shorter amortizations may cool rental property prices.

3. Refinancing to only 80% of the value of your primary residence will limit one's ability to take equity out of their home to pay-off debt, or to purchase other properties.  For example if a home is worth $350,000, under the new guidelines, the individual will have access to $17,500 less equity.

Kelly and Jan almost didn't get their home...

Kelly and Jan (like most people) rely and trust their bank. They've owned a home before, had a mortgage with their bank (TD) and all went well.  They only had a $60,000 mortgage left on their main house, and with a growing family, where ready to move into a bigger home. They wanted to keep their main house as a rental because it was close to the university and offered great rental potential. So they went back to their bank to get pre-approved for a mortgage before looking to buy their next house.  Their bank said yes to the financing and away they went!

After spending hours with their realtor, they finally found a great home, put an offer on the home, and went back to their bank to finalize the mortgage. Here's where the story gets bad...

The bank came back and rejected their mortgage approval.  Kelly and Jan where stunned...how could this be possible?  What I've learned through my clients' experiences, are that banks don't pre-approve people for mortgages they only pre-qualify.  The missing piece in Kelly and Jan's original pre-approval was a credit check that their bank didn't do.  Kelly's credit history was weak because of a job loss she experienced a year ago.  Although she was now back to work, a few missed bill payments from the previous year appeared on her credit history. 

Here's where the story gets better...

Their realtor referred them to The Mortgage Centre, and with the skill of a trained, mortgage agent where still able to get a decent mortgage and they where still able to buy their dream house.  The great part of this story is that the mortgage payments where in-line with their monthly budget.

The lesson from this story is to ensure that whomever helps you with your mortgage financing, ensure they do a thorough job for you so that there are no surprises once you find a home.