Build and Maintain good credit to ensure Mortgage approval

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For most of us, buying a home means financing your purchase with a mortgage. Most often, getting a mortgage depends on your how good your credit score history.

While most consumers know that they have a “credit rating,” not all know their scores or how they were calculated. If your mortgage application is refused, or approved for less than expected, there’s an opportunity for you to improve the score.

Your creditworthiness is assessed two ways:

• Beacon score, and
• A detailed history.

Credit scores range from 350 (low) to 850 (high), with 680 being the median. The numerical score is calculated based on previous payment history, current indebtedness, credit history length, number and frequency of new credit inquiries and, the types of credit held. Two so-called “Beacon killers,” are payments more than 30 days late (even small amounts) and maxed-out credit cards. The detailed history adds personal information, banking information and specifics on accounts and payments.

Maintaining and improving credit depends upon:

1)            Pay all bills on time – late payments hurt your rating

2)            Keep credit balances below 75%of the maximum

3)            Avoid applying for additional credit; too many applications in a short period signals financial difficulties

4)            Make sure that personal information in your credit file is correct

You should also review your credit history at least once a year, it is free when requested in writing or by fax.

How can a Mortgage Broker help?

Getting your finances in order can be a daunting task. A Mortgage Broker can help you assess your current credit situation and help you determine a path for credit improvement. A Mortgage Broker will work with you to find a solution for your unique financial situation.

For more information on managing credit refer to Service Canada’s website or contact your Mortgage Broker today!

Related articles

• 5 Steps to Building Better Credit Before You Buy a House(bokauffmann.com)

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• Mortgage Professional On The Front Line To Homeownership(ratesupermarket.ca)

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• Top 6 Winnipeg Real Estate Blog posts of 2011(bokauffmann.com)

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5 Steps to Building Better Credit Before You Buy a House

credit to jc-pics photostream on flickr

by Calgary Mortgage Broker Tyler Tost

Building up a solid credit score is an important step to take before purchasing a home. After all, the better your credit, the more likely you are to get an attractive interest rate and better loan terms. Fortunately, there are several simple ways to build your credit and to put yourself in the best possible situation for the most attractive loan terms. Here is a look at just a few of the things you can do to build and to improve upon your credit.

Step #1: Check Your Credit Report

Perhaps the simplest step you can take to improve your credit is to simply check your credit report on a regular basis. By checking on your reports with both TransUnion and Equifax, you can be sure the information they contain is accurate and complete. If you discover any errors or if you find anything suspicious on your report, be sure to take the necessary steps to correct it.

Step #2: Open a Bank Account

Opening a bank account is another simple way to build credit. Of course, to enjoy the benefit of opening a bank account, you need to be sure to use it responsibly. Even if you haven’t managed to build a great credit score, the relationship you have built with the bank will go a long way toward helping you get a mortgage loan.

Step #3: Get a Credit Card

While credit cards have a bad reputation for causing people to go into debt, the reality is that credit cards can go a long way toward helping you build your credit. In fact, when used responsibly, a credit card can be a very handy tool. If you are scared your spending will get out of control, you might want to apply for a secured credit card rather than a traditional credit card. With a secured credit card, you load the card with money beforehand. Yet, because you are still responsible for paying the bill each month, you continue to build credit with a secured credit card.

Step #4: Avoid Taking Out Too Many Loans or Credit Cards at Once

Getting a credit card and using it responsibly is a great way to build credit. At the same time, don’t take it too far and open up multiple accounts or apply for several credit cards within a short period of time. If there are several inquiries into your credit report, it appears as if you are desperate to get money. As a result, your credit score will take a hit and lenders will consider you to be a higher risk.

Step #5: Keep Your Debt Low

Carrying too much credit card debt of having too many outstanding loans will also make it difficult for you to get a mortgage loan. Therefore, you should avoid accumulating too much debt. If you have a high debt-to-income ratio, you might want to consider paying off a few bills before you pursue obtaining a mortgage loan.

Tyler Tost Broker / Owner of Conexia Mortgage is a Calgary based Mortgage Brokerage with some of the best Calgary Mortgage Brokers in the business. Conexia Mortgage works with numerous lenders to enable clients to have a choice of lenders and best mortgage rates available and can prepare financing across Canada. Visit our website to apply for your next Canadian Mortgage.

land-titles-transfer-tax-home-buyers – Winnipeg’s Real Estate Blog

by Bo Kauffmann on December 2, 2010 … While the Land Titles Transfer Tax is especially difficult for young, first-time home buyers, even people ‘with money’ find an added tax of 4 grand or more to be a financial ‘hit’. For that reason, Winnipeg …

Publish Date: 12/02/2010 13:22

http://bokauffmann.com/land-titles-transfer-tax-home-buyers/

Top 6 Winnipeg Real Estate Blog posts of 2011

Winnipeg’s Real Estate Blog is filled with helpful tips and info for home and condo buyers and sellers. Here are the 6 most popular posts of 2011. … 55 plus Condominiums in Winnipeg: Are they right for YOU? by Bo Kauffmann on September 10, 2010. After reading this, be sure to check out … If and when the time comes to SELL you house or condo, please do not hesitate to e-mail me or call me on my cell at 204-333-2202. If you’re looking to BUY a house or a condo, …

Publish Date: 01/19/2012 8:53

http://bokauffmann.com/top-6-winnipeg-real-estate-blog-posts-of-2011/

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Getting a Mortgage for Self-employed Canadians

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After enduring decades of mortgage hassles, self-employed Canadians now enjoy mortgage products designed specifically for them.

It was, after all, only a matter of time before lenders recognized that self-employed Canadians were a powerful – and attractive – group of customers. And their numbers are growing. More than 19% of all Canadian workers are self-employed, according to the latest data from Statistics Canada.

It was the non-traditional lenders who first recognized that the financing needs and qualifying criteria of this group of borrowers was very different than Canadians who receive pay stubs and T4s. But almost every lender – including the banks that turned these people away only a decade ago – now offers at least one option for self-employed homebuyers.

But if you’re self-employed or earn a commission-based salary, then you owe it to yourself to find a top-notch mortgage planner. Why? Because with all the mortgage and loan options now available, it’s a great idea to shop around. It’s a buyers’ market out there; get some guidance on how to build a plan around one of your most reliable and attractive assets: your home.

Consider some of the choices you now have in obtaining a mortgage:

•            You can qualify based on the income that you say you earn. This kind of mortgage is known as “stated income” because the lender takes into account the income you state, and not the income you can prove. After all, good tax planning aims to keep that income low. The income should be reasonable, of course, and the lender may want proof of your self-employment, and a copy of your Notice of Assessment. You will require a 10 per cent downpayment for a purchase and 15 per cent for a refinance on a high-ratio mortgage. For a conventional mortgage, you’ll need 65 to 80 per cent LTV;

•            You can qualify for a mortgage on the strength of a strong credit history, rather than on your income. You’ll need a good credit score and proof that you’ve been self-employed for at least two years;

•            Even with some spotty credit and no proof of income, you may qualify for a mortgage if you have some equity in your home (at least 25%). For these mortgages, qualification is based on your accumulated equity and the value of your home;

•            Re-advanceable mortgages are a great way to take advan­tage of increasing equity. As you create equity through mortgage paydown, the line of credit portion of the mortgage is automatically increased by the same amount. This way you can access your equity when needed without having to apply, offering you more convenience and flexibility than a traditional
line of credit.

It’s the job of lenders, of course, to carefully manage risk. While there is now broad recognition that self-employed Canadians are an excellent and reliable customer group, the rates and options are always best when risk is lowest. Be sure to talk to your mortgage planner about what you can provide: any documentation to prove income and/or employment, a great credit history, a significant down-payment, for example. Any of these will improve your mortgage options and help you get the best rates when shopping for a house or condo.

Forty per cent of all new mortgages in Canada are now arranged through mortgage brokers. If you have your own business, you probably already know it makes sense to go to a specialist to get the job done. The more complex your mortgage situation, the more sense it makes to find an experienced mortgage planner who can customize a mortgage plan to meet your short-term needs and your long-term financial plan. Your home is a very important asset; make the most of it!

Related articles

• Mortgage Pre-Approval for House Shopping in a Sellers Market (bokauffmann.com)
• The Cheap Money Party Won’t Last: Canadians Need to get Real About their Debt (ratesupermarket.ca)

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Pre-Approval Before House Shopping: a few tips!

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Credit to dolphinsdock photostream on flick.com

Talk about high-stress shopping. Searching for the perfect home – the place where many of the biggest dreams of your life will unfold – is not exactly like browsing for a new pair of shoes. It’s a much bigger purchase, for starters, and you’ll certainly enjoy it for longer. And of course a good part of your personal and financial life will be riding on the choice you make.

Given all that, it’s surprising that some people who go house-shopping have no clear idea of what they can afford. It’s often a recipe for heartbreak – when the house they’ve fallen in love with is NOT a house they can afford. There’s nothing more disheartening than seeing a client’s dream dissolve when he or she is turned down for a mortgage loan. On the other hand, many homebuyers set their sights too low, too, making a conservative guess on what they can afford, then spending time and thousands of dollars on “moving up” purchases that they might have skipped.

What you want to do is to go house-shopping with a full wallet: with an actual pre-approval from a lender. This way, you will know – to the dollar – what you qualify for and exactly how much it will cost you to carry the mortgage. You’ll also have the interest rate held for you for a specified time period, typically 90 to 120 days.

What is a “Pre-Approval”

So, what exactly is involved in the pre-approval process anyway? You should expect to provide your mortgage planner with information on your employment/income, assets and liabilities, and downpayment. The planner will also obtain a report on your credit history. This diligent analysis of your information is exactly what underpins the strength of a mortgage pre-approval. Your information will then be submitted to the best lender or lenders that can meet your needs.

Most lenders will quickly prepare your pre-approval, which essentially is a conditional mortgage approval that states the mortgage amount, term, interest rate, expiration date, required documents. Of course, it’s important to be aware that you’ll eventually need to substantiate the information you provided for the pre-approval when you go back to the lender for the actual mortgage. That’s why it’s important to provide accurate information.

Even if you have a pre-approval, it’s still recommended that you include in your offer a “subject to financing” clause. A pre-approval qualifies you – the borrower – and not the property. As a result, the final mortgage approval also depends on the house you decide to buy, so it will have to meet with the lending institution’s approval guidelines too. You’ll need to provide the necessary information such as the offer to purchase, MLS listing, and any other documents required by the lender so they can assess the property. Once all of the lender’s requirements have been met, the lender will submit the documents to your solicitor, who will set up an appointment with you prior to closing so you can sign all of the documents and review your closing costs. Then you’re done; you’ve gone from pre-approval to getting ready to move.

Pre-Approval vs. Pre-Qualification

Don’t get a pre-approval confused with a pre-qualification. A mortgage pre-qualification is a much more informal procedure and more of a ballpark figure only, not a firm number of exactly how many dollars will be lent. A preapproval lets you know precisely how much money the lender is willing to let you access, and you’ll receive proof of this offer in writing.

Before you go browsing for a home then, schedule a visit with us to secure your pre-approval. Sellers will know that you are serious, agents will go that extra mile for you, and you’ll know that your new home is within your budget.

Related articles

• 3 Benefits of a Mortgage Broker (vancouverreflections.com)
• New Mortgage Rules: What are they and how do they effect me? (bokauffmann.com)

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New Mortgage Rules: How will they effect me?

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On January 17th, 2011, the Canadian Finance Minister announced New Mortgage Rules. First and foremost, these new mortgage rules effect only ‘High-Ratio” Mortgages….in other words, home purchases with less than 20% down payment.  In a nutshell, the new rules are:

1)  The maximum mortgage amortization period has been decreased to 30 years (down from 35 years).

2)  When refinancing your home, the maximum amount  you can borrow has been reduced from 90% to 85% of the home’s value

3)  CMHC will no longer insure home equity lines of credit (HELOCs)

It should be noted that these new rules are NOT retroactive.  In other words, if you have a 35-year mortgage, you will NOT be required to switch to a short amortization period.  Even when you renew your mortgage, provided that you remain with the same lender, you can continue with the 35-year term.

What will be the long term effect of these new mortgage rules?

In the long term, a shorter period will mean that home owners will pay less interest on their homes….a key reason why these new mortgage rules were put into effect in the first place.  Also, by only allowing refinancing of 85% of the home’s value, the government is trying to prevent home-owners from over-extending themselves, a little ‘big-brotherish’, but after the global financial melt down, most people would say this is a prudent step.

Short term effects?

If you’re thinking of purchasing a house or condo, please call me anytime to discuss these new mortgage rules and any other home-buying issues.  Bo Kauffmann 333-2202

Related articles

• Canada Introduces Strict Mortgage Rules to Control Mortgage Debt (bokauffmann.com)

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Collateral Charge Mortgages or Standard Charge Mortgages?

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Credit to dolphinsdock photostream on flick.com

The mortgage world could be confusing – fixed vs. variable, term, amortization, pre payment and other privileges, restrictions, fees for breaking your mortgage early, porting, along with other fine details. And now homebuyers and owners need to consider between”collateral charge mortgages versus “standard charge” mortgages!
TD Bank announced that effective October 18, 2010 all new mortgages will be collateral charge mortgages. TD Bank joins the many credit unions that also offer only these types of mortgages. If you are considering a collateral charge mortgage it’s worth some investigation before you sign because while there are advantages, there are also some negatives to think about.

What are Collateral charge mortgages?

Collateral charge mortgages can make it easier for homeowners to tap into their equity if their properties increase in value, although making it harder for them to switch to another lender when their mortgages show up for renewal.
For TD Bank customers, they’ll now be able to register their mortgage for approximately 125% of the value at closing, that allows them to take equity out free of charge should their homes rise in value. The downside comes at renewal. For consumers who want to keep their options open at maturity, this isn’t the best product feature because collateral charge mortgages are hard to transfer to another lender. Which means if someone wants to change lenders for a better rate or product feature, they have to start from the beginning and pay new hips. Technically they can be assigned but lenders don’t accept the transfer. With regular standard charge mortgages, you can switch for free, although certain minor charges may apply.
The ability to take out equity is one of the primary options that come with Home Equity Lines of Credit, that are collateral charges for this reason. In these cases, clients want the ability to extract equity once they need it or as it becomes available. If you feel that there is a very good chance you’ll refinance to consolidate debt in order to extract equity for a renovation in order to invest, then a collateral charge mortgage can be a wise decision.

Standard Charge Mortgages

If you don’t believe that you’ll need to refinance or extract equity, then a regular standard charge mortgage will fit you fine, and it will give you the capability to move to another lender at renewal if you want to without incurring hips. In other words, it’s easier for you to maintain your options open.
Whenever the situation looks confusing and complicated, go to a mortgage professional, whose only focus is on mortgages and what each of their over 50 lender partners have to offer. They will analyze your situation and assist you to determine what’s right for you – collateral charge or standard charge mortgages, among the many other mortgage options and privileges that you need to consider.

For information on standard charge versus collateral charge mortgages, talk to an experienced Mortgage Professional.

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Related articles

• BMO encourages 25-year amortization period with low rate incentive (teamfisher.com)
• Mortgage Broker: Top questions a home-buyer should ask (bokauffmann.com)
• Mortgage Rates: Why ‘Variable’ Rates may be a good choice (bokauffmann.com)

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Investment Advice: Pay down the Mortgage or invest in RRSP?

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Credit to Feathered Tar photostream on flickr

The often asked Investment advice – Should I pay down my mortgage or invest in an RRSP?
Perhaps you have received a large bonus, won a lottery or your savings efforts have paid off. Whatever the case may be, you suddenly end up with some extra money. What is the best investment advice? Is it smarter to pay down your mortgage or supplement your RRSP? There is no standard answer, since each option has its advantages.

Pros: pay down the mortgage

• – Interest costs within the term of your mortgage become lower
  - Your mortgage is paid off faster
  - The overall cost of your mortgage is reduced

Pros: purchase RRSPs

• – Contributions are tax deductible, which saves serious cash
  - Money grows tax free in your RRSP
  - Your retirement savings will grow more quickly.

One important thing to keep in mind is the fact that an RRSP directly reduces the quantity of taxes you pay in the year you make a contribution. As a result, running out of energy expect to receive a tax refund. While it’s tempting to invest this money, here is some investment advice you can use to get an even bigger benefit from your refund cheque:

• – Contribute to an RRSP and use the tax refund to pay down your mortgage. Get the best of both worlds! This strategy will give you all the advantages associated with paying down your mortgage and investing in an RRSP
• – Contribute to an RRSP and use the tax refund to contribute more for your RRSP. This strategy maximizes the long-term compounding of RRSP assets and helps build a solid capital base to finance your retirement

In seeking investment advice and evaluating which option makes better financial sense for you, you also need to consider a quantity of additional factors such as: your age, your income, expected returns on your RRSP investments, your investment time horizon, your mortgage interest rate including the remaining amortization period and any prepayment privileges. In the end, the best investment advice depends on your particular financesquestion is different for everyone and depends on the math.

For investment advice, talk to your professional financial advisor, as each situation is unique.

Related articles

• Free Annual Mortgage Checkup! A good idea. (bokauffmann.com)
• Mortgage Broker: The primary source for new mortgages (bokauffmann.com)
• Mortgage Rates: Why ‘Variable’ Rates may be a good choice (bokauffmann.com)

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Mortgage Insurance: What are your options?

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Credit to Feathered Tar photostream on flickr

Buying a new home is an exciting experience because it represents your hopes and plans for the future.  For most Canadians, it also means having a mortgage and making regular mortgage payments.  Often the financial institution you have your mortgage with will offer you mortgage insurance.  Is it the right thing to do?  Does it offer the protection you need?

What is mortgage insurance?

Mortgage insurance pays off the amount left owing on your mortgage if you pass away.  Here are some facts you should know before deciding on how best to ensure that your mortgage is paid off in the event of your death:

-        The amount covered by mortgage insurance decreases as the amount owing on your mortgage decreases.  However, premiums DO NOT decrease, they remain the same.

-        The insurance proceeds are paid directly to the financial institution.

-        You may not be able to take your insurance with you if you move your mortgage to a new mortgage company.  This means having to provide current medical and health evidence to become insured.

-        You may not be able to insure both you and your spouse if the mortgage is registered in only one person’s name.

What is the alternative?

Having your own individual life insurance policy offers you the protection of covering your family’s financial needs including your mortgage in the event of your death.  You also have the flexibility of naming a beneficiary of your choice.  Your family may decide to use the benefit to pay down a low interest mortgage and invest the rest.  Or they may need the finds to cover other expenses.  The choice is theirs.

Also, it’s important to remember that since you have an independent life insurance policy from your mortgage, you can transfer your mortgage from one lender to another without affecting your coverage.  You can also choose between temporary insurance and permanent insurance which can be a part of your long term financial plan.  You are able to insure both spouse for whatever amount you’d like so that you can cover other debt or financial needs as well.

The choice is yours but having a discussion with someone that is well versed in both options is important.

To discuss your best options for Mortgage Insurance, please call me anytime.

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Mortgage Broker: Now the primary source for new mortgages!

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Photo by Feathered Tar on Flickr Photostream

A Fall 2010 study commissioned by the Canadian Association of Accredited Mortgage Professionals (CAAMP), in collaboration with Maritz, reveals that Canadian mortgage debt has exceeded one trillion dollars, an increase of 7.6 per cent over the same period last year. CAAMP expects this debt load to continue increasing, but at a slower pace.

The study highlights the excellent value provided by a mortgage broker (options from a wide range of lenders, expertise), with 40 per cent turning to a mortgage broker as the professional of choice for their new mortgages. Clearly, today’s generation of home-buyers are very savvy about seeking out options. They don’t feel like they’re tied to a particular bank. No one “owns” them, in their view.And when it comes to all homeowners with a mortgage, 40 per cent consulted a mortgage broker when shopping for their financing, up five per cent from last year.

Overall the report points to a healthy mortgage and real estate market in Canada. Some of the highlights include:

• The vast majority (84 per cent) are able to afford increases of $300 or more in their monthly mortgage payments.
• Overall home equity is at 72 per cent, and for homeowners who have mortgages, home equity levels average 50 per cent.
• Over one third of mortgage holders are making voluntary additional payments: 16 per cent have increased monthly payments during the past year, 12 per cent have made lump sum payments, and 7 per cent did both.
• The majority (66 per cent) continue to choose fixed-rate mortgages, highlighting the general conservatism of Canadian homeowners.

A Mortgage Broker can help

According to the study, 18 per cent of mortgage borrowers took advantage of their property’s value to take equity out of their homes .The most common purpose for equity take-out is debt consolidation (45 per cent), home renovations (43 per cent), purchases or education (19 per cent) and then investments (16 per cent). Several respondents used their equity for a combination of these purposes.

This increase in mortgage debt is not necessarily negative. It makes sense for many homeowners to refinance their high interest debt at today’s low mortgage rates, which allows them to save considerably on interest costs and boost their cash flow if needed.  Home renovations not only improve the quality of life for homeowners, they very often increase the value of the home (see http://www.aicanada.ca for tips on which renovations have the greatest payback). And of course, when borrowing to invest, the interest on the amount borrowed may be tax deductible (a tax and investment professional must be consulted when borrowing to invest).

Overall, the Canadian housing and mortgage market is sound, and Canadians continue to appreciate that real estate is an excellent long-term investment.

For your mortgaging or re-financing needs, consider using a Mortgage Broker.

Related articles

• Mortgage Broker: Top questions a home-buyer should ask (bokauffmann.com)
• Free Annual Mortgage Checkup! A good idea. (bokauffmann.com)
• Mortgage Rates: Why ‘Variable’ Rates may be a good choice (bokauffmann.com)

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Mortgage Rates: Variable is a good option!

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Photo by Christopher Chan on Flickr

It’s been a great ride! Canadian homeowners have been benefiting from ultra-low mortgage rates over the last two years. Unfortunately the time has come: the rate climate is starting to heat up. As the Prime lending rate starts to gradually increase toward more normal lending rates of 5% to 6%, do variable mortgage rates still make sense? Of course the answer depends on your own personal situation, but there are definite compelling reasons to choose variable mortgage rates.

Fixed-rate mortgages play a significant role with many Canadian homeowners, particularly those who may lose sleep wondering what will happen next with rates. Fixed mortgage rates are also ideal for those on a very tight budget; a fixed rate gives you the security of knowing exactly how much your mortgage will be so you can plan accordingly. Many first-time homebuyers are choosing fixed mortgage rates for this reason.

For those who are not on a tight budget,  variable mortgage rates can be a wise financial move, even in a rising rate environment. Lenders offer variable-rate mortgages at the Prime lending rate minus a certain percentage, which varies by lender. So as the Prime rate increases, so will your mortgage payments. How fast Prime will increase will be determined by inflation and other key economic factors. Studies have shown that most Canadians hold their mortgage for 15 years or longer, and that over the long term, less overall interest is paid with a variable-rate mortgage. If you believe that minimizing the total amount of interest you pay over the life of your mortgage is an important goal, then the case for variable-rate mortgages is very strong.

The question to ask is: what do you want to pay right now – a lower variable rate, or a higher fixed rate? Prime rate increases tend to be gradual so it can take several Prime increases to reach current fixed rates. In the meantime, you can keep your savings for lifestyle, investments or to pay down your mortgage! Let’s compare using today’s rates for a $250,000 mortgage, assuming Prime increases 0.50% per year:

5-year Fixed Mortgage Rates (3.69%)

Monthly                         Interest
Year            Payment            Balance            Paid

1                   $1,273            $243,770            $9,051

2                   $1,273            $237,309            $8,819

3                   $1,273            $230,607            $8,578

4                   $1,273            $223,655            $8,329

5                   $1,273            $216,444            $8,070

Total Paid:  $76,380            Total Interest: $42,847

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5-year Variable Mortgage Rates (Prime -0.7%)

Monthly                         Interest
Year                      Payment            Balance            Paid

1 (2.30%)            $1,095             $242,502            $5,644

2 (2.80%)           $1,155             $235,298            $6,659

3 (3.30%)            $1,215            $228,326            $7,608

4 (3.80%)            $1,274            $221,531            $8,482

5 (4.30%)            $1,332            $214,861            $9,312

Total Paid:  $72,852        Total Interest: $37,705

Difference in total payments                        $3,528

Difference in interest paid                            $5,142

Difference in total balance                            $1,583

Total Savings                                                $10,253

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In this case, choosing variable mortgage rates allows you to keep $10,253 over those five years, even though the Prime rate was rising. Of course, the Prime rate could increase faster than what has been used in this example. Since no one can accurately predict interest rate movements, your best bet is to have a good conversation with an experienced mortgage planner who can help you assess your own situation, and determine if a variable-rate mortgage is right for you.

If you would like to discuss your options when it comes to Mortgage Rates, be sure to consult a professional who has your best interest at heart.

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