Closing Costs on a Home Purchase

“How much are closing costs?”

This is one of the most common questions asked by anyone purchasing a home.  Your lawyer can give you an exact amount a couple days before closing.  You still may wish to have an estimate so I have broken things down a little bit for you so you won’t get the closing costs shock when it is too late.

For this example we will use a home that has a $400,000 purchase price with estimated property taxes at $4,000 with you using 5% as their down payment. 

1.       $800 Lawyer Fee

2.       $300 Title Search (aprox)

3.       $350 Title Insurance

4.       $150 Title Registration

5.       $836 PST on CMHC Premium

6.       $2,475 Land Transfer Tax (add $2,000 if not a 1^st time home buyer)

7.       $1,000 3 Month Property Tax Pre-payment

8.       $450 Disbursements (tax certificates, couriers, faxing and long distance calls)

9.       $333 Reimburse Seller pre-paid property tax

10.     $6,694 Total Closing Costs.

1.  The Lawyer fee can vary between different law firms and lawyers.  The cheapest is not always the best option.  There is a lot of work a lawyer must do to protect your purchase.  Don’t be shopping at Wallmart for a lawyer.

2.  Title search can vary in price, basically the lawyer has to check to make sure there are no liens or judgements against the home and you are taking it over free and clear. 

3.  Title insurance is to protect you and the lender from unforeseen issues such as a fence built in the wrong place your new neighbour is disputing, a previous owner not being properly discharged from title and it also protects you from fraud.  It is best to discuss this insurance with your lawyer.

4.  Title Registration is basically adding you as the new owner and registering any mortgages or rental items on the property.

5.  One fee that fluctuates from deal to deal is the PST (yes PST) on the CMHC (mortgage insurance premium).  On a 400k home with 20k down that premium would be $10,450.  This added to the mortgage balance so $400k - 20k + 10.45k = $390,450 mortgage.  Now the PST calculated at 8% of the $10,450 is $836 which will be added to closing costs.  MortgageInsurance

6. There is also land transfer tax to be calculated.  On a 400k purchase land transfer tax is $4,475, but let’s assume we have a 1^st time home buyer who receives the 2k discount.  Land transfer tax is now $2,475 to be added to the closing costs.  

7.  Most of the time when a home is purchased with 5% down the lender will pay property taxes on the clients’ behalf, added to the mortgage payment.  They will pre-pay these on or just after closing for up to 3 months.  Which in this case will be $333.33 X 3 = $1,000 added to closing costs.

8.   There can also keep disbursements which are basically additional costs the lawyer may have come across and the basics such as tax certificates, couriers, faxing and long distance calls.  Let’s put these at $450 for this deal.

9.  One last thing is the adjustments.  This mainly comes into play when the seller has pre-paid their taxes.  If the seller has pre-paid a month in advance that means the new buyer will have to reimburse the seller $333 which will be added to closing costs as well.  This amount may be adjusted from the three month pre-payment to your lender.

10.  Bringing in the total at $6,694. Keep in mind it is virtually impossible to give an exact quote of what closing costs will be.  Even a lawyer cannot give an exact number until all the paper work is in and ready to complete a day or two before closing.

Regardless of what closing costs actually are the lender will require documents showing that you have 1.5% of the purchase price in your bank account.  On a $400,000 home, that would be $6,000.  Along with the 5% down of $20,000 you would need to show ownership of $26,000.

Feel free to contact me if you have any questions or concerns.  Or need someone to help you with your mortgage needs.

 

Ron Miller
905-667-0699
1-855-684-8326
ron.miller@butlermortgages.com
YouTube Hamilton Broker
@HamiltonBroker

Mortgage Penalties

One of the biggest questions people need to ask when getting a mortgage is what will be my penalty if I break the mortgage.

This is so huge, seriously even more important then the interest rate you receive.  Within reason.

The mortgage penalty you receive if you break your mortgage can be calculated in many different ways.  Unfortunately our Minister of Finance, Jim Flaherty is not looking at protecting consumers, just protecting the big 5 banks. 

Below is a basic explanation between IRD (interest rate differential) and a three month interest penalty.

Let's take a quick look at 3 most popular ways on how mortgage penalties are calculated, imagining you are 2 years into a 5 year term with a 3.29% rate with a balance of 300k on your mortgage.  The lenders best current rate is 3.49%, bond yields are at 1.49% and posted rate at 5.29%.

• Lender A:  Your current rate compared to the posted rate.  Posted rate at 5.29% - 3.29% = 2.00%, so basically your penalty will be 2% amortized over the remaining three years, or to put it in reality $17,102.37 IRD plus discharge and/or re-investment fees $300 to $1,000.  Ouch!
• Lender B:  Your current rate compared to bond rate.  Your rate 3.29% - 1.49% bond rate = 1.80%, so your penalty will be 1.8% amortized over the remaining period which will work out to $15,379.94 IRD plus discharge and/or reinvestment fee.  Shitty!
• Lender C:  Your current rate compared to the lenders best discounted rate.  Your rate being 3.29% and the banks discounted rate at 3.49%.  You can see that if you broke your mortgage the bank will actually be able to lend that money out at a higher rate so the penalty will simply be 3 months interest or $2,445.46 plus discharge and/or reinvestment fee.  Much better!

Now let's just say you can get a lower rate and a Lender C.  That's a good deal plus if rates do drop you have a lower rate that a IRD will calculated on.  If rates go up your penalty will simply be 3 months interest. 

Rate is important but if you look at Lender A, is having a good rate going to benefit you if you break your mortgage and rates go up?  NO!!  It will make matters worse as the gap between posted and your discounted rate is bigger.  It should be illegal.  The bank is double dipping by charging you a massive penalty then lending that money out at higher rate.

With lender B markets would have to increase significantly before the spread between your rate and the bonds will be eliminated.  In the world we have now I would not be expecting that to happen.

Let's look at one more thing.  Let's say your favourite bank offers you a rate that another lender can't match.  (FYI, I'll always beat it.)  There is a difference 0.10% which works out to $15.61 a month, over the two years you have had your mortgage that is a total of $374.64 you would have saved.  But you decided to go with Lender A for the cheaper rate but life threw a curve ball at you and you have to break your mortgage.   Sorry, you are screwed, literally.  Me personally I would look at the higher amount as an insurance premium protecting myself.

You never know what life will throw at you.  There are many reasons mortgages must be broken, unexpected job loss, unexpected child or expected, could be work relocation, money needed for medical, a bigger home needed.  Whatever.  Most people say they will not move or break their mortgage but 75% of 5 years terms are broken within the 1st three years.

The best scenario is the best rate and terms, that is why you call me.

PROTECT YOURSELF AND FAMILY, talk to someone who is truly looking out for your best interest and wants referrals from you and your family and is looking for clients for life.

Let me know if this was helpful, thanks.

Till next time, have a great day.

Ron Miller


905-667-0699
1-855-684-8326
ron.miller@butlermortgages.com
YouTube Hamilton Broker
@HamiltonBroker

Divorce and Mortgages

The purpose of this post is to inform consumers that you can refinance up to 95% in a divorce situation if one spouse wishes to buy out the other from the matrimonial home.  The relationship could also be common law, you do not have to be legally married. 

It is a process that not many lenders are willing to do with the new mortgage rules maxing refi's at 80%.  In fact most people in the industry do not even know it can be done.  There has been a provision put in place by the family law act allowing one spouse to take over the home from the other.  Because of the 80% refinance rule families were forced to sell their home in order to split up the equity, which is really unfair especially if children were involved.  With this new rule it can make the transition for children much easier.

There must be a legal separation agreement in place in order to do this.

Any equity that is left over can be used to pay off the other spouse if that is in the agreement. 

Of course you have to fully qualify on your own with acceptable credit and income.  Alimony and child support do qualify as acceptable income.

The existing equity is used as the down payment and closing costs.

It is expensive enough getting seperated or divorced especially if you have to pay huge real estate fees.  Average commission in selling a home is 5% + HST, it is much cheaper if one of you can keep the home.

If you are in this situation and would like to know more feel free to contact me which ever way works best for you.  You can also fill out the mortgage application if you wish to get started right away, I will contact you immediately, provided I am not golfing.  If you prefer doing things in person I have an office in Mississauga as well as Hamilton or I can meet you at your home.

There is no charge from me on this type of mortgage provided we can use an "A" lender and a minimum 5 year term is used.  There may be an appraisal required, not always.  Also a lawyer must handle the transaction.  We walk you through the whole process, it is actually quite simple. 

I can only service clients in Ontario Canada.  If you are in another province feel free to ask for a mortgage agent in your area and I will do my best to find one.

Till next time, have a great day. 


Ron Miller

905-667-0699

1-855-684-8326
ron.miller@butlermortgages.com
YouTube Hamilton Broker
@HamiltonBroker

Purchase Plus Improvements

You can view all my videos on You Tube at HamiltonBroker.

This program is excellent if you are looking to do some renovations on your new home purchase.  Purchase plus improvements allows you to renovate the kitchen, install a new furnace or central air system, possibly your dream home is perfect except the roof is in dire need of repair.

It is really important for Realtors to be aware of as well.  Their clients found the perfect home but the kitchen is 25 years old, you can still make the deal work.  In this case it is really important to have a mortgage broker on their side that really knows how to put deals together.

So let's just say that you found the perfect home but you need a new kitchen.  Let your mortgage broker know that you want to do purchase plus improvements.  This does not change your pre-approval as long as you qualify for the extra amount.  Here is a brief step by step of the process.

1. Put in your offer and get it accepted.
2. During your 5 days you have to get financing approved.  Inform your broker that you want purchase plus improvements when you hand him/her your offer.
3. Get a quote ASAP to give to your broker for the work you want done from a licensed contractor. (Some lenders may want 2 or 3 quotes).
4. An appraiser will go to check the work you have requested and send their report to the broker or lender.
5. You get your approval for the purchase plus improvements.
6. On closing your lawyer will hold back the extra funds required for the improvements you want done.
7. Have your contractor complete the work and once it is done the appraiser will return and verify the improvements are completed, then at this point the lawyer will release the extra funds to you.

There is a few things to keep in mind.  Money will NOT be released until verification that the improvements are completed.  If you do not have a contractor who is willing to wait to get paid then this program will not work unless you can pay for everything up front first.  If you tell your broker that you want a new roof, than make sure that is what you fix.  You cannot turn around and say, well we changed our mind we wanted a new bay window instead.  Purchase plus improvements does not include appliances, a new pool or car.  It must be improvements to the home.  You can check out Genworth or CMHC is your want to read up a little more.

This program is really handy if you find your perfect home but just need a couple things updated.  If this is for you feel free to get a hold of me and I will see what we can do.

Ron Miller
905-667-0699

1-855-684-8326
ron.miller@butlermortgages.com    

Renewing your Mortgage Early, Cap It!!!

You can view all my videos on You Tube at HamiltonBroker.

Renewing a mortgage early usually happens when you want to take advantage of lower interest rates or you want to switch to a variable rate from a fixed.  Also a lot of financial savvy people will also purposely switch in the middle of their term simply to extent the low rates that they have.  If you have a variable rate and want to switch to a fixed and your current bank is not offering you a competitive rate, this is definitely a time to do a switch.  A family that plans on having a baby will also use this plan to secure low payments for a longer term, especially if they are going to lose an income if someone decides to stay home and look after the baby.  If you plan on getting pregnant and have a mortgage, plan wisely.

There are costs involved with switching early.  You will most definitely have at least a three month interest penalty.  Banks are even approaching their clients 6 to 8 months before their renewal is up and asking them to renew early and not even offering to waive the penalty.  The penalty may also be more than three months if you have a high interest rate than what is being offered at the time you are looking to switch.  In which case it will be an IRD penalty, interest rate differential.  This is the amount of money that the bank loses if you break your mortgage early.  If you have 18 months left on your mortgage and you have a 5% interest rate and the current rate is 4% you will be charged 1% on the remaining 18 months which will work out to around $3,000.  Depending on the size of the penalty and your long term savings or piece of mind will determine if you should renew early.  There is also a discharge fee or around $250 to release your current lenders charge from title.  If you do decide you wish to renew early call your bank and ask if they will waive all penalties and fees.  If they won't?  Because they can.  That is when you call me.  Why stay with them if they aren't looking after you?

These fees bring to the purpose of this post.  Some lenders will allow you to cap your mortgage to avoid having to pay these fees out of pocket.  Simply add the penalty on top of your current mortgage without having to refinance when you switch, "cap your mortgage".  The few lenders that allow this, do it for one simple reason, to get more business.  Because lenders allow the cap, it saves the additional costs of having to get a lawyer and it saves you from having to pay up front for your penalty and discharge fees.   There is limitations to how much you can cap, so contact me to see how it will work for you.

If you have any questions please do not hesitate to contact me or leave a comment.

Ron Miller
905-667-0699

1-855-684-8326
ron.miller@butlermortgages.com    

What Does a Mortgage Broker Do?

A good mortgage broker basically takes your situation and finds a lender who will give you a mortgage at the best terms and rates. From one point of view you are basically hiring your own agent who will go to different lenders and sell your story. And 90% of the time you are not paying for this service.

Rate Shopping

You may have the perfect scenario with credit, income and down payment, so you are basically hiring us to find you the lowest possible rate with terms that meet your needs for a pre-approval on your home purchase. If you already have a mortgage it is a good idea to be signed up with a broker regarding your renewal date. Often banks will not send out your renewal letter untill a week or two before you need to renew which then puts you in a bad spot with not much time to negotiate. Yes you can negotiate with a bank. If you have your mortgage on a watch list with a broker who deals with many different lenders than basically over a 120 day period you are looking to secure a low rate that can save thousands over the course of five years. $40 or $50 a month in savings could go straight to other investments or a child's school fund.

Possibly you did get approved but have no idea if you recieved a competive rate. Find out.

Bank Turned you Down for a Mortgage

Your situation may be a little different with one of the three pillars (credit, income or down payment) a little damaged or insufficient and your banker or another broker has told you no, you cannot get a mortgage. At this point is when you contact a well established brokerage. If you use a brokerage that is filing 50 to 100 mortgages a month you know they have a very broad spectrum of lenders they are using which opens up opportunity for you. A brokerage has to meet a quota at most of the lenders they deal with, so if thier numbers are low, you know they are using a limited number of lenders.

Take for example if your credit was damaged due to a divorce, illness, a tough emotional time in your life or any number of reasons. We will actually look at your credit history over the last six years and go to lenders with a reason this happened and litterally do our best to talk them into giving you a mortgage. It may take some time or we may have to help you with some credit repair, but if you are pro-active you will enjoy home ownership.

Possibly you are on a salary but it is not high enough to purchase what you want, but you have a large amount of investments. Your net worth will get you a mortgage. Maybe you work part time and have had four different jobs over the last two years. Did you know you can still qualify? Maybe you are on a contract and your bank has turned you down. Did you know you can still qualify? Maybe you work at a temp agency? Yep still qualify. Your ex won't give you a seperation agreement? We don't care, you can still qualify. Self-employed? Many different options here.

Every single lender has their own little rules aside from the mortgage insures. Just because one lender does not like your situation do not give up. Someone will want your business.

Often when applying for a mortgage at a bank someone will take your application and send it away for approval at central underwriting. If it comes back declined, they may not even know why and you have no idea why. Find out why.

Get educated and get a game plan, we will help.

If you have any questions please do not hesitate to contact me.

Ron Miller
905-667-0699
ron.miller@butlermortgages.com

Refinancing, Debt Consolidation

People refinance thier homes for many reasons; starting a new business, clearing out credit card debt, renovating or property improvement, putting a child through school or just to take advantage of low interest rates. Sometimes refinancing makes sense for people retiring, they may not have the home paid off for whatever reason and at retirement they take a big hit on income. So why not stretch the amortization to the max and enjoy the golden years without feeling a financial pinch.

Refinancing is actually pretty simple, you just break one mortgage and get another one. In order to find out if it is best for you, it is a good idea to speak with someone who will explain all the pros and cons. We have all seen those flyers in our mailboxes that explain the savings when you consolodate and for the most part they are true, but rarely will they tell you the costs associated with it.

Refinancing Fees

There will be legal fees, usually about $1,000 and a penalty. The penalty can be just three months interest or interest rate differential. If your rate is higher than your currents lenders discount rate then they will penalize you the differnce in money they lose when you break your mortgage. If you are on good standing with your lender they may waive this penalty for you. If they don't why keep giving them your business?

Another thing, in most cases there should not be a broker fee. Occasionally there will be depending on your credit, income and equity in the home. Generally if the deal is going to a "B" lender you can expect some sort of fee. Make sure you know what it is when you get the approval, do not find out a rediculous broker fee is being charged when you are signing the papers. A mortgage insurance premium may also apply if you are refinancing over 80% of your homes value.

It is a good idea to sit down with a mortgage broker or call one to see if the costs make sense to you. If you are saving money or if it is going to cost you money. It could be the piece of mind you recieve is worth the extra costs. With interest rates as low as they are you can save a lot of cash over a five year term, and easily justify the costs, especially if you have high credit card debt.

We can finance up to 85% or your homes value, feel free to call me if you want a quick estimate on your home to see what is possible.

I hope this helps, feel free to ask questions or comment. Email or call for privacy.

Ron Miller
905-667-0699
ron.miller@butlermortgages.com

Self Employed Mortgages

You can view all my videos on You Tube at HamiltonBroker.

I should have made this post weeks ago, as many people are switching their careers to self-employment to gain more control of their life. Contrary to popular belief getting a mortgage while self-employed is not as hard as you may think. I have heard people thinking they need 20% down, they have to pay higher interest rates and even heard that “B” lending is their only option.

I will explain the easiest way for the self-employed to get a mortgage first. If you have been self-employed long enough to have two years’ worth of taxes completed, owe no taxes and have claimed sufficient income to qualify for what you want to purchase. You will fall into the same category as anyone who is employed with a regular job, you can buy with 5% down. The only difference is the document collection, instead of us asking you for a job letter and paystub, we will want two years NOA’s and your T1 Generals. We do add 15% to your income to offset the amount you have paid in taxes. The same mortgage insurance fees apply if you are putting down less than 20% and you can still get the best rates. Always ask a broker up front if there will be a fee, in this case there shouldn't be.

If you haven’t claimed enough income and do not qualify to purchase a home there is still an option for you. With less than 20% down the mortgage insurers have a self-declared income program. Basically you make up a number for your income, but don’t get too carried away we will have to provide your business financials to back it up. We will still need your NOA’s to show that no taxes are owed. With this program you need a credit score of at least 680 and a minimum of a 10% deposit. You do have to pay a higher CMHC premium, but I guess that offsets the amount of money you have saved in taxes. When clients complain about this premium we basically tell them to redo their taxes and show enough income to qualify without the self-declared program. They always pay the premium, which is just added to the balance of the mortgage. Again there should be no fee for this service.

The third way to get a mortgage as self-employed can have a book written about it. There are many variables that come into play. But basically it is a conventional mortgage or an equity mortgage which is a mortgage with 20% down or more and is uninsured. With these types of mortgages there is more risk to the bank because they are not insured by the default insurers; however, the larger the down payment the less risk there is for the lender. The rate you receive on these mortgages will depend on your credit score and size of deposit. With an equity mortgage almost anyone can qualify if the down payment is large enough, self-employed, bad credit, taxes owed, commission earnings and to be quite honest, you can have no income at all. If you do fall into this category don’t think you are alone, there is plenty of people here. There is an entire industry in the mortgage world based around this type of lending. This type of mortgage often requires a fee from a broker, make sure you ask up front what it will be, do not find out what it is the day you sit to sign the mortgage papers. "B" lenders often do not pay the brokers very well compared to the amount of work required to put one of these mortgages together.

I have just explained the basics, if your situation requires a little special attention feel free to contact me and we can send you in the right direction. If this has been a help to you, please let me know. Be the first to comment.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

Down Payment Requirement, Cash Back Mortgages

You can view all my videos on You Tube at HamiltonBroker.

This post is mainly aimed at explaining the cost associated with the size of the down payment you use to purchase a home. The ideal amount is 20% or more because then you can avoid default insurance premiums. You can buy a home with no money down, which is now referred to as a cash back mortgage, but it can be a risky way to get into home ownership, although it is sometimes the only choice. There is not longer 0% down payment in Canada, this was removed to help prevent a collapse in the Canadian mortgage market, such that happened in the States. You can still buy a home without a down payment it is just referred to as a cashback mortgage.

For the purpose of this post let's just look at a $200,000 purchase price for a owner occupied home, at 4% interest on a five year fixed with a 25 year amortization. If your down payment is 20% ($40,000) you will not have to pay any default insurance fees. There is a sliding scale for how much the default premium will be with less than 20% down. You can view this chart from CMHC "here". Not very many people have a 20% down payment when they are starting out so most do end up using mortgage default insurance.

Now for a 200k purchase with 5% ($10,000) down you are looking at an insurance premium of 2.75% or $5,225. This amount is added to your mortgage balance and works out to be $27.48 monthly integrated into your mortgage payment. You also have to pay $418 PST on this amount on closing as part of your closing costs. The total monthy mortgage payment would be $1,026.92.

Let's say you do opt for the 5% cash back. Your insurance premium will increase to 2.90% ($5,510) as well your interest rate will generally increase to the bank posted rate which is currently 5.69%. This higher interest rate is put into place so the bank can recoup the 5% cash back within 5 years. This increase in rate over 5 years works out to $188.17 monthly or $11290.20. Now remember you are paying back the bank your 5% ($10,000) down payment so it is actually costing you $1,290.20 ($21.50 monthly) to borrow the down payment. After 5 years you are free to switch lenders and return to normal interest rates.

One thing you want to keep in mind when considering this type of mortgage is your ability to break the mortgage. When you sign mortgage papers at a lawyers office you are entering into a contract. If you break this contract there is penalties either 3 months interest or interest rate diferential, whichever is greater. So lets say after two years you wish to sell the home and move to the islands. (P.S. I just added the link to be cute, they aren't paying me.)

Pretend current rates are around 4.5% you are still at 5.69%. The interest differential is basically the amount of money the bank is losing based on your interest rate compared to current interest rates. This is 1.19%, so the bank will calculate how much this is and charge you based on the remaining 3 years, basically about $6,700. Plus you will have to pay back the remainder of the down payment still outstanding, around $6,000, a total of $12,700. The average home increase in value about 4% a year which will give you an additional $16,320 of value but with a 5% Realtor fee and lawyer costs this adds up to aproximatley $25,700 to sell your home. This does not leave you with much left over.

Lets look at the numbers:

$200,000 Purchase
-10,000 Borrowed down payment
+ 5,510 Insurance premium
$195,510 Mortgage balance

Two years later you decide to sell your home is now worth approximately $216,320. From this amount you need to subtract all costs to see where you stand.

$188,000 Aprox. current balance
+12,000 Realty fees and taxes
+1,000 Lawyer costs
+6,700 Penalty
+6,000 Remainder of down payment
$213,700 To sell

You may if your lucky end up with $2,500 in your pocket and this is assuming the market does increase in value.

If you decide to sell and move up to a bigger home your bank may allow your to do so and give you a blended rate if you have enough equity in your home or additial funds for a large enough down payment.

Often people will recieve gifts from parents to use as the 5% down to avoid the extra costs. Not everyone has this option. There is 1-4% cash back options if you have some money.

I am a fan of the 5% cashback mortgage as long as people are aware what they are getting into and accept the reality and understand the big picture. It is a good way to get into home ownership especially if you are starting a family and do not have the time to save.

Feel free to reply or ask questions.

Thanks,

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

What is a Collateral Mortgage?

Let’s first look at a regular mortgage. You will know what your interest rate will be for the term you have chosen. As well you will know what your payments will be how much you will have paid off at the end of the term. At the end of the term you are free to switch to another lender at generally no cost or a very small cost ($200) usually covered by the new lender or your broker. Also should you need extra money you are free to apply for an additional secured line of credit on your home.

Now a collateral mortgage is basically a line of credit against your home for up to 125%. So there is a lein against your home and you can no longer apply for additional credit from anywhere else except the bank that gave you the collateral mortgage in the first place. At signing time the bank will not recommend you receive legal counselling nor will they fully explain the disadvantages of a collateral mortgage. Then, if and when you decide to borrow up to 125% on the home you may not qualify and signed into the mortgage for no reason. Now this is where banks lock you up and basically through away the key on your finances, and leave you with no choices. Additionally this is how the banks are getting around the stricter guide lines the government has set up to avoid having a mortgage meltdown in Canada like the US.

Most lenders will not accept a transfer of a collateral mortgage and in order to get out of it you have to pay hefty fees. If you owe more than the guidelines set out by the government on your home you are stuck and cannot transfer anyway. At which point the banks can increase your interest rate to whatever they want knowing you are stuck with them. Now let’s say you wish to move? Umm, maybe you owe more on the home and cannot sell it, will the bank allow you to transfer the collateral mortgage to a new home? What if you missed a payment? You could be stuck and have a bank dictating to you what you can and can’t do, even where you wish to live.

Basically I am saying do not get a collateral mortgage, you are giving away your freedom. If you would like to read a little more, and see another scenario "click here".

If you currently have this type of mortgage it may be in your best interest to speak with a lawyer or mortgage professional to see if you can return to a normal mortgage.

If you have any questions or concerns, feel free to contact me.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

Mortgage Pre-approval

A mortgage pre-approval is the very first step in buying a home. It is also the most important step; it can save you thousands of dollars if you chose the right broker. This is the point where you find out how much purchasing power you have and what it will actually cost you to buy a home. If you decide you want to do this at a bank make it absolutely certain that you receive a pre-approval certificate. Often banks only do a pre-qualification which can cause you a lot of headaches if they are not thorough enough. (Pre-qualification does not include a credit check.)

With a pre-approval certificate it is almost like buying with cash and can give you more bargaining power because your Realtor may present it during an offer presentation to show your ability to purchase the home. Even more so if it is from a reputable mortgage broker such as Butler Mortgages.

First Time Home Buyers

For first timers you want to be certain your broker is really taking the time to explain the process, if you do this in person you want to make sure you are able to spend at least an hour with your broker. It really only takes 10 minutes to do the application, but your broker should take the time to explain the process in detail and answer all your questions.

Buying and Selling, Upgrading?

It is just as important to get a pre-approval in this case. Imagine if you sold your home and went and put in an offer on another home and your lender has told you there is a problem with your credit. Now what? Basically you are screwed!!! Your credit could be damaged from something you had nothing to do with, you could have a common name and something was accidently put on your bureau that should have gone on someone else’s. Creditors do make mistakes and quite often. We are known to save deals like this if you are currently experiencing this problem.

The Pre-approval Advantage

When you find a home and put in an offer, you usually have 5 business days to secure your financing. That does not give you a lot of time to shop around and decide which type of mortgage you want. If you are pre-approved ahead of time, you have already secured the best financing with the terms you want. Remember one lender may have the best fixed rate but their variable may not be that good. So a broker will find which lender suites your needs and offers the best terms for you. Keep in mind if you have a pre-approval, the 5 business days to secure financing is usually to secure financing against the home, the property is being approved not you. However, if your down payment is less than 20% and you need default insurance. CMHC and Genworth (mortgage default insurers) do not do pre-approvals, only the lenders do. This is another reason you make your offer conditional on financing especially if your credit is fairly new or a little rough.

Finding a Realtor

Once you have your pre-approval it is time to find your Realtor. If you do not have a Realtor we can definitely help you find one or refer one to you. It is a good idea to use one who is very familiar with the area you are planning to move to. Also the type of property you are looking at buying. Some Realtors concentrate on condos and know everything about them; others are more into the single family homes or investment properties. Maybe you want a farm? You may not want to use a condo Realtor for a farm purchase. The knowledge of a Realtor in a specific area and/or type of property can be a huge benefit to you.

Basically a pre-approval by a good broker gives you the edge as well as knowledge. Knowledge gives you confidence and piece of mind. If you would like to recieve a pre-approval certificate or need help finding a Realtor, feel confident in calling us.

You can fill out the application online by clicking here and request it be sent to me by selecting my name at the bottom of the application. Still, it is best to come into one of our offices and discuss it further.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

Rent To Own

A rent-to-own can be beneficial to some people and it can also be a complete disaster for others. If you are considering a RTO you really need to do some research and if you are not aware of what you are supposed to be researching I will give you a few ideas. Also it can be pretty hard to properly qualify for a RTO, although some people holding these properties will tell you no credit needed, income doesn’t matter, down payment not required, whatever; in these situations you are almost guaranteed to lose your money.

What is a Rent To Own?

A RTO is basically a purchase agreement. This means you agree to buy the house at a certain date. It is a contract. If you do not fulfill the requirements of the contract you risk losing all your deposit and your purchase credits.

Who is a RTO for?

The majority of people who should only be considering a RTO are people with money and income, with bad credit that is fixable within two years. Possibly you may have a large insurance settlement coming within two years.

How does a RTO work?

Generally you put a 5% deposit down and agree to buy the home at a pre-determined price at the end of the RTO term. You will pay monthly rent plus an extra amount called purchase credits that will go towards closing costs and your down payment.

Do I qualify for a RTO?

If you are considering a RTO chances are you credit is not the prettiest. You need to see your credit rating and consult with a professional to see if it can be fixed within the RTO term. Also will you qualify for a mortgage at the pre-determined price at the end of the term? Take this into consideration; you make 40k a year, the RTO property is 200k and you agree to buy it in two years at $210k with 5% down, most likely your credit score is under 680. You will not qualify! You will lose your 5%! You will lose all your purchase credits! You will be on the street!!!

Most investors who offer RTO’s are stand up people and really want to help you. It makes them feel good that they are helping someone. They will have you sit down with a mortgage broker before you sign any papers. There are a few who want to see you fail so they can say next and get another sucker into their home and take another 5% and charge them an inflated rent with so called purchase credits. Only 35% of RTO’s actually end up in a purchase. Why? Mostly, the others were not properly qualified.

I am a fan of the RTO program but only if it works for both the purchaser and the investor. We have investors available that you can trust. Don’t be a sucker, find out where you stand and what you’re best options are.

If you are a Realtor with a client who you feel the RTO program will work with, you will be the agent who handles the purchase of the property for the investor.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

Mortgage Life Insurance vs. Term Life Insurance

The purpose of this post is simply to engage awareness regarding life insurance options. By no stretch of the imagination is this expert advice. I do not have a license in the insurance industry and I strongly recommend you speak to an experienced licensed professional.

When you are asked to sign mortgage papers, your mortgage broker or banker will ask you about mortgage life insurance. You then have to decide if you want it or not. The other option is life insurance, which is not connected to the home.

With mortgage life insurance you pay a monthly premium and if you perish the balance of your mortgage is paid off. With term life insurance you have a set policy amount and that does not change for the length of the term. If you have a $200,000 mortgage and you have mortgage life insurance in 10 years you may have a mortgage balance of $160,000, which will be the amount that is paid out. With term life insurance if you took out a $200,000 policy that will be the amount that is paid out. Usually the premium payments are about the same, you just need to decide what is the best value is for you.

One thing I want to make VERY clear. If you purchase mortgage life insurance with the lender that is holding your mortgage and you decide to switch lenders at your renewal for a better rate you will also have to re-apply for insurance as well. Now you are five years older, you may have had a minor or major health issue. Now what? How much will your new premium be? Maybe you can’t even get insurance. You are stuck with whatever rate your lender offers you because you can no longer get insurance. Most of the time if you bought your insurance from your mortgage broker it is transferable to a different lender. As well sometimes a bank will sell you transferable insurance, you just need to check your policy or have a qualified person check into it for you.

There are times when you may want the mortgage life insurance. You have not had the time to speak with an insurance specialist and are signing your mortgage papers. Once you sign that paper with your bank or mortgage broker and/or it is sent in for processing you are covered, even if your closing date is still three months away. After you have spoken with an insurance specialist you can then cancel the mortgage life insurance. You may also want to sign as extra coverage, sometimes there may be little perks with the mortgage life insurance that suit your needs.

There are other options as well; disability insurance and critical illness insurance. To make sure you are properly covered and have all your needs met; it may be a good idea to speak with an insurance specialist instead of buying your insurance from a mortgage broker or banker. We refer out clients to someone who can help them with planning their retirement, children’s education, their investments as well as insurance needs.

Please feel free to comment or email me with any questions or concerns.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

How to Fix and Maintain Your Credit Score

This post is to help people with damaged credit get it back in shape geared towards purchasing a home. I could write ten pages on this subject but this is just the basics and if your situation is unique feel free to ask for more info or you can email me for privacy.

 Obtain a copy of your credit report, and it is best to subscribe to a monthly credit watch where you can start to see your score increase and keep an eye on it. This can be done by going to Equifax and or Transunion. Keep in mind that most mortgage lenders use Equifax.

 Once you have your credit report, check to make sure there are no errors, as it quite common for this to happen. Report errors to the credit bureau as well to the credit grantor responsible, it may take a month or two for errors to be removed, stay proactive.

 If there are any collections on your report the MUST be paid or resolved, you cannot get an insured mortgage when you have collections. Most of the time collection agencies will settle so you only have to pay a portion of the amount. Just make sure you get a settlement letter and keep proof that you paid it.

 You should have at least two credit lines with a minimum limit of $1,000 each. If you cannot get credit cards then invest in secured credit cards such as the Home Trust Secured Visa Card, I can send you an application. If you are a couple you need two trade lines each. You cannot be a secondary on a card; it probably will not be reported on your bureau. If you are co-applicant on a car loan that should be fine, just make sure you have some credit that is just in your name. The main goal is to have two active trade lines in good standing.

 Avoid credit shopping. If you have too many credit inquiries in a short period of time it will have a slight negative result on your score. Generally you can have your credit checked three times in a year with no problem.

 Always make sure you make your payments on time, never miss a payment. If you are a couple days late don’t panic, just take care of it. Late payments of 30 days or more really hurt your credit score.

 Keep the balance of your credit cards below 40% of the limit. This will really help your score increase, and NEVER go over the limit. Keep a small balance, this helps to show you can handle revolving credit.

 When purchasing a home with 5% down you need at least a 600 credit score and some banks want to see minimum 650. With 5% cash back or commonly referred to as 0% down, you usually need a clean credit report with a 680 credit score.

 It may take a few months or a few years to repair your credit but it is worth it. Rebuilding your credit takes time and discipline. Soon banks will be fighting for your business.

 Once you have been approved for a mortgage, and have a firm agreement to purchase a home, you must maintain your credit score until closing. The bank will do a final check. This means DO NOT purchase items on credit for your home until you get the keys.

 Once you moved into your new home, continue to monitor your score and maintain good credit practice, you will need this when it is time to renew your mortgage.

Please comment or let me know if this post was of any help to you, thanks.

Ron Miller
ron.miller@butlermortgages.com

Mortgage Renewal Letter

Everyone who has a mortgage receives one of these approximately 3-6 months prior to the end of their mortgage term.

It is probably not a good idea to sign it and send it back.  Rarely will a Bank send you the best available rate.  It is always good to bring your letter to our office or call us so we can get you a discount rate. 

Keep in mind the amount of money you can save.  With even a small discount of .3% on a $200,000 mortgage  for a five year rate amortized for 25 years can save you $35.30 a month or $2,118 over 5 years.  Quite often the discounts are much larger, as banks really are not interested in saving you money.

Keep us in mind when you do receive those letters.  The cost associated with a switch is quite minimal.  There is usually a discharge fee around $200 and we cover this cost for our clients.  If the mortgage is not default insured there may be a $300-400 appraisal, which is worth it if you are going to save thousands.  A lawyer is not required.

If you have a 40 year mortgage you can still switch to a different lender.  The default mortgage insurance you paid is good for the remainder of the amortization and comes with you when you switch lenders.

If you have already mailed in your renewal letter, it will cost you about $1,000 in legal fees to get out of the deal prior to your renewal date.  This may be worth it if you are saving thousands of dollars.

Fixed rates fluctuate quite often.  We can hold a rate up to 4 months.  So if you come to us 4 months prior to your renewal we can keep an eye on the rates and if they dip down a bit even just briefly we can lock that rate for you, if they increase again you will recieve the lower rate.  So instead of just accepting the rate the lender offers you, consider putting your mortgage out there to secure the best rate in a four month period from 90 different lenders.  Which is the best option for you?

If you email your renewal date with your name, address and contact info, we will be in touch 4 months prior. 

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

Insured Mortgage Changes

Attention Realtors:

Along with the well publicized new mortgage rules that took effect on March 18^th of this year, there have been some unpublished changes to debt servicing ratios by CMHC that will reduce purchasing power for home buyers who are putting less than 20% down. CMHC is using more discretion when approving insurance. If they feel part of the application is not strong enough they can reduce purchasing power, usually they will ask for a co-signer. One is not always available.

These changes can affect the maximum purchase price for a client by up to 20% in some cases when the lender uses CMHC for the default mortgage insurance.  For example, let’s say you have a client with excellent credit (680+ beacon score), pays credit cards and does not have huge loan payments.  With CMHC the ‘NEW’ maximum GDS ratio that they appear to be allowing is 35% of gross income.  This is a huge change. Previous to the past couple weeks they would normally have allowed the client to use up to a 44% GDS ratio.

The Solution here is taking the file to a lender that will use GENWORTH for the default mortgage insurance.  Genworth is still allowing clients to go up to a 44% GDS ratio which means that they are approving higher purchase prices compared to CMHC for the EXACT SAME CLIENT.

We are starting to see a trend of people coming into our offices not satisfied with what their lending institutions have approved them for.  One young lady who had a 43,500.00/yr income was approved for a $180,000.00 purchase price by her bank.  By simply switching her approval to a lender that insures with Genworth, we sent the pre-approval certificate to her Realtor for a $260,000.00 max purchase price.

This may not be the best idea for all purchasers.  We explain to people the dangers of over buying.  However, there are instances where this is the best solution, maybe they are a first year nurse or apprentice, their income will increase significantly over the next few years.  There are times when one spouse is self employed and does not want his/her name on title.  Other incomes that are not claimed are also quite common.   

Currently the biggest GENWORTH supporter in the market is Scotia Bank and we happen to have a very good relationship with them.  Our Team has “Presidents Club” status with Scotia and this allows us to offer rates that are not available to the public as well as allowing us to direct them as to which insurer we would like them to use for default insurance on a given file.  Please note that some other banks/lenders will NOT send a deal to Genworth even if the Mortgage Agent/Broker asks. 

We feel this is extremely important news for our Real Estate colleagues and wanted to let you know.

If you have any questions regarding mortgages please do not hesitate to ask.

Thanks,

Ron Miller   

Butler Mortgages

4-318 Dundurn St. S.

Butler Mortgages

New Mortgage Office

318 Dundurn St. S. Unit 4

Hamilton ON, L8P 4L6

905-667-0699
http://www.butlermortgages.com/

Butler Mortgages has expanded again.  This time to Hamilton. 

You can gain an edge with your competition by forming a partnership with a leading Mortgage Broker.  Here are a few things we provide.

·         Quick return of phone calls.

·         Immediate response to emails and text.

·         One hour pre-approvals for “A” clients.  “B” clients and complex deals are dealt with immediately and pre-approval times vary.  We have a very high success rate.

·         Pre-approvals for clients are generally for higher purchase prices then their own banks pre-approve them for.

·         Competitive rates, typically the “best on the street”

·         Teaching and educating Realtors to understand the different rules and laws that govern the mortgage industry.

·         Giving customer satisfaction: Clients understand what they are signing, they gain wisdom in the financial world, and we are always here.  Our service doesn’t end when they get in their home.

When using Butler Mortgages, you and your clients receive a unique experience.  With 9 full time staff, and the experience dating back thirty years, your clients are in good hands.  We maintain contact with your clients and if they decide to sell or their children buy, you get a phone call.

Dave Butler has appointed me to operate the Hamilton office.  I understand Realtors do not work 9-5, five days a week, so I make myself available evenings and weekends and fit into the schedule that Realtors need.  Providing mortgage counselling to Sellers and Buyers.

Ron Miller

First Time Home Buyers

Hello:

This post is set up to try and make the first home buying experience fun and exciting.  The more knowledge you have and the more paperwork you have in order will make the whole process a lot more fun and exciting.

The very first step is to speak with your local mortgage broker.  Sure it is fine to use online applications and do the process through email and phone, but when it comes right down to it, you want to make sure you can actually meet with your broker.  Chose a broker who will take the time to explain the process and is available to answer your questions.

Once you have chosen a broker you will take part in the pre-approval process.  It is always best to do this in person because online many items can be missed.  People often forget to disclose many parts of their income such as child tax credits, overtime they work, other incomes from non traditional sources.  It is a good idea to bring in a recent pay stub, this ensures that the amount your pre-approved for is accurate.

We will ask you the source of your down payment.  Acceptable forms are savings, investments, gifted from immediate family member and of course RRSP's up to 25k for each purchaser as long as it has been in the account for at least 90 days.  Also income will be asked and a credit check will be done.

Once you have received your pre-approval certificate it is time to go home shopping.  Time to find your Realtor.  If you do not know of one I can definitely refer a few good ones, it does make a big difference on the Realtor you chose.  When you find the home you want it is time to put in an offer.  The Realtor will instruct you to make the offer conditional on financing and home inspection.  If it is an older home you may wish to also add conditional on insurance, as well if it is a condo you will add a condition for the status certificate which is the financial condition of the condo corporation.

Once you have an accepted offer the realtor will ask you for a deposit.  This will count as part of your down payment.  Then the Realtor will send us your offer and we will submit it to the lender that best suites your needs.  Even though you have been pre-approved we still have to get the property approved by the lender and or the mortgage insurer, usually GENWORTH or CMHC.

Once we receive the approval from the lender you can waive your financing condition and if you meet the other conditions you have the offer will be firm, which means you are well on your way to home ownership.  At this point we will start the document collection process.  Required forms of documents depends on your form of income and the lender that is providing the mortgage.  I will go into more detail about this in a later post but generally it will be two pay stubs and a job letter, three months worth of statements showing where the down payment came from, a void cheque and lawyer info.

Once all documents are collected your file is complete and you then get in contact with your lawyer who will instruct you further.  Usually lawyers will set up a preliminary meeting with you to discuss the costs and process.  Then one or two days prior to closing you will get a certified cheque for down payment and closing costs meet with your lawyer and sign the official documents and wait for the magic moment.  You may also want to do a final walk through the day before closing or the day of to make sure the home and or the appliances are as viewed when you put in your original offer. 

On closing day once all monies have been transferred and the home is officially put in your name, you will receive the keys.

Any questions feel free to email or call me.

Thanks,

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com