A Pre-Approval Is Not Really a Pre-Approval

There is a misconception out there that once you’re pre-approved, you’re good to go. A pre-approval simply means that based on your CURRENT income, expenses, down payment and credit you SHOULD be able to get fully approved once you find the right property (this is the first half of the equation). Many places won’t even pull a credit check (which is extremely important) and will just run a basic mortgage calculator and say “everything looks good” but that doesn’t mean anything. You leave thinking great, I’m pre-approved!

I always recommend that people put in a “subject to financing” clause with their realtor when they are putting in an offer to protect them each and every time. Here’s why:

You could be pre-approved but the lender still doesn’t know which property you’re purchasing (that’s the other half of the equation). Let’s say you find the house of your dreams (well within the maximum price that the mortgage broker went over with you) but we find out that the house was a former grow op. In this case, very few lenders will even look at this (even if it’s been fully remediated and there’s a stamp from the city saying it’s all good) and if they do, they’ll usually require a substantial down payment and further air quality testing that you must pay for as mould spores can grow behind walls and become airborne years later. Yes this is an extraordinary example but it can also happen where a bidding war has bid up the price and the best offer (yours) has been accepted. The lender sends in their appraiser to determine the value of the property and it may come in at a lower value than your accepted offer and so you’d have to come up with more money for a down payment (which you weren’t prepared for or don’t have).

If you have a “subject to financing” clause in your agreement, then you have a way out and can look for another property with no issue at all. If you don’t have a “subject to financing” clause at all and you’ve already given your deposit to the realtor (because you were under the impression that you were going to be approved), then you’re out of luck and will be stressed out and scrambling to find a lender that will help you out, even though you were technically “pre-approved”.

So in summary, always put in a “subject to financing clause” as that’s the only protection you have. This is much cheaper than forfeiting your deposit (and facing potential legal action from the seller) should you want to cancel your contract after the agreement has been made.

Better yet, contact your local Dominion Lending Centres Mortgage Professional and have them do a proper pre-approval and have you fully prepared for what most likely will be the largest purchase in your life!

by, Joe Cutura, Dominion Lending Centres

http://www.cmhc.ca/en/corp/nero/nere/2014/2014-02-28-1100.cfm

OTTAWA, February 28, 2014 — Following the annual review of its insurance products and capital requirements, CMHC will increase its mortgage loan insurance premiums for homeowner and 1 – 4 unit rental properties effective May 1, 2014.

The increase applies to mortgage loan insurance premiums for owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums. This does not apply to mortgages currently insured by CMHC.

CMHC’s capital management framework is consistent with international practices and Canadian guidelines for mortgage insurers. Increased capital targets are consistent with Canadian and international industry trends and makes the financial system more stable and resilient.

“The higher premiums reflect CMHC’s higher capital targets” said Steven Mennill, CMHC’s Vice-President, Insurance Operations. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system.”

For the average Canadian homebuyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.

Effective May 1^st, CMHC Purchase (owner occupied 1 – 4 unit) mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.

CMHC reviews its premiums on an annual basis and, going forward, plans to announce decisions on premiums in the first quarter of each year. The homeowner premium increase follows changes CMHC made to its portfolio insurance product earlier this year.

As Canada’s national housing agency, CMHC draws on more than 65 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable housing solutions that will continue to create vibrant and healthy communities and cities across the country.

– Garry Marr | March 4, 2014 –

Consumers facing record housing prices are probably increasingly tempted to go with a floating rate mortgage and all the risks that come with an interest rate linked to prime.

The lure is right in your face on every mortgage rate comparison site. The five-year fixed-rate mortgage has dropped as low as 3.09% with discounters and the major banks aren’t too far off that rate, most of them offering special deals. All this comes as yields in the bond market have dropped, sending fixed rates down.

Floating rate mortgages are as low as 2.35% with the discount off the prime lending rate 65 basis points. Better yet, it has never been easier to get a variable rate mortgage since the government changed the rules in April 2010 so anyone applying for a variable rate can qualify based on the five-year posted rate.

The qualifying rate is based on an average of the six big banks’ posted rate for a five-year closed mortgage. Declining bond yields have lowered that qualifying rate to 4.99%.

The decline may not sound like much but Rob McLister, editor of Canadian Mortgage Trends, says it means a consumer with a $300,000 home and 5% down needs 2% less income than they did just a few months ago.

Ottawa changed the rules about four years ago to tilt the playing field in favour of locking in your mortgage. When you lock in your mortgage for a term of five years or longer, you are able to use the rate on your contract for determining how much you can borrow. Go variable and you must use qualifying rate which is still almost 50% higher.

“There has been talk of changing it, speculation that the [Office of the Superintendent of Financial Institutions] will mandate the banks use the qualifying rate for five years terms and longer,” said Mr. McLister, noting nothing has happened yet.

By:Karin Mizgala and Sheila Walkington Published on Sun Feb 03 2013

In this excerpt from Unstuck: How to Get Out of Your Money Rut and Start Living the Life You Want, Karin Mizgala and Sheila Walkington offer ways to stay out of the debt trap.

Why more home sellers are listing in January? ( By Mark Weisleder | Fri Jan 11 2013 )

Traditionally, January is a slow month for real estate as most sellers choose to wait until the middle of February in the hopes of capitalizing on the early spring market. However, given the uncertainty in the housing market right now, more sellers are opting to put their house on the market in January.

This presents an opportunity for buyers. Most people are reluctant to uproot their families during the school year, so that means less competition — and fewer bidding wars. Lenders will not be as busy, so buyers can expect a more efficient process to get approved for a mortgage to ensure they have financing in place before making an offer.

But there are things you simply won’t be able to inspect during the winter. Here are some tips for protecting yourself when making a deal during the winter months:

Sellers

Spruce up the outside: Use urns with light wood branches to brighten up the exterior of your home, to compensate for any overcast day or snow on the ground.

Get rid of the Christmas lights: homes that look dated on the outside give the impression that they are probably dated on the inside.

Make sure your fireplace is working during any showing, that the temperature is comfortable in the home and that any interior lighting compensates for what is usually grey lighting from outside.

Have pictures of your landscaping available from the summer and autumn, showing how beautiful your home looks year round.

Have available any inspections that you may have done on your air-conditioning unit or swimming pool before they were closed for the winter, as buyers will likely not be able to conduct inspections on these items and will have questions.

Consider inviting a company to do an environmental audit on your home in advance, confirming that there is no moisture behind the walls that could lead to mould and that you have sufficient insulation behind the walls.

Buyers

If there is anything that cannot be inspected because of the winter, such as the air-conditioning system or any swimming pool, then negotiate an extended warranty in the agreement, to give you until at least May 1, to inspect and have the seller be responsible for any damages. In addition, also negotiate a holdback of, say, $2,000 so that if a problem arises, the money comes out of that fund to fix it and you don’t have to chase the seller in court later.

Be careful about snow accumulating around the base of the home. It will be difficult for a home inspector to figure out whether the grading is likely to cause water problems in the basement later. Consider doing your own environmental audit to check for moisture behind any walls.

If the snow on the roof looks like it is evaporating faster than the snow around the house, it is likely a sign that there is not enough insulation in the home.

Check with your insurance company early as to whether you will have any difficulty obtaining insurance on the home; for example, by finding out whether there have been claims made in the neighbourhood about water damages or sewage backups.

Check whether snow accumulation makes it more difficult for street parking, as this may be the only parking available on certain streets. Also see how bad weather may affect your morning commute.

Check the last electric/gas bills, to determine how energy efficient the home is in winter.

People tend to hibernate and stay at home in the winter, so take the opportunity to get to know the neighbours before you finalize your purchase.

By being properly prepared in advance, buyers and sellers can negotiate a safe and successful winter home sale.

Interest rates to rise before end of 2014, governor Mark Carney suggests

When it comes to choosing  between a variable rate or fixed both are great options too. That’s because  interest rates are so insanely low these days. But I think what tips the  balance in favour of a fixed rate these days is that the price you pay for  certainty is incredible low.

By Bruce Sellery | Online only, 19/10/12

I realize that insurance agents get a bad rap. There are few people on the face of the Earth who can be more persistent than an insurance adviser.

I often tell the story of the time I met with my own adviser who was trying to sell me a policy. I told him I would sleep on it. He then said: “Tim, that sounds good. You sleep on it, and if you happen to wake up in the morning, give me a call and let me know your decision.” We had a good laugh.

There are generally two ways to get a mortgage in Canada … from a Bank, or from a Licensed Mortgage Professional.  While a Bank only offers the products from their particular institution, Licensed Mortgage Professionals send millions of dollars in Mortgage Business each year to Canada’s largest banks, credit unions, and trust companies … offering their clients more choice, and access to hundreds of Mortgage Products!

As a result, clients benefit from the trust, confidence, and security of knowing they are getting the best Mortgage and Interest Rate for their needs.

Mortgage professionals work for you, and not the banks; therefore, they work in your best interest.  Whether you are purchasing a home for the first time, taking out equity from your home for investment or pleasure, or your current mortgage is simply up for renewal, it’s important that you are making an educated buying decision with professional unbiased advice.

For more information on how a Mortgage Professional can help you access the Best Interest Rates in Canada, call a Dominion Lending Centres Mortgage Professional today!

“I am waiting for your call!  I’ll soon have you living comfortably in your new or existing home.  Call me direct today at 709-292-1100 or stop by my office at 9 High Street, Grand Falls-Windsor.”