The 5 C’s of Credit

When applying for a mortgage, it is common knowledge that you want to have good credit. But what does that entail? Below is a quick summary of what and how a financial institution examines your credit worthiness. It is separated into 5 categories, known as The 5 C’s of Credit!

1) Credit – The main way a lender can predict you are going to make consistent, on time payments is by reviewing your repayment history. They do this by reviewing your credit score to ensure you have a proven track record of managing money already borrowed to you.

2) Capacity – One of the most important of the 5 C’s, Capacity is the actual ability of repaying the loan. The lenders will review two things, the Gross Debt Service, as well as the Total Gross Debt Service. GDS is the costs of owning a home versus the gross income you make. TDS factors in GDS as well as any other monthly financial commitments (example a car loan or credit card payments).

3) Capital – This is determined by what you as a buyer have for an investment in the property, known as a down payment. 5% is the minimum down payment requirement.

4) Character – Is best described as a borrower’s trustworthiness of repaying a loan. This trustworthiness is proven through your length of employment and ability to save. Essentially the bank wants to see an active track record that you use your credit responsibly.

5) Collateral is considered additional security provided to the lender. The property itself and its value, location and characteristics can be considered as security, but collateral can also include outside properties or land owned, which helps lender feel “Secure” in loaning the funds.

By knowing what lenders are looking for in an application you can prepare and improve your position when it comes to purchasing your dream home. With so many products and options available, I am great a resource for information and for any questions you may have. Give me a call at (204)720-1225 and thank you for reading!

View More: http://studio78.pass.us/centummichelle

 

 

 Michelle Desmond, Mortgage Broker

 Office: (204) 727-2177

 Cell: (204) 720-1225

 Email: michelle_desmond@centum.ca

Refinancing Your Mortgage To Get Some Breathing Room

High interest debt on credit cards, auto loans, or other consumer loans can be tough to pay off. Sometimes it feels like we’re getting nowhere by just making those high interest only payments each month. Not only that, no one likes the feeling of having multiple higher payments to make every month. Your poor pay cheque feels outnumbered when there are so many hands out needing to get paid every month. However, if you’re a homeowner, you might have some options to help you manage your debt, including refinancing your home to consolidate some debt.

As a homeowner, one way to start managing some of your higher-interest debt is to refinance your existing mortgage with a debt consolidation mortgage. For example, refinancing allows you to borrow additional money on your mortgage so you can consolidate your debts into one simple payment. That way you can easily budget with a structured payment plan and just one financial obligation to focus on.

A lot of people don’t understand just how much equity they’re able to borrow against when it comes to refinancing their home. I think this is largely because it’s not really explained to you at any point by your lender. Here’s a few points to remember about refinancing:

  • You can access up to 80% of the appraised value of your home. Now remember that this means you’ll have to have a appraisal done on your home from a licensed appraiser, opinions of value or Current Market Analysis from a real estate agent is not enough I’m afraid.
  • You can stretch out your amortization up to 35 years if needed. While I don’t recommend this, sometimes there are situations where it’s the only way to keep someone in their home. Keeping that payment manageable while paying off all your high interest debt is our number one priority.
  • There are fees to consider. You’ll likely incur a penalty on your current mortgage unless you’re up for renewal. You’ll need to pay for a appraisal but in some cases I can negotiate the cost to be covered by the lender, hey, I can be persuasive when I need to be. Finally, you’ll have legal fees for the refinance, as your lawyer will need to handle the disbursement of your money you’ll be getting.

Benefits of refinancing your high interest debt:

  • Interest rates on mortgages and home equity loans or lines of credit are often much lower than those on credit cards and consumer loans
  • Making a single payment to your debt consolidation mortgage or home equity loan or line of credit is much easier than making multiple payments to credit cards and other lenders
  • Peace of mind, no more late nights wondering how you’re going to tackle all those debts.

If you or someone you know want to look into the refinancing options available then don’t hesitate to contact me. As always, I’m here to answer any questions and show you how much you could be saving.

 

IMG_2894 Chris Turcotte, Owner/Broker

 Office: (204) 727-2177

 Cell: (204) 720-4002

 Email: chris@christurcotte.ca

 

Stated Income Mortgage Q & A: Business for Self with Non-Traditional Income Verification

What is a Stated Income mortgage? It is a specialty mortgage that goes by a few different names, Stated income, Alt A, or Low Doc, but it is essentially a program for people that are Business for Self that can’t prove their income by
traditional means. It is often used by business owners that have lowered their taxable income by maximizing deductions and other business expenses. This is a great strategy at tax time, but the flip side is that the income used to qualify for a mortgage (line 150 on your taxes) can become so small, you no longer qualify for a mortgage, or your buying power is significantly reduced. 

 

Who qualifies?  The stated income program is for people that have been business for self for at least 2 years. They must have Strong Credit, at least 2 trade lines (items on your credit bureau) with 2 years of history, and be buying or refinancing acceptable real estate. Not for Commission sales people unless doing a conventional mortgage. Contact Mike Trollope (see below) for more details if you are paid by commission. 

 

What type of Property is Acceptable? This is for Residential Properties. The property must be owner occupied with a maximum of two units. Not for commercial or investment properties. Not for Second / Vacation Homes. And not a crumbling shack, but a good marketable property.

 

 How much do I need for a down payment? You need to have at least 10% down. At least 5% of the down payment must come from your own resources but the rest can be gifted by immediate family. The down payment can not be borrowed. 

 

How much income can you claim? The amount of income that is stated must be reasonable for the industry, length of operation and size of business. This is a critical. They want to know that you are actually receiving this income and will be able to pay for this mortgage as well as other existing debts. A plumber with no employees probably isn’t making $250,000 a year. However if it was stated he earned $50,000 a year, that is reasonable. 

 

Are the interest rates higher? Sometimes. At the time of writing, the rates are the same for a stated income mortgage as for a standard mortgage. In the past, some lenders have increased the rates slightly for a stated income mortgage. 

 

Are there any higher costs? Yes. The default insurance premium is increased. If you are going with a 90% loan to value (10% down) then the premium for a stated income mortgage is 5.45% compared to 2.40% for a standard mortgage at 90% Loan to Value. Like a standard mortgage the premiums do decrease as your down payment increases. At 80% loan to value, the premium drops to 1.90%. 

 

How much do I need to avoid the Default insurance? If you want to do a conventional mortgage with the stated income program, your down payment must be 35%, or a Loan to Value of 65%. With a standard mortgage you can technically avoid default insurance with 20% down. 

 

Is there additional/different paper work required? You will need to prove that you have been business for self for at least 2 years. You will also need to prove you don’t owe taxes to Canada Revenue Agency.

To show 2 years of business you will need one of the following:

  • Business License
  • Articles of Incorporation
  • GST/HST return
  • Two years T1 Generals with Statement of Business Activities prepared by a third party
  • Audited Financial Statements for the last 2 years prepared and signed by a Chartered Accountant.

To show no taxes owing they will require your most recent Notice of Assessment, or a declaration stating you owe no taxes. 

 

Any other documents? Each lender has their own requirements and every client is different. They may ask to see business bank statements, to help support that the amount that was stated is reasonable. They may ask for T1 Generals to show company sales and what is being written off. They may even ask for a copy of your contract with a particular client if it accounts for a large amount of your business. It is best to be aware of your business and it’s financial state when you meet with your mortgage broker. Depending where your mortgage ends up, will determine what papers you will be asked for.

 

 Do all the lenders offer a stated income program? No. It is a specailty program offered by a select number of lenders. 

 

Do I have to do a stated income mortgage if I’m Business For Self? No. You can provide traditional proof of income which would be a 2 year average of line 150 on your Notice of Assessments. Depending on the nature of your business you can also gross up that amount by up to 15%, or add back some of the write offs that you used to reduce your income. It is best to speak with a trained mortgage broker to go over your options and determine which route is best for you. I recommend taking a copy of your T1 Generals with the Statement of Business Activities when you meet with your broker. 

 

Where do I get more information? Contact Mike Trollope with Centum Mortgage Choice by phone or text at (204) 573-3938. Email mike@miketrollope.ca

 

 Mike B&WMike Trollope, Mortgage Broker

 Office: (204) 727-2177

 Cell: (204) 573-3938

 Email: mike@miketrollope.ca

Becoming a Guarantor or Co-signer

Thinking about becoming a co-signer or guarantor to help someone get a house?  Here are some points to consider:

Guarantor

Co-signer

–     Does not have their name on the property title

–     Completes the mortgage application as well as the primary applicant

–     Personally guarantees that payments will be made if the original applicant defaults

–     Can be used if the primary applicant qualifies with their income, but may have credit problems

–     Lenders may offer early release policies that allow the guarantor to remove their name if the original applicant can qualify on their own for the mortgage. 

 

–          Become a co-owner of the property as their name will be on the property title

–          Completes the mortgage application as well as the primary applicant

–          Is accountable for missed mortgage payments, though it is understood that they are not the going to make payments. 

–          Helps the primary applicant if they do not qualify income wise

–          Need to see a lawyer to remove their name from the property title.  Original applicant must be able to qualify on their own for the mortgage

When deciding to become a guarantor or a co-signer it is important to realize, that in either case, it may be a lengthy time commitment and should feel confident in the person they are assisting.

If you have any questions about this or any other mortgage details, please contact us. It’s important to have all the proper information before committing to a mortgage.


 

Canadians Losing Money on their Mortgages

For most Canadians, when shopping for a mortgage the simple solution is to walk through the doors of your local bank or credit union branch.  It seems to be that old saying “better the devil you know” is true.  We believe that the bank, trust company or credit union that we have been dealing with for years is the best place to be.

In fact in 2012 a whopping 72% of people did just that when they were looking for a mortgage.  The result?

Canadians lost over 41 Million Dollars by simply not shopping around for the best mortgage product for their needs.

As consumers, people typically believe that if they get the lowest rate they will save the most money, and that is largely true, but you will notice that we did not mention rate in the above statement.  Why?  Well contrary to what most people might believe, rate is not the single all important item to consider when looking at getting financing for your home.  Things like term, prepayment options, amortization, and payment schedule (to name just a few things) can have a dramatic impact on the true cost of the mortgage you are obtaining.

Canadians are very web savvy consumers when it come to getting a mortgage, in fact 2 in 3 of us will research our mortgage online before we make a decision.  What is not talked about typically is what we are researching and there are two very key items, rate and mortgage calculators.

Rate is pretty self explanatory – we want to find the lowest possible.  Mortgage calculators help us to figure out what we qualify for, what our payment will be, etc.  What we do not do is research what different product options are available, and how those options can impact us – for good or bad.  If you try to find that information you soon discover that it is not so easy, and when you do find some it is very complicated to understand.  It is because of the complexity of mortgages that the majority of people simply put their faith in the banks and are resigned to the fact that taking 25 years and at the end paying almost twice the value of the home is normal.

Mortgage brokers offer Canadians a solution to the stress of shopping around, and they typically do it at no charge.  Their role is to do the work for you and find the right mortgage to suit your financial and home ownership goals.

At Centum Mortgage Choice we believe that all Canadians should have the opportunity to achieve their financial goals and dreams.  It’s why we do not just offer mortgages, rather we offer Home Ownership Solutions.

If you want to discover how you can stop losing money on your mortgage, contact a Centum Mortgage Choice broker today.


IMG_2894 Chris Turcotte, Owner/Broker

 Office: (204) 727-2177

 Cell: (204) 720-4002

 Email: chris@christurcotte.ca