5 Mistakes First Time Home Buyers Should Avoid

Buying a home might just be the biggest purchase of your life—it’s important to do your homework before jumping in! We have outlined the 5 mistakes first time homebuyers commonly make, and how you can avoid them and look like a Home Buying Champ.

1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford. Your Mortgage Broker will give you the maximum amount that you can spend on a house but that does not mean that you should spend that full amount. There are additional costs that you need to consider (Property Transfer Tax, Strata Fees, Legal Fees, Moving Costs) and leave room for in your budget. Stretching yourself too thin can lead to you being “House Rich and Cash Poor” something you will want to avoid. Instead, buying a home within your home-buying limit will allow you to be ready for any potential curveballs and to keep your savings on track.

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment but fail to realize that there are a number of costs associated with closing on a home. These can be substantial and should not be overlooked. They include:
• Legal and Notary Fees
• Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
• Home Inspection fees
There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. Updated kitchen + bathrooms, beautifully redone flooring, new appliances…what’s not to like? But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:
• When was the roof last done?
• How old is the furnace?
• How old is the water heater?
• How old is the house itself? And what upgrades have been done to electrical, plumbing, etc.
• When were the windows last updated?

All of these things are necessary pieces to a home and are quite expensive to finance, especially as a first- time buyer. Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
In a red-hot housing market, a new trend is for homebuyers to skip the home inspection. This is one thing we recommend you do not skip! A home inspection can turn up so many unforeseen problems such as water damage, foundation cracks and other potential problems that would be expensive to have to repair down the road. The inspection report will provide you a handy checklist of all the things you should do to make sure your home is in great shape.

5. Not Using a Broker
We compare prices for everything: Cars, TV’s, Clothing…even groceries. So, it makes sense to shop around for your mortgage too! If you are relying solely on your bank to provide you with the best rate, you may be missing out on great opportunities that a mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.

Remember, when you are buying a home, you are not alone! The minute you decide to work with a Dominion Lending Centres Mortgage Broker you are bringing on a team of individuals who are there to help you through the process from start to finish.

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

Transfers and Switches

Transfer/Switches are when you opt to transfer your mortgage to a new lender in order to take advantage of a lower rate. A transfer/switch does not include additional money to the existing mortgage balance owing, your mortgage amount will remain the same, however lenders will allow you to increase the mortgage up to $3,000 to cover legal costs, possible appraisal fees and if applicable, penalty fees – more on that below.

*Note: If you do require new money or funds (more than $3,000.00) this would then be considered a refinance.

There are two scenarios where you would utilize a Transfer Switch:

1. When your mortgage term is up, and the mortgage is renewing with your existing lender. If you choose to transfer/switch your mortgage at renewal you will not have to pay a penalty. You will still need to qualify and there may be legal and appraisal costs associated with the transfer/switch, just as you would with a new mortgage. However, many lenders offer you the option to include the legal and appraisal fees into you new mortgage and some lenders may cover these costs for you.
2. The second scenario you may choose to do a transfer/switch is when you are in the middle of the term of your mortgage. The only reason you would do this is to take advantage of a lower rate which means a lower monthly payment. This would have to make sense financially for you to do as you will have a penalty associated with breaking the current mortgage.

If your mortgage is up for renewal, or if you are considering a transfer/switch in light of recent rate changes, a mortgage broker can assist you in making the right decision. Similar to when you first financed your mortgage, having a broker assist you gives you:

A DEDICATED INDIVIDUAL SHOPPING FOR YOU:
Reputable brokers have your best interest in mind first!

Your mortgage professional will shop the market to find the best overall cost of borrowing for the client. Broker’s will look at all angles of the product to ensure that the client is getting one that will suit their unique and specific needs. Not once will the client be expected to shop their mortgage around or to speak to the lender.

ACCESS TO THE BEST RATES & PRODUCTS
A mortgage professional has access to:
• Tier 1 banks in Canada
• Credit Unions
• Monoline Lenders
• Alternative Lenders
• Private Lenders

This extensive network of lender options allows brokers to ensure that you are not only getting the sharpest rate, but that the mortgage product is also aligned with the client’s needs.
Now, a few details that you should know before you transfer/switch your mortgage:

YOU WILL HAVE TO SUPPLY DOCUMENTS
Just like when you went through the process the first time, you will have to supply documents to the new lender in order to transfer/switch.

YOU MAY HAVE TO PAY OUT CERTAIN COSTS
As mentioned above, there costs associated with your transfer/switch. If your mortgage is up for renewal and you are opting to transfer/switch these may include admin and legal fees. If you are opting to transfer mid-term to take advantage of a lower rate with a different lender, these may include your penalty and legal/admin fees. However, many lenders will offer up to $3,000 financed into your mortgage to assist in covering these if applicable

YOU WILL HAVE TO QUALIFY UNDER CURRENT REGULATIONS
With a transfer/switch, you are required to pass any and all regulations and stress testing measures may be applicable, however If you are looking at a transfer/switch and your previous mortgage funded prior to November 30, 2016 old mortgage rules apply (no stress test is required). This means
• You are grandfathered in previous under mortgage rules
• You can qualify at the contract rate rather than the stress test of contract rate plus 2% or the benchmark rate (currently at 5.34%)
• In simple terms: no stress testing required.

Before you consider moving, you should run through the numbers with a broker and ensure you qualify. To find out more about stress testing measure, click here.

UNDERSTANDING YOUR PENALTY
If you are switching/transferring mid-term a penalty will apply to your mortgage. To find out what that penalty will look like, you can check out our article here, but we also encourage you to speak to your Dominion Lending Centres mortgage broker and have a clear understanding of what you will be paying out. If you are up for renewal and are looking to transfer, you will not have to pay a penalty and may or may not have the aforementioned fees associated with setting up the new mortgage with a new lender.

Remember, a broker is there to work with you to determine if a transfer/switch is right for you and to help you establish which lender will give you not only the best rate, but the most suitable mortgage product too!

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional

7 things every self-employed individual should know — Before you apply for a mortgage

Self-employed individuals are quickly becoming one of the most common clients that we handle. Daily we have successful business owners come into our offices who enjoy the perks of being an entrepreneur. One of these includes fantastic write-offs that allow them to bring their income down to a low tax bracket.

However, this benefit can also mean that the same business owner may have a hard time qualifying for a mortgage all because their income is significantly reduced on paper… how frustrating ‘eh? But these savvy business owners know that there is advanced planning that is involved in being able to qualify for conventional financing. Back in 2015, Statistics Canada reported that there were about 2.7 million people self-employed in Canada… which is an astounding 14% of the total population of Canada! What does that stat mean? Two things:

1. That being self-employed is a more than viable way of earning income in today’s world.
2. That 14% may not fit into the conventional lending “box”

The Conventional Lending Box
To fit into this box, self-employed individuals must meet certain qualifications. For example, they must be able to provide:
>Two most recent years of personal tax returns
>Two most current years Notice of Assessments
>Two most current years financial statements
>Statement of Bank Account Activity
>Investment Income Statement
>Photo ID

Now, the one area that raises a red flag in the above is the tax returns. As we previously mentioned, their income claimed on the return itself might be significantly different than their actual income. Tax deductions related to business often reflect meals, rental spaces, credit card interest etc. The result is that the income the self-employed business owner shows on their tax return is a significantly lower figure than what their actual take home pay is. However, the conventional lending box requires income to justify the mortgage. So how do we pull this off?

The Unconventional Lending Box
Now please keep in mind that “unconventional” in this box just means that as a self-employed individua,l you are going to work with a Mortgage Broker to find an alternative to allow you to show that you can justify the mortgage. There are several well-known and consistently used pieces of advice that we would like to pass along to you:

1. If you are organized and planning (think 2 years out) you can plan to write off fewer expenses in the two years leading up to the property purchase. Yes, you will pay more personal taxes. However, your income will be higher, and it will be easier to qualify you for the mortgage amount you are seeking.
2. Set up your finances through a certified accountant. Many lenders want to see self-employed income submitted through a professional rather than doing it yourself. The truth is that the time you spend doing your own taxes will not be nearly as efficient both financially and time-wise as a professional. Make sure that you discuss with them what your goals are so that they can set up your taxes properly for you!
3. Choose your timing carefully. If you are leaving for an extended holiday within the two years before purchasing, your two-year average income may fluctuate. Plan your vacations and extended trips away with income in mind.
4. Consider using Stated Income. You have the option to state your income. This is based on you being in the same profession for 2+ years before being self-employed. The lender looks at the industry and researches the mean income of someone in that profession and with your experience. You will be required to provide additional documents such as bank statements, showing consistent deposits and other documentation may be asked of you to show your income.
5. Avoid Bankruptcy at all cost…. or if you do declare bankruptcy have all your discharge papers on hand to present to the lender and ensure you have two years of re-established your credit.
6. Mortgage Brokers can state income with lenders at the best discounted rates. But if you do not qualify with A lenders using stated income, then a broker will work with you to utilize a B Lender who are more lenient but may come with higher interest rates and applicable lending and broker fees.
7. Last but not least, if A or B lenders don’t fit, private financing can be looked at as an alternative option in order to get you into the market and offer a short-term solution to improve credit or top up your reporting income. Then you and your broker can refinance into an A or B lender at that time. Just keep in mind that private lending will have a higher rate associated with it , with lender and broker fees added on as well, if you choose to go with this option.

So, to all of our self-employed, hard-working, determined individuals, take heart! You can qualify for the mortgage you want, it just takes a little more planning to get everything in order. Keep in mind to that every lender has different guidelines as to how they view self-employment. Working with a Dominion Lending Centres broker leading up to your property purchase can help you ensure you get the mortgage you want.

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional

Is it time to lock in a variable rate mortgage?

Approximately 32 per cent of Canadians are in a variable rate mortgage, which with rates effectively declining steadily for the better part of the last ten years has worked well.

Recent increases triggers questions and concerns, and these questions and concerns are best expressed verbally with a direct call to your independent mortgage expert – not directly with the lender. There are nuances you may not think to consider before you lock in, and that almost certainly will not be primary topics for your lender.

Over the last several years there have been headlines warning us of impending doom with both house price implosion, and interest rate explosion, very little of which has come to fruition other than in a very few localised spots and for short periods of time thus far.

Before accepting what a lender may offer as a lock in rate, especially if you are considering freeing up cash for such things as renovations, travel or putting towards your children’s education, it is best to have your mortgage agent review all your options.

And even if you simply wanted to lock in the existing balance, again the conversation is crucial to have with the right person, as one of the key topics should be prepayment penalties.

In many fixed rate mortgage, the penalty can be quite substantial even when you aren’t very far into your mortgage term. People often assume the penalty for breaking a mortgage amounts to three months’ interest payments, which in the case of 90% of variable rate mortgages is correct. However, in a fixed rate mortgage, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The ‘IRD’ calculation is a byzantine formula. One designed by people working specifically in the best interests of shareholders, not the best interests of the client (you). The difference in penalties from a variable to a fixed rate product can be as much as a 900 per cent increase.

The massive penalties are designed for banks to recuperate any losses incurred by clients (you) breaking and renegotiating the mortgage at a lower rate. And so locking into a fixed rate product without careful planning can mean significant downside.

Keep in mind that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, things like opting for a “cash back” mortgage can influence penalties even more to the negative, with a claw-back of that cash received way back when.

Another consideration is that certain lenders, and thus certain clients, have ‘fixed payment’ variable rate mortgages. Which means that the payment may at this point be artificially low, and locking into a fixed rate may trigger a more significant increase in the payment than expected.

There is no generally ‘correct’ answer to the question of locking in, the type of variable rate mortgage you hold and the potential changes coming up in your life are all important considerations. There is only a ‘specific-to-you’ answer, and even then – it is a decision made with the best information at hand at the time that it is made. Having a detailed conversation with the right people is crucial.

It should also be said that a poll of 33 economists just before the recent Bank of Canada rate increase had 27 advising against another increase. This would suggest that things may have moved too fast too soon as it is, and we may see another period of zero movement. The last time the Bank of Canada pushed the rate to the current level it sat at this level for nearly five full years.

Life is variable, perhaps your mortgage should be too.

As always, if you have questions about locking in your variable mortgage, or breaking your mortgage to secure a lower rate, or any general mortgage questions. contact a Dominion Lending Centres mortgage specialist.

Dustan Woodhouse

Wage Growth Accelerates as Canada Posts Another Stellar Jobs Report in October

The expected slowdown in the Canadian labour market did not materialize in October as full-time jobs surged and wage gains accelerated. Total employment increased by 35,300 last month and the unemployment rate rose a tick to 6.3% as the labour force participation rate edged up a bit to 65.7%–well above the level in the U.S. Full-time jobs rose 88,700 while part-time jobs fell by 53,400–evidence of strong improvement in the quality of net-new job creation. Canada has added 201K full-time jobs in just the past two months, the strongest two-month performance on record (see chart below). This report might force the Bank of Canada to reconsider its view that there remains a lot of slack in the Canadian jobs market.

Another sign of stellar growth was the 2.7% year-over-year gain in total hours worked and hourly earnings of permanent employees increased by a whopping 2.4% last month, the strongest annual wage growth since April 2016 (see the second chart below). The jobless rate has trended downward over the past year, falling 0.7 percentage points. While the overall unemployment rate was 6.3% last month, the jobless rate for prime workers–those aged 25- to 54-years old is much lower–posted at 5.1% for women and 5.6% for men. Men have been harder hit in both the U.S. and Canada as much of the restructuring in jobs has been in male-dominated industries such as heavy manufacturing (and construction in the U.S.) and most of the growth has been in female-dominated services such as health care-related services.

Canadian employment rose in several industries, led by “other services” (which include services such as those related to civic and professional organizations, and personal and laundry services) up by 21,000. Construction jobs rose by 18,000 in October but were virtually unchanged on a year-over-year basis. Also strong were information, culture and recreation and agriculture. Employment declined in wholesale and retail trade.

According to StatsCanada, the most significant employment gains were in Quebec, followed by Alberta, Manitoba, Newfoundland and Labrador, and New Brunswick. At the same time, there was a decline in Saskatchewan. Unemployment rates by province are in the table below.

October Payrolls Data in the U.S.

U.S. employers added 261,000 jobs in October, and the unemployment rate fell to 4.1% according to data released this morning by the Labor Department. As well, average hourly earnings rose 2.4% from a year earlier. Last month’s job gains mark the 85th straight month of U.S. job growth, the longest such streak on record, as the economy rebounded from the hurricane-induced slowdown in September.

Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.