Tuesday, February 21, 2006

Canadian Non-Conforming Mortgages

Years ago you had to go to the bank on the corner to apply for your mortgage. Basically beg the banker for a house. If you didn't fit the bank's criteria you didn't get approved. Sorry about your luck. NO! And there really wasn't anywhere else to go. Until now...
These days there are more lenders, more banks and more mortgage options.
One product we specialize in is the Non-Conforming Mortgage Loan. Specifically those mortgages for clients that have past credit issues (including bankruptcy) or are buying a unique property that doesn't fit into portfolio of the major banks or CMHC.

Our Non Conforming Mortgage Loan program helps people who...
Need a sub prime mortgage
Have less than perfect or bad credit
Have no established credit
Have tarnished credit
Have a previous bankruptcy
Are in consumer proposal
Are in credit counselling
Are recent landed or non-landed immigrants to Canada
Are recently self employed and can't verify their income
Are foreigners investing in Canadian real estate
Need an alternative mortgage lender

For these clients we have 2 options available (or more) and we can be very creative:
1 - First Mortgage
85-95% first mortgage with a mortgage bank or finance company
These programs are for clients that can verify consistent employment and income as well some slow but not really bad credit.
2 - First and Second Mortgage
65-75% first mortgage with a bank or trust company
10-25% second mortgage with a finance company or private investor

This program is for exceptionally tarnished credit, previous bankruptcies, unverifiable income, self employed for less than 3 years, recent immigrants to Canada and that sort of thing. In most cases mortgage financing up to 85% of the home's value can be arranged if the house is in a populated area of 25,000 or more. 80% in most other areas.
For your options fill out our quick online form or call 1-877-590-1961.
Apply for your mortgage online now or download the application and fax it to 1-888-332-9329.

Non-Conforming Mortgages are qualified based on the following:
Minimum Down Payment/Equity Needed
In a tough credit situation, the down payment is everything. If the mortgage loan goes in to collection, the down payment/equity provides a cushion for the lenders while they go through the legal proceeding to gain the right to reposes the home. Therefore, the lenders will look for a minimum of 15% of the value of the home in down payment/equity. (e.g. $200,000 X 15% = $ 30,000). Occasionally, exceptions are made whereby 10% down payment will be sufficient. That will depend on how the other aspects of the applicant's qualifications stack up such as income and the extent of the damage to the credit.

Income Requirements
The income requirements must be reasonable to service the loan. Reasonable in that the applicant must be working or self-employed and have income coming in. The income requirements tend to be flexible as the down payment/equity increases. The income requirements do not have to fit into the typical GDS/TDS ratio calculations. Self - employed clients quite often have to acquire their financing under this program as many do not show enough taxable income to qualify under mainstream guidelines. Obviously the longer a client can prove consistent income the better.

Property Requirements
The property is the most important component of a tough credit mortgage loan. In essence, the lenders are lending on the value of the home and as such will be insistent that the property is a good and marketable piece of real estate. This is their security that their investment is protected in case of default. The lender must be extremely comfortable that they can recoup their investment. Their comfort comes from evaluating an appraisal of the property that must be done by an accredited appraiser. If the property does not meet with their approval, a loan will not be offered. A property in a major urban center is easier to finance versus a farm in rural Canada. There simply are more buyers for urban properties and the chance of liquidating a reposed home is invariably easier. Properties on municipal water and sewer are easier to approve than those on well and septic.

Credit Requirements
The minimum requirement is that you have a credit rating. Different lenders have different lending thresholds. Some will insist that any outstanding bad debts be paid off before they will lend the money. Others will not care as long as the down payment/equity is increased to 20% instead of the usual 15%. Most lenders look at an absolute minimum beacon or credit score of around 480 to 500. More information on credit is available here.

Previously Bankrupt
If you have declared bankruptcy, you may still qualify for mortgaging. Your available down payment determines what and how much you will be approved for. CMHC requires that a previously bankrupt client be discharged a minimum of two years before an insured mortgage is offered with 5 or 10% down payment. Additionally, CMHC requires that you have re-established credit after the bankruptcy. This is not as difficult a process as it may seem. There are several lenders who will offer a secured credit card to previously bankrupt clients. Information on a secured credit card and application can be found here.

If your two year, post-bankruptcy waiting period is not yet past, you will be required to have a minimum of 15% of the purchase price, or you will be unable to get mortgage financing. The structure of the financing will be in the form of a first and second mortgage to 85% of the value of the home.

Lender/Broker Fees
Most times, for good credit clients, the bank pays a small commission to the mortgage broker. However, in bad credit situations, the compensation for the broker for the work done in securing financing, must be paid by the client. This fee is typically paid on closing and is a percentage of the financing arranged.
Almost always, there will be fees charged by a second mortgage lender. The fee amounts are determined by the lender based on their risk evaluation. A lender may consider reducing their fee if you agree to take a higher rate, in effect, amortizing the fee over the life of the mortgage term.
Our typical brokerage fee is 1-3% of the total financing amount.

Sunday, February 05, 2006

Types of Mortgage Loans, which one is best for you

The following describes mortgage options that may be available to you, individually or in combination.

Low Interest Rate Mortgage

Generally the best way to find the lowest rate is to shop around. But every time you go to a bank they pull your credit bureau and applying too many times can lower your beacon score. Going to a mortgage broker is the best way to find your best rate and terms. They pull your credit bureau once and will shop a wide variety of banks for you, determining the best rate and terms. A broker may also know of smaller lending institutions which offer much more competitive rates than a large bank or finance company.

Adjustable Rate Mortgage

With an adjustable rate mortgage (sometimes called ARM) your payments will change over time to reflect any current interest rate fluctuations. The interest’s rates are adjusted semi-annually or on an annual basis. If the rate goes down your mortgage payments will go down and if the rate goes up so do your payments. The initial adjustable rate is usually low as an incentive, but you take the risk of having the rate go up or down depending on the current rates at the time of adjustment. An adjustable rate mortgage can look fairly attractive with low rates in the beginning but can cost you more in the long run so consider it carefully.

An adjustable rate mortgage are generally suited for people with a little more risk tolerance who would be able to make a higher payment amount if the interest rate went up. Some Adjustable rate mortgages include the option to lock in the rate if the rates go up, be sure to ask.

Fixed Rate Mortgages

With a fixed rate mortgage your monthly payments will be the same over the term of the mortgage. Your payment amount will not change. Generally the interest rate is a little higher for fixed rate. Fixed rates work best when interest rates are staying fairly stable. If the interest rates drop you can not take advantage of the benefits as you can with the adjustable rate.

Fixed rate mortgages are generally suitable for people with less risk tolerance that have a set income and don’t expect it to change over time.

Interest Only Mortgage

An interest only mortgage is like a line of credit. You only pay the interest on the mortgage. You have more flexibility in the payment amount, but the debt will never be paid off. You can structure this so you only pay the interest in the first 5, 10 or 15 years, this will reduce your mortgage payment amount significantly. At the end of the term you you have the option to pay interest and principal at an accelerated rate or you can choose a Balloon Mortgage (Mortgage loan principal becomes due at the end of your term).

Interest only loans come with many different options such as a fixed interest rate for the entire term or and adjustable rate which carry a fixed rate for a certain number of years and then adjust every 6 months to a year.

Interest only mortgage loans are generally ideal for people whose income is sporadic, either because they are on commission or they are seasonal or self - employed. In some cases they have the option to make payments 6 months only out of the year at a higher re payment on the principal amount.

Balloon Mortgage

With a Balloon Mortgage you will pay regular payments until the end of the term and at that time the full amount becomes due (called the Balloon payment), you are likely looking at a term of 3 or 5 years. A balloon mortgage will only be subject to interest rate adjustment once after the initial rate is set. The initial interest rates are lower.

Typically Balloon Mortgages are ideal for people who want to take advantage of lower interest rates and that are going to be in their home for a defined period of time. However there are disadvantages. If the interest rates go up refinancing may become more difficult and costly at the end of the term and you may have to re-qualify and have the home appraised again. It may end up that the appraised value is less than expected. So find out what your refinance options are.

Assumable Mortgage

An assumable mortgage is one that can be passed on from one owner to another. This can be an advantage if the current mortgage has a good rate compared to getting a brand new mortgage. You can only assume a mortgage if you have a down payment large enough to cover the difference between the value of the house and the amount of the mortgage.
If you don’t then you may have to look into a 2nd mortgage to cover the difference. Generally 2nd mortgages are at a higher interest rate.

Generally this mortgage type is a little riskier because you are assuming “as is”. You may not have all the options you would have with a brand new mortgage such as, prepayment privileges and payment frequency options.