16 Sep

10 Mortgage Mistakes

General

Posted by: Matt Dunstone

10 great things to keep in mind when you are looking into being approved for a mortgage!

Whether it is your first house or you’re moving to a new neighborhood, getting approved for a mortgage is exciting! However, even if you have been approved and are simply waiting to close, there are still some things to keep in mind to ensure your efforts are successful.

Many homeowners believe that if you have been approved for a mortgage, you are good to go. However, your lender or mortgage insurance provider will often run a final credit report before completion to ensure that nothing has changed. Changes in your credit usage and score could affect what you qualify for – or whether or not you get your mortgage at all.

To avoid having your mortgage approval status reversed or jeopardizing your financing, be sure to stay away from these 10 mortgage mistakes:

1. BEEFING UP YOUR APPLICATION

This is not a time to try and ‘beef up’ your financials; you must be honest on your mortgage application. This is especially true when seeking the advice of a mortgage professional, as their main goal is to assist you in your home buying journey. Providing accurate information surrounding your income, properties owned, debts, assets and your financial past is critical. If you have been through a foreclosure, bankruptcy or consumer proposal, disclose this right away as well. We are here to help!

2. GETTING PRE-APPROVED

With all the changes and qualifying requirements surrounding mortgages, it is a mistake to assume that you will be approved. Many things can influence whether or not you qualify for financing such as unknown changes to your credit report, mortgage product updates or rate changes. Getting pre-approved is the first step to ensuring you are on the right track and securing that mortgage! Most banks consider pre-approval to be valid for four months. So, even if you aren’t house-hunting tomorrow, getting pre-approved NOW will come in handy if a new home is in your near future.

3. SHOPPING AROUND

One of the biggest mistakes people make when signing for a mortgage is not shopping around. It is easy to simply sign up with your existing bank, but you could be paying thousands more than you need to, without even knowing it! This is where a mortgage broker can help! With access to hundreds of lenders and financial institutions, a mortgage professional can help you find a mortgage with the best rate and terms to suit YOUR needs.

4. NOT SAVING FOR A DOWN PAYMENT

Your down payment is a critical part of homeownership and a useful financial tool that you should utilize when purchasing a home. A down payment reduces the overall amount of financing you need and increases the amount of equity right from the start. Down payments also show the bank you are serious. In Canada, the minimum down payment is 5% (with mortgage insurance), with the recommended being 20% if possible.

5. CHANGING EMPLOYERS OR JOBS        

As employment is one of the most important factors that determines whether or not you qualify for financing, it is important not to change employers if you are in the middle of the approval process. Banks prefer to see a long tenure with your employer, as it indicates financial stability. It is best to wait for any major career changes until after your mortgage has been approved and you have the keys to your new home!

6. APPLYING OR CO-SIGNING FOR OTHER LOANS

Applying for additional loans or financing while you are currently in the midst of finalizing a mortgage contract can drastically affect what you qualify for – it can even jeopardize your credit rating! Save any big purchases, such as a new car, until after your mortgage has been finalized.

Also, just as applying for new loans can wreak havoc on a mortgage application, so can co-signing for other loans. Co-signing signifies that you can handle the full responsibility of the debt if the other individual defaults. As a result, this will show up on your credit report and can become a liability on your application, potentially lowering your borrowing power.

7. AVOIDING CREDIT MISSTEPS

As mortgage financing is contingent on your credit score and your current debt, it is important to keep these things healthy during the course of mortgage approval. Do not go over any limits on your cards or lines of credit, or miss any payment dates during the time your finances are being reviewed. This will affect whether or not the lender sees you as a responsible borrower.

Also, although you might think an application with less debt available to use would be something a bank would favor, credit scores actually increase the longer a card is open and in good standing. Having unused available credit and cards open for a long duration with a good history of repayment is a good thing! In fact, if you lower the level of your available credit (especially in the midst of an application) it could lower your credit score.

8. HAVING TOO MUCH DEBT

Credit card debt is on the rise and overuse of lines of credit can put you at risk for debt overload. Large purchases such as new truck or boat can push your total debt servicing ratio over the limit (how much you owe versus how much you make), making it impossible to receive financing. Some homeowners have so much consumer debt that they aren’t even able to refinance their home to consolidate that debt. Before you start considering a new home, make sure your current debt is under control.

9. LARGE DEPOSITS

Just as now is not the time for new loans, it is also not the time for large deposits or “mattress money” to come into your account. The bank requires a three-month history of all down payments and funds for the mortgage when purchasing property. Any deposits outside of your employment or pension income will need to be verified with a paper trail – such as a bill of sale for a vehicle, or income tax credit receipts. Unexplained deposits can delay your mortgage financing, or put it in jeopardy if they cannot be explained.

10. MARRYING INTO POOR CREDIT

Having the financial talk before getting hitched continues to be critical for your financial future. Your partner’s credit can affect your ability to get approved for a mortgage. If there are unexpected financial issues with your partner’s credit history, make sure to have a discussion with your mortgage broker before you start shopping for a new home.

If you are currently in the midst of a mortgage application, or are looking to start the process, don’t hesitate to reach out to a Dominion Lending Centres Mortgage Professional today to ensure that you do things the RIGHT way to succeed with your home purchase.

2 Sep

All About Reverse Mortgages!

General

Posted by: Matt Dunstone

While there are many different mortgage options out there, there is one type of mortgage available for seniors: a reverse mortgage. This article will be your comprehensive guide to reverse mortgages, what they bring to the table, and how they may be beneficial.

What is a reverse mortgage?

The simplest explanation for this is that it is a type of mortgage loan that is available only to homeowners 55 years old and above. In essence, it lets them convert part of the equity that is in their homes into cash.

Initially, this was a product that was created with the idea of helping retirees with limited income stay in their homes. This is achieved by using the accumulated equity in their homes to cover health care and basic living expenses. When it comes to reverse mortgage proceeds, there is no limitation or restriction on how the proceeds can be used.

It is called a reverse mortgage because instead of making monthly payments to a lender – like a traditional mortgage – the lender makes payments to the borrower.

With this type of mortgage, the borrower isn’t required to pay back the loan until the home is sold, vacated, or everyone on the title passes away. So long as the borrower lives in the home, they are not required to make monthly payments towards the loan balance. However, there is still the matter of remaining current on property taxes, HOA dues where applicable, and homeowners’ insurance.

Knowing the basics of reverse mortgages

Knowing the different types of reverse mortgages can be beneficial when it comes to making the selection that fits you best. We will get into each kind in detail. There are a few details, however, that lenders will generally look for. These are:

  • Your age as well as the age of your spouse if they are listed on the title of your house
  • Where you live
  • The condition of your home, its type, and its appraised value

A good rule of thumb to consider is that the older you are and the more equity you have in your home, the more money that you could get. This is, of course, impacted by current market trends, so keep that in mind. You could even use the money from the reverse mortgage to do this.

If there is a remainder left, you can use it for a wide range of things like:

  • help with regular bills
  • cover healthcare expenses
  • pay for home repairs or improvements
  • repay debts

There is a lot of flexibility when it comes to how you spend your loan, making it one of the more versatile options out there.

If you want to learn the plain facts on reverse mortgages, there are a number of great resources available online, including information from the Financial Consumer Agency of Canada.

How to access the money from a reverse mortgage

There are a couple of ways to get access to the money from your loan. This can be achieved by either taking the money in a one-time lump sum, for starters. It can also be taken in an upfront portion with the rest over time.

Generally, it’s good to ask your lender what the options are. There may also be restrictions and fees, so be aware of those as well. You also must pay off and close any outstanding loans or lines of credit tied to the home.

Single-purpose reverse mortgage

This is the kind of mortgage that is offered by provincial, local, and nonprofit agencies. Not only that, but it is considered to be the least expensive process. The municipality or agency specifies the reason for this type of mortgage, and that will be its only use.

Homeowners can use the proceeds from this type of mortgage only to pay for a specific lender-approved item. The proceeds can cover property taxes or necessary repairs to the home. Whereas home-equity loan proceeds can be used for any purpose, the lender restricts how single-purpose proceeds can be used.

The difference here is that, with a home equity loan or line of credit, there is a monthly payment. With a single-purpose loan, there is no need for repayment until the home’s ownership changes, the borrower moves to a different residence, or passes away. It can also become due if the homeowners’ insurance on the property lapses or the city condemns the property.

The reason to go with his type of mortgage is that the homeowner can expect to pay far less in interest and fees. This differs greatly from a home equity conversion or proprietary reverse mortgage. While there is no need to make a payment until it is due, fees, interest, and mortgage insurance can reduce the amount that the homeowner can borrow.

Pros and cons of a reverse mortgage

After all of that, you may still be wondering whether or not a reverse mortgage is the best idea. Like anything else in life, it comes with its own set of pros and cons involved. This makes it worth considering and looking further into.

Let’s start with the good news first.

THE PROS

This type of mortgage can be a very powerful source of income for older individuals. It can be for those who need to increase their retirement income or take on a big household project. Since the largest asset that most retirees have is their home – and it is likely paid off – this allows for an increase in income without increasing monthly payments. It is a great way for retirees to stay in their homes.

Not only that, but it can be highly beneficial because it requires no payment. That is until ownership of the home changes hand, the home is vacated or condemned, or the borrower passes away. It is the quickest and easiest path to substantially more income for a retired person who may not otherwise have that kind of access to additional funds.

THE CONS

Generally speaking, the interest rates tend to be much higher than most other types of mortgages out there. It is also worth considering that the equity in your home could go down. Combined with interest on your loan adding up, it could create quite the gap.

While you won’t need to repay the loan until you pass or sell the home, paying the loan and interest in full will fall on the shoulders of your estate. Not only that, but it must be repaid within a specific period of time.

The general costs associated with this type of mortgage also tend to be much higher. While there is certainly greater flexibility in how you get and spend your money, it comes at a cost, literally.

The verdict

Ultimately, it is up to you to determine if the benefits offset the higher cost and burden of repayment that falls on your estate. Getting the money from your loan, as well as what you can spend it on, is perhaps one of the most flexible mortgage options out there. This is especially true for seniors.

It also provides much-needed income for those retirees who may not have adequate funds for retirement. This shortfall can happen for a lot of reasons, and it is common for retirees to exceed their expected retirement life.

Weighing the pros and cons is essential regardless of the loan type. A reverse mortgage has all the potential to be beneficial to seniors in need of funds and provides greater flexibility for acquiring and spending that money.