This is not a new subject – if you have been speaking with me, you can hear the frustration in my voice. As a mortgage broker but also a tax-paying citizen, I am frustrated, because the government is impacting my ability to live comfortably and afford the lifestyle I and you pay for, through our taxes. Home ownership has become a privilege rather than a right in this country and that is a huge shame!
October 2016, we saw a shake-up to the industry when the government first started playing with the rules. Through the guise of controlling foreign buyers, it did nothing to impact them, however it definitely impacted us in our buying power and in some cases by 20%. Now looking forward, that will be further impacted again in January, 2018. Regardless if we put 20% down or not, we now have to qualify at the qualifying rate (currently 4.89% + 2%), which is the new stress test. This will impact your ability to qualify!
Whether you are a resident of Canada or even a non-resident (living and working abroad), you are probably wondering how to keep purchasing and/or refinancing when the mortgage rules keep changing like the wind!
Since last October, we have seen massive changes – everything from increased rates, properties that were previously insured are now uninsured and the qualifying rate for everything under the 5-year fixed has risen three times.
So with these massive changes how do you keep up? How do you purchase when the mortgage rules keep changing?
As brokers, we deal with these frustrations every day and the answer unfortunately is not clear!
DCR or debt coverage ratio, is one if not the most important thing to factor when it comes to commercial financing. However, it is one of the most overlooked aspects so I thought I would touch upon it’s importance here.
Last month, I closed on a very difficult commercial deal – a 12-plex in Orlando, FL. When looking at it initially the numbers looked strong and keep in mind at first glance they always will as they are put together by the realtor to get it sold. It is not until I as the broker or the lender do further due diligence with proper numbers, backed up by P/L and rent rolls, that the true numbers come out in the wash.
Many investors have been looking at their current residential portfolio’s and not liking what they are seeing. For instance, the recent rule changes have affected their ability to grow their single-family portfolio’s with CMHC no longer insuring these properties, which means less lenders to choose from. Furthermore, after the recent rate hikes and more to come, cash flows have also been affected.
Recently James, a non-resident from Singapore purchased a property in Toronto. We completed the deal from start to finish in 10 days, which was highly stressful for both the borrower, realtor and mortgage broker – yours truly.
Everyday, I was faced with lender delays, appraisal delays’ and many phone calls back and forth to verify details. It was not clear that we would be able to close and both James and the seller could not extend closing, which led to further stress. James was leaving back to Singapore on July 29th and the sellers were closing on another property on July 30th. Our closing was set for July 27th. Deadlines all around were tight. The only positive was that the realtor already had the status certificate reviewed by the lawyer, before the purchase agreement was signed, which saved us time in the process, enabling me to send that in with the paperwork to the lender.
I realized that it was the lack of explanation on my part that facilitated this occurrence and thought that this example would be a great learning tool for your purchases in Canada.
Everyday, I open up my inbox and I see countless messages or promotions from Private Lenders – both individual’s and institutional privates, seeking to compete in this ever-changing mortgage landscape.
Gone are the days, you could call a private lender and ask them to fund your client’s troubled file. Now they are also requiring more paperwork (even when they say they don’t) and their rates and fees are getting higher and higher! Private Lenders are feeling the squeeze too!
Why is this?
For one the market cannot rebound or absorb the over-inflated numbers we were seeing from the last two years. For instance, clients who were over-bidding on properties and in some cases paying over $100,000 to get into that property are now looking for a way out. However, they are in negative equity situations, which means they are stuck with the their current lending options or selling at a loss to get out from the overwhelming debt.
As a mortgage broker the worst question to get asked is “what’s the best rate you can get me?” When you shop for rate alone, you are unfortunately missing the bigger picture!
Let’s look at why this makes a difference when purchasing property in Canada and the US.
When you buy in Canada rate might be a good focus for you, because there are so many lenders competing on rate alone and with the high property prices rate is the main focus, because it indicates in many cases whether we can cash flow or not.
Guest Post by Yvette Barnes, Real Estate Salesperson at Right at Home Realty
We’ve heard a lot since the Federal and Provincial governments weighed in on the GTA housing market. Has the market cooled? It depends.
Prices soared last November because there were no listings. This April revealed 21,600 new (‘active’) listings – 33.6% more than April 2016. Our ‘active’ listing supply is 3% higher than this time last year. The May statistics verify new listings are about 47% more than the same period in 2016. In 2017, TREB reports a year-over-year growth of 20-25%; March was at 30%. This suggests the market has returned approximately 5% of the price increases gained.
As the summer approaches, I start to get inquiries from Canadian non-resident or expat clients, inquiring about how to purchase properties in Canada.
Many of these clients are Canadian citizens but they are working and living abroad in countries, such as, Dubai, Singapore, Abu Dhabi and England just to name a few countries. Canada, luckily enough is very favourable to foreign investment, and while these clients are not considered foreigners, once they live outside the country for a number of years, and no longer pay taxes at home, they are not considered citizens and thus do not enjoy the same financing benefits for residents of Canada.
Thus, I thought a good primer would be good. Let’s look at a recent example.
As a mortgage broker, I always strive to think out of the box, in order to stay competitive.
With that in mind, over two years ago, I went to the US (specifically Florida) and started making contacts with realtors, other mortgage brokers, lenders and wholesalers, just to name a few.
Once I had my contacts established and verified, meaning I would only work with referral sources that had been verified and could back up their offerings with proper protocols in place, I was then able to hit the Canadian market and start marketing this source of business. It has not been easy and has taken a lot of work but in the end, it has definitely worth it, as I have been assisting countless investors in Canada to invest in both residential and multi-family properties.