Have you been thinking of making a move up and trying to figure out your financing?
Lindsay from Spire Mortgages, talks about the process of funding your dream home.
When making a move up, funding your mortgage is super-easy. It doesn't have to be overwhelming.
Smooth, seamless financing is the goal of Spire Mortgage. To take all of the factors into consideration, they make sure that all documents are lined up perfectly.
The most important thing to have is pre-approvals with actual documents. Computer-generated records are only suitable for rate hold, but mortgage brokers need to see what's going on behind the scenes to ensure that the income is right.
Step one is putting together the paperwork that you need when you're going to the banks. You need a job letter within 30 days, two active pay stubs within 30 days and down payment information.
This process takes the most amount of time, and it is the most difficult because of online banking. Everyone transfers money from one account to another. The lender needs a paper trail for every transfer you make. They should have the least amount of time to touch the file and get reacquainted with it.
Touch the file is when lenders jump in and revisit your files. Because they see so many files, they have to update numbers. Actual people look at the file and get it approved.
When brokers waive financing conditions, the files should be 100% complete because that guarantees that they are not looking at your file again.
At the height of COVID, some revisit documents to ensure that you had an active pay stub, but that doesn’t happen often.
Proof of Income
Brokers back up a bit to make sense of any self-employed, commissioned income. They need two years' average. The more income from 2019 and 2018 that we can use, the better. 2020 is going to be a challenging year for a lot of people.
If you are self-employed, your income is going to be lower for 2020. It is best to start thinking about making that move within five to seven months because you can still use 2018, 2019 income instead of 2019 and 2020 income.
Now that payments extend into next year, we wonder what it could look like in the coming years. We are seeing many people using the Canada Emergency Response Benefit and saving it for their down payments.
Lindsay and her team have seen people who have saved some money and top it up using Canada's government's money into their bank account. They transfer out the fund into their own savings account. That’s why a paper trail is essential.
Just because you own something right now does not mean the bank will give you money.
When lenders look at your files when you are selling and wanting to buy your dream home, they want to make sure that if something goes sideways on your home's sale, they can either debt service both properties or find other ways to structure it.
Usually, you can get debt service both, but there are cases where the deal falls through at the last minute. Buyers don't sign the waiver, and lo and behold; you're stuck.
In the preapproval process, Spire Mortgage looks at what options. If a client says they already got a firm offer on the sale of their house, that’s perfect. That makes it super-easy.
A lot of people are taking advantage of the softening market and the lower prices. They want to get into a new community or have a bigger yard. They realize that they don't like the tight space they have to share.
When moving up, we need to look at porting and penalties. Know if you need bridge financing to cover the equity of the house you're selling to buy the new home.
Bridge Financing is when you're selling your house, and you're buying a new one, but you take possession of it before the firm sale. You get the money from the lawyer on the sale of your house. There's that in-between time, especially if you're going to use that money as a down payment on the new home.
Then you have both. You still have to put your deposit on the new house, but then you're not required to put the remainder down on your house's purchase because there’s bridge financing until your actual sale goes through.
You can have a maximum of 120 days of bridge financing. The longer the gap, the higher the loan amount for that bridge. You qualify for this if your house's sale is firm, and you have a waiver from the buyer.
Qualifying for a bridge loan is tied into the preapproval because you need approval on both sides. It is typically the same lender that is giving the bridge loan. A lot of the lenders offer it, but some lenders do not provide bridge financing.
You have to talk to your mortgage partner. Mortgage brokers give more options. Even if the bank that you choose doesn't have bridge financing, brokers can find alternatives.
When you find your dream home and still have your old house, it shouldn’t be overwhelming. Talk to your mortgage partners about it and know what's going to happen.
Another important factor is interest rates. There are a lot of discounted interest rates now. Ensure that you discuss this with your mortgage partner because some of those meagre interest rates now have many terms that are not ideal.
Right now, banks offer crazy low interest rates as if they are giving free money. But usually, those things are just hooks, and you will still pay it back to the bank. Nothing is free from a bank.
Keep in mind that the mortgage penalty is higher with those lenders. Your penalty depends on the posted rate right now, which is 4.79%. You have to know if it’s going to be attached to that versus your actual discounted rate. The bank always gets their money back.
Always ask questions. Ask what the basis of penalty calculation is. It is better to be more invested in the process of figuring out and getting the best deals that will work for you.
You are going to be further ahead when you ask more questions and gather more information.
The cheapest thing is not always the best. If you're going after a rate hunt and you're just trying to find the lowest rate, you could get screwed.
Moving up is a big process and a big transition. For those of you who are thinking of making that move, be prepared.
Educate yourself before committing to any deal and lean on your mortgage professional to help walk you through the process.
Reach out to Lindsay at lindsayatspiremortgage.ca. You can always send her a text message at (403) 703-3019. Spire Mortgage also has lots of information on their website, www.spiremortgage.ca