Wednesday 26 April 2017

What Every Home Buyer Needs

The best mortgage service that a new buyer can get is a full mortgage pre-qualification, and preparation process. The term "pre-approval" is often used to describe this process but the term "pre-approval" is misleading, and the pre-approval process needs to be sharpened for a competitive real estate market.

1.  A pre-approval can give a buyer a false sense of security. Some online pre-approval applications don't require full disclosure from the applicant. The borrower might be able to get a rate hold, but the rest of the application is not really of value.

2.  Many pre-approvals don't require supporting documents from the borrower. Documents are only required after the buyer has made an accepted offer. This does not set up the buyer for highest possible chance of success in the purchasing process.  An example of the importance of upfront document collection was a client who had to request a job letter three times from her employer to get the correct letter for her mortgage. In a competitive real estate market, delays in getting documents can really hold a buyer back.

3.  Some pre-approvals don't qualify for the maximum mortgage allowed. Sometimes there are more options available when the deal goes "live" - meaning you have made an accepted offer.  A simple pre-approval does not necessarily give you all of the information that you need. A comprehensive pre-qualification process will give you the information you need.

4.  Many buyers don't qualify for a pre-approval because their mortgage will be in the Alt-A mortgage category where there are no pre-approvals. Since the new mortgage rules came into affect, over the last few months, more people are in the Alt-A category.  There are slightly higher rates in Alt-A and slightly easier rules.  A pre-qualification process is designed to explore many options.

A better system:

A home buyer gets a final pre-qualification based on supporting documents. The documents (job letter, pay stub etc.) ensure accurate numbers. All mortgage types are explored because different types of mortgage can alter decisions.

When the pre-qualification process is done, a rate hold can be obtained. A rate hold is what is often called a pre-approval.  And it does what it sounds like it does. It holds an interest rate for you even if interest rates are rising. Most often a better mortgage can be obtained when the deal is live. The rate hold is just a back up plan in my opinion.

There is no doubt that "pre-approval" is the language that buyers are used to. It is an effective word used in advertising and is a hook! However, a home buyer is better off with a full pre-qualification and preparation process.

Better Advice, More Choice, and Peace of Mind!
Remember M for Mortgage!


 

Friday 21 April 2017

Financing a Home Renovation

The cost of renovations of a home are often better bundled into a mortgage rather than paying the high interest rates of a consumer loan.  It sounds straight forward?

Yes, but you need a to know your full mortgage options.

Real life example:

I am currently arranging a renovation mortgage for clients whom I assisted two years ago when they bought their first house. They recently approached me asking for a refinance. A refinance would involve breaking the old mortgage and paying the penalty and then getting a new mortgage with a higher balance. Before proceeding with their request, we explored all options first. 

1.  The refinance they originally requested would involve over $6000 in penalty costs; and the new mortgage would be at a slightly higher rate than the original mortgage.  This option is doable and while there are costs, it is still reasonable.

2.  A second mortgage at 3.8% fixed rate would be a better option. They would not have the penalty to pay because they would leave the first mortgage intact. The rate is excellent for a second mortgage and because the amount they need for the renovation is about $50 000, the slightly high rate would not cost them a lot in dollars.

3.  A second mortgage as a home line of credit was my recommendation. The rate worked out to be 3.2% (P=0.5%) and the great thing is that they only borrow money as they need it. For example, if stage one of the renovation costs $10 000, then they will only withdraw $10 000 from the line of credit until they need more. The line of credit is also larger than their anticipated costs. This gives them the opportunity to access the line of credit if they decide to do other renovations in years ahead.

Not surprising, the clients agreed that option three was their choice. They were not aware that they had this choice before doing our consultation.

The beauty of the process is that at no point were these home renovators pressured into doing anything. Making an inquiry to have your mortgage options explored, can only be beneficial. 

Better Advice, More Choices and Peace of Mind!