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Have you ever wondered how the lender looks at your application and makes a decision. This article will give you an insiders viewpoint.

When you fill out a credit application there are a number of important items that the bank or mortgage company is looking for. I have written this article to hopefully help you to see your application from the mortgage broker and the lenders point of view.

The mortgage broker is looking to see what the risks are in doing business with you. It is up to them to recommend your application to a lender. If they recommend bad applications the lender will eventually not want to take their applications

Here is what the mortgage broker and lender need from you in order to make a good qualified decision. The sooner you can supply this information the easier it will be to get your application approved.

Application Process

Personal Information

It is very important to use your correct name and employment information, plus birth date, licence. This way when a credit bureau is done on you they are sure they have the right person . Without this info a different Jane Smith may pop up with problems on their credit.

There are several sections on a credit application. They are as follows.

Inquiries Section

This section of a credit bureau tells the mortgage company how many people have made inquiries on your account. If there are too many inquiries they want to know why. This can affect your rate or even whether they want to deal with you. Don’t shop around. Go to a mortgage broker and let them do your credit bureau once and shop the full market for you. In Canada they have about 45 sources of regular mortgage money and numerous sources of private funds.

Judgement Section
If you have defaulted on any credit and been sued the judgement section will demonstrate this.

Trades Section

Tells the mortgage company who you are dealing with right now. Mortgages don’t show up in Canada but all credit cards, loans, lines of credit show up and whether your pay in instalments or monthly it shows up. There is a rating from R1-R9. R1 means you pay in 30 days, R9 is a bad debt. If you are showing R9’s the bank will be put off.

Beacon Score

Out of the above you will have a Beacon Score that is developed.
The Beacons Score will determine who will deal with you and what rate you will be offered. The higher the beacon score the lower the interest rate. Low beacons bring you high rates. If your beacon is below 600 you will have trouble getting a mortgage. You may require private money which will incur high fees and a high rate of interest.

What is Your Story

The broker needs to know your personal story. Why you have moved jobs or moved homes several times , if this is the case. Are you on probation at your current job, or on contract. Some mortgage companies will listen to your story if you have had some previous financial problems. However, this will not endear them to you enough to offer you a lower rate of interest in most cases.

What is your net worth

Where is the down payment coming from. Did you earn it, is it a gift. As mortgage brokers we have to prove where your down payment came from. This is due to FINTRAC And the governments money laundering rules.

Is your down payment readily convertible to cash. Assets such as horses, collector item cars, antiques and paintings are useful but not easy to convert so the lender is not as concerned or interested in this.

If you have income from a stock portfolio this is of interest to the lender.
The lender wants to see the down payment money in your account.
You will need to provide proof of down payment. An NOA if you are self employed and proof of the last 2 or 3 years income. Pay stubs. If you are on contract the bank will want to review your contract.

The next thing the mortgage company looks at is what collateral are you offering.

They will check the zoning of the property. There are different rules for residential zoning than commercial zoning. If it is a store with an apartment above you will not be able to get the same kind of loan ( approximately 65% ) versus a single family home with up to 95% loan.
If the land is leased again this will be handled differently to single family home.

Each lender has their own unique criteria for what type of property they will lend to. Condition can be important as well.

Does the property conform to the neighbourhood. They want to be sure that if you default they can sell that property within 90 days. They are not in the real estate investment business, they are earning their money on the spread between the cost of their money and what they loan it out for.

Character

Does your financial situation make sense with what your age and your maturity.
Do you have 20 credit cards with balances running on them or just 2. Some people are chronic credit seekers. This is not desirable. . If you are constantly taking money out of your home this is a concern.

The mortgage broker and lender are looking to see if you have integrity in how you do your business and live your financial life.

Typical Case Study of a First Time Home Buyer

Young man – 25 years old.
Beacon score 600 – a bit on the low side
Net worth $20,000. — $15,000 cash in bank for down payment
TDS is 34% with a GDS of 28% – GDS is the % of income that can be used to satisfy the mortgage and property tax payments.
Wants to buy a condo in an older building.
Income is verifiable with full time work, previously a student working on a part-time basis. Had a job loss for 8 months. Current job 6 months, probation is complete. Professional field, full time income, minimum other debt. Everything is current financially.
Current address 3 months, previous address 6 months, prior to that lived with parents.
The condo building is not a problem or concern.

What are the weaknesses of this young persons position.
Beacon is a bit low for most lenders.
Moved around a bit.
Short period of full time work.

However, at this age he is a professional and will likely stay in his full time job from hereon and is just really getting himself established in life. The lenders will take all this into consideration.

The mortgage broker must mitigate the risks to the lender. $15,000. in cash with $5000. Available for closing costs. Meets the lenders financial criteria. The broker must take into consideration the clients history and make a reasoned recommendation based on the above. The broker can recommend an exception for the lower beacon score.

The broker has to look at his list of options to see who will most likely take this mortgage and at what rate. Some will not look at a beacon under 640. So this application may go to a credit union or possibly one of the chartered banks may consider it. He also has to ask himself does the deal make sense. The lender will certainly be asking this question.

This doesn’t mean the mortgage company will agree with the broker. However, it is unlikely here the lender will get too hung up on the fact that he has moved around because of his age and just getting established.

To get your free copy of your credit bureau which you should check once per year go to www.equifax.ca. I don’t believe the free report gives you your beacon score. However, if you pay the $20.00 for the paid version you will get your beacon.
Hope This helps.

This is a 74% increase compared to the 2044 sales during the same period in 2009. There was a big dip in resales due to the recession.

The average price for mid February transactions was $429,997.00 an overall 18 % increase over 2009.
Keep in mind this is not a true 18 % increase as prices did dip roughly 13-14% at the end of 2008 to mid 2009 before they regained what had been lost and then added a few more percentage points. This was due to returned confidence in the economic conditions of our country.

The real estate market is important to job creation in Canada. It is estimated that every home sold generates on average an additional $46,000. in spending across many different sectors of the economy. This keeps many people employed in many real estate related fields including lawyers, home inspectors, retail stores such as home depot and contractors helping with renovation projects.

In January 4986 homes changed hands throughout the GTA. 1973 of these sales were in the 416 area and the balance in the 905 region.

Condo apartments made up 47% of all sales in the 416 area code in January.

This is in part because the largest segment of the market is the first time home buyer and they are generally purchasing under the $400,000. Mark. They can purchase a condo with a small downpayment and move in without requiring cash for renovations.

The 905 districts are becoming increasingly more desirable as the average price is about $40,000 lower than the 416 allowing first time home buyers to purchase homes rather than condos in many cases. These are often being bought direct from builders who are often helping with financing and many extras. For instance I was able to help my son purchase a home from a builder with a 3 year interest free loan. This allows them to pay of an extra $45,000 of principal in the first 3 years of ownership.

There are a couple of items that are driving price at the moment.

1/ is the interest rates which are threatening to go higher later in the year.
2/ is the lack of product on the market. Throughout all of the GTA in January there were just over 12,000 homes available in January. A year ago there was over 20,000 homes available.
3/ The coming of the rather onerous HST which kicks into place on July the 1st 2010. New Residences costing less than $400,000. Will effectively be exempt from the HST and there will be partial rebates on homes less than $500,000.

The immediate impact is that consumers will be paying more for a lot of items not previously taxed such as utilities and maintenance contracts imbedded in condo fees, legal fees and realtor commissions. This, together with any increase in mortgage interest rates, will reduce the number of buyers who can qualify in the second half of the year. Our forecast for is that 2010 will be the reverse of 2009 – strong first half, and lower second half!

In the downtown condo market, the sale-to-list ratio was 44% in January, down from over 80% at the end of last year and the number of new listings in February is accelerating. While multiple offers are common on well priced units in the popular price range ($300-450,000), more and more listings that are not priced right will sit in this market.

We also know that time is running out for sellers. The HST, coming July 1st, does not apply to resale housing but it will impact new sales coming after that date.

I believe we currently have the lowest inventory I have ever seen on the market during my real estate career.

We are looking forward to a climbing inventory in the spring as many folks are getting ready to put their homes on the market. This will help to stabilize prices and keep affordability in check. This is very important to sustaining a good healthy market. When the prices get way out of whack and affordability is gone the market slumps despite a healthy economy.

Rental Market
Rental prices are also holding steady with studios going for $1250, and one-bedroom units ranging from $1450 with no parking to $1650 for parking and a den. Two-bedroom units ranged from $2000 to $2500 for parking and a den. Three-bedroom units averaged $4500. Units are leasing for 100% of list price, on average and there has been the occasional ‘multiple offer’ situation as the vacancy rate for rental condos is still under 1%.

As always let me know how I can help. I can be reached at 416-462-1650.
If you have friends or business associates thinking of buying or selling I would much appreciate the referral.
Here is the link to our February online newsletter Newsletter
As always there are some excellent articles on renovation, Habitat for Humanity, banishing the winter blues and a couple of videos that you may find useful.

Best Wishes
Aeriol.

Fantastic Renovated Three storey duplex with 2 multi-level apartments. Three car private parking ( private drive). Excellent income from the lower level. The upper unit is owner occupied. Good sized yard. Walking distance to Withrow Park. Steps to schools, East side Chinatown, transportation.

Currently plastic bags constitute about 10% of debris on U.S. shorelines and China will save 37 million barrels of oil a year by banning fee plastic bags. Plastic bags also have a big impact on wildlife… there are some facts on their website. Buy 5 or 6 for your friends or clients for a gift instead of that big bottle of wine.

As of mid April they are proposing the following:

1/ If you are a first time home buyer you will have to qualify for your first loan based on a 5 year fixed term rate. Currently mortgage companies qualify buyers on a 3 year fixed term. Once qualified you can then generally choose the term of your choice. Since there is not a huge difference between 3 and 5 year rates at this particular moment that will not be terribly painful for most folks. This is a very good thing. When rates rise it will help to ensure that more people will be able to handle a larger mortgage payment.

2/ For sellers doing take-out mortgages on their homes they will only be able to max out on a loan up to 90% of their home’s value. Very smart idea.

3/ The government is proposing a way to slow down speculators by requiring them to put down 20% on properties. They are apparently targeting the condo flipping market. This is the same group that got into trouble back in the 80’s when thousands of condo deals didn’t close when the gov’t came down with a speculation tax. This had a radical effect on the Toronto market. Most builders look for 20% down to hold a unit for the 2 to 3 years it takes to get a building up so this should only affect those with fairly dicey deals anyway.

They are stating that this will not affect actual investors who buy multi unit properties to invest in and hold. In other words professional landlords rather than speculativ flippers.

So it will be interesting to see how this shapes up in the next few weeks. Check back again soon for an update.

 Over time we are going to attempt to give you some video previews of the styles, architecture, people and flavor of these Toronto villages including the food and some of our favorite restaurants.

Sitting just south of Queen St. in Queen West Village this home started out as a Fort York officers home.

The original charm of 12″ baseboards, high ceilings, warm pine floors and banisters has been retained. The home has been opened up on the main level to add to the floor space. The upper level has been converted from a 3 bedroom to 2 bedroom home with spacious bath and built-in laundry room.

There is an atrium addition to the fabulous kitchen with big skylight, and an adjacent main floor family room.

This home is bright and charming.

The garden is well developed and full of perennials. However should you require parking there is a rear access lane and part of the garden could be converted to parking .

the basement is unfinished.

The seller has done a number of upgrades. They are new furnace in 2008, 2010 new 100 amp electrical service, 3/4 ” water line providing excellent water pressure, roof in 1998 and mainly modern wooden windows.

Summer In The Garden At 31 Whitaker

Inside 31 Whitaker Ave.

Details Are Important