27 Jul

Do Not Rush to Renew – You are in Control

General

Posted by: Jonathan Barlow

Sunday Morning; you’re sitting at your computer, having a cup of coffee. You go into online banking to pay some bills.

A notice pops up: “ Prime Early Renewal Offer” . The offer tells you that the bank is prepared to renew your mortgage ninety days before the expiry of the current term at a “discounted” rate because you are a “valued customer”. You have 5 days to accept the offer and then another 10 to print, sign and return the renewal documents.

You hesitate for seconds, then hover the cursor over the “ACCEPT OFFER” button. STOP and THINK before you do.

Why the bank offers early renewal…
Simply put, its cheaper for the bank to keep you on the books than go out and find other mortgage clients. They just don’t want to give you the opportunity to think about your options.They rely on you’re willingness to trust them. The early renewal process is important to them because each branch is measured on it’s ability to retain your business, find new business and the profitability of that business.

About the “discounted” rate…
The discounted rate offered is often calculated based on how profitable you are to the bank. In a large branch your two hundred and fifty thousand dollar mortgage may be part of a billion dollar book of business – a place where a commonly held belief is that 20 % of the clients contribute 80 % of the profit. Maybe the rate offered isn’t that great.

What your early renewal offer does not provide…
Advice. Again, your financial institution is relying on the fact that you are not going to ask questions, that you’re just going to trust them.

Always keep in mind that for the 120 days before renewal, you are totally in control. There’s no consequence ( penalty) to you if you decide to switch out for better terms through another lender, perhaps a lender who is better suited to who you are. At very least, take the opportunity to understand what the options are.

Even if you do decide in the end to stay with the original lender, its worth taking the time to talk to a Mortgage Professional and get the great advice you should be getting.

As always, if you have any questions or need help, please call or email.

JB

Jonathan Barlow
778-230-2572
jbarlow@dominionlending.ca

25 Jul

The Most Important Key to Your New Home; Advice.

General

Posted by: Jonathan Barlow

People dream of the financial freedom of winning millions of dollars but often, what we do have to invest in freedom is a much smaller sum.

Imagine you have $350000 to invest – you have decided to get help from a financial planner in order to know what to do with it.

On Tuesday, you meet with Mike Anderson, a financial planner working in South Surrey. He seems young but has fifteen years of experience and after a half hour’s chat, you realize you’ve found someone you can trust with your money.

At your next scheduled meeting, you get down to business. Mike asks you a battery of questions, designed to discover your risk tolerance, your attitude towards investments, your goals and your current financial picture. He prints out a summary, which you review with him. You take a copy home with you.

A couple of weeks later, you and Mike meet again. This time Mike has drawn up a full financial plan. Its very detailed, describing several investment strategies matching your risk tolerance, what happens in an emergency and what the potential outcome of each strategy is. Oh yeah, he talks about the tax consequences of each strategy as well.

You agree on one particular strategy with several investments that you find fascinating and a monthly savings plan you can easily afford, just like he knew you would.

Before you leave, he tells you how long it will take to move the money into the investments, opened the new investment accounts and given you one of his branded $5 pens!

Thinking about it on the way out, you realize that what Mike sells ( and you happily buy ) is not investments at all, but advice. Long term, highly valuable advice.

Often when we approach a mortgage professional, we’re expecting the cheapest product, and don’t care about the advice. We do ourselves a disservice in thinking this way. Why? Well the most valuable thing a mortgage professional can provide is advice and planning – similar to what Mike provides. Think about it, you’re actually going to invest say, $350000 of a financial institution’s money, in yourself. Don’t you deserve comprehensive advice on funding the largest purchases most of us will ever make?

Some of the things you should get advice on, when looking for mortgage financing;

A good rate. Note that I didn’t say the best or cheapest rate. Often there are other financial consequences to the cheapest rate that don’t apply at the time, but will make you wince later. Remember too, that a few basis points difference may translate into a 5 or 10 dollar difference in your monthly payment.
Minimizing breakage costs. Early Payment Penalties are the hidden cost for many great rates. At the beginning , it may seem impossibly far off, but at some point or another, we all sell up – to upgrade, downgrade or move sideways. My mother owned 6 homes during her lifetime and my father, 11. Your own mileage may vary, but you’ll still move. Its best to have a plan.
Avoiding payment shock. If you’re getting in to your first five year term about now, you may be in for a bit of a payment shock. Not now, but imagine that five years from now, interest rates have gone up, even if its only a little bit. There’s a good chance you will be paying a higher monthly payment at renewal than you are now. How will you deal with the shock of a payment that may be $300 or $400 more than you’re paying now?
Building Equity. Other than through appreciation ( i.e. your home going up in value), how are you going to build equity? If you’ll be upsizing, how do you minimize the cost of buying a bigger home. If you’re planning on downsizing, how do maximize your equity to ensure you can possibly live mortgage free or even maximize the funds left over to use for retirement?

The key to getting the best mortgage advice you can is, of course, see a mortgage professional.

As always, if you have any questions or need help, please call  or email.

JB

Jonathan Barlow
778-230-2572
jbarlow@dominionlending.ca

23 Jul

Thespians Deserve Mortgages, Too. A Brief Guide

General

Posted by: Jonathan Barlow

In school, I had aspirations towards the creative arts, even so far as making photography the focus of my university studies.

In the end though, I bottled it and got a real job. I don’t regret it, even though the “arts” part of my life accounts for less than ten percent of my annual income, it still plays a significant part in who I am.

One of the great things about Facebook has been the opportunity to reconnect with many friends who, in their twenties, were just starting out on a life in the arts. Many have grown and have successful careers but it’s those who “tread the boards” that I most admire. The hunger for success has no doubt overcome a lot of lean years.

Whatever stage you are at in your performing arts career, here are some tips to getting the first or next mortgage;

Manage your credit, carefully.
Make use of credit, but don’t use credit frivolously. Even in times where you have to use the credit card or credit line to buy food, do not under any circumstances go over your credit limit. Nothing will drive a credit score down faster.
If you do get behind, keep in regular contact with your creditors and work with them to get caught up.

Have a savings plan.
If there is one thing I could have told my younger self, it would have been to start saving, early. Even if its $25 a month, get in to the habit of saving money. As you earn more, you can increase the monthly savings amount. Eventually, you won’t even notice the missing money you’ll ha ve a nice little nestegg building up.

Incorporate as soon as possible.
Actors have been pilloried since the Renaissance, but the fact of the matter is you are simply self employed. Incorporating implies that you mean business about your career. With some good advice, you can also minimize the amount of tax you’re paying when business is good. When applying for a mortgage its better to have three years of company financials than the usual requirement of two, so start now. Incorporating is not expensive, but it does indicate to lenders that you are serious about your business.

Manage your expectations.
Home buying is a lot like your chosen profession, you can’t expect to purchase a detached house in a swanky neighbourhood first time out anymore than you can expect to land the lead in the Scottish play in your first week out of school. Be realistic about what you can afford at your current life stage. With a little thought and planning, its attainable.

Things to be aware of when you are ready to own;

Default Insurance.
If you are just starting out, you will likely have less than a twenty percent down payment, which means you’ll have to pay for default insurance, the fee for which is added to the mortgage amount. Its not a bad thing- because the mortgage is insured, lenders can be more lenient with the rate.

Increased Risk means increased rate.
If you’ve had poor credit in the past or lots of variation in your income, expect to pay a higher rate for the new mortgage. In today’s market, if you find yourself in a situation where you’ve had poor credit, you can potentially pay one percent higher or more, for your financing. Again, this is not a bad thing. It gives you a chance to prove yourself over the next one to two years. If all goes well, you can refinance at competitive rates.

Variable versus Fixed Rate.
Both a variable rate mortgage and a fixed rate mortgage have benefits over one another. Whats most important is to have the discussion with your Mortgage Professional about your risk tolerance and which one is more suitable to you.

Co-Signors and Guarantors.
Sometimes, a lender will ask for a Co-Signor or a Guarantor to come on with you, to reduce what they see as risk in your application. A co-signor guarantees support for your regular payments whereas a Guarantor only guarantees the full balance owing, in case of default. Nowadays, most lenders ask for co-signors rather than guarantors. Again, once you’ve proven yourself, you can ask for the co-signors to be removed and if you’ve paid as agreed, the lender will generally grant the request.

Use a Mortgage Broker.
Not every lender will be willing to consider your application. In order to deal with that you can either go to two or three lenders yourself, go through the application process and be assured that at least one lender will say no to you or, you can use the services of a mortgage professional. Mortgage Brokers specialize in finding the right mortgage fit for you and will also provide you with advice and a mortgage strategy to suit your needs. Trust them, they’re as good at what they do as your agent.

As always, if you have any questions or need any help, please feel free to give me a call or email me.

*I’d like to say a special thanks to Writer/Director/Actor Sugith Varughese for sharing his experiences with me. You may recognize Sugith from “Little Mosque on the Prairie” or this year’s (Season One) “The Girlfriend Experience”. Look for him next in the TV Movie “Legion”.

 

 

 

13 Jul

The Perils of Pre Approval

General

Posted by: Jonathan Barlow

A Waiter, A Real Estate Agent and a Writer walk in to a bar.

The Bartender comes up, and the waiter says, “ I understand this place is up for sale, how much do you want for it? “

The bartender replies, “Yeah it is, but I’m betting you can’t afford it.”

“Well I have $50,000 down and I’m pre-approved for another $350,000, so I’d like to make an offer to buy this place.” Turning to the Realtor, he says, “Can you write up the offer? I’d like to close this week. “

The bartender cracks a smile and says, “Can I get you guys a Negroni? On the house?”

There months later, the real estate agent and the writer are sitting at the bar drinking Negronis. The waiter is behind the bar serving them.  

Unfortunately, the joke is on the waiter. Unable to complete the sale, he’s working here as a second job, trying to recoup the $50,000 deposit he lost because he couldn’t get the financing in the end.

Wait a sec, didn’t he say he that he was pre approved? He was, but the lender wouldn’t approve the property.

Mortgage approval is really a two stage process, first you are approved based on your credit worthiness, then the property you want to purchase is reviewed, to ensure it meets the lenders guidelines. A pre-approval means that, for the moment, only you are approved. The approval is based on your ability to pay back a specific amount of money.

When the lender receives the appraisal for the property, step two of the approval process begins. They will review the appraisal and any other documentation about the property and look for things that may be outside their lending policy.

Some factors that you can control to ensure your pre approval turns in to an approval:

A)Buy the type of property you’ve planned to all along. i.e. If you told your Mortgage Professional you want a townhouse, don’t turn around and put an offer in on some land with a manufactured home on it.

B)Properties such as owned Co-Ops and those with land leases will need special consideration by a lender who is prepared to lend on that type of property.

C)Similarly, float homes and vacation properties require special consideration.

D)Be clear whether you are going to live in or rent out the property.

E)Don’t assume you can finance more than you are pre-approved for. If you get into a bidding situation and then make an offer over what you had budgeted for, the lender may not approve you at the higher amount.

Some possibly hidden factors that you can’t control, that will affect your pre approval:

    1. Environmental impacts such as a buried oil tank or non potable water.
    2. Easements.
    3. Special Assessments
    4. Non-conforming, possibly illegal use.

I know in a real estate climate such as ours, where you may be competing with cash offers, the temptation is to make an offer with no financing condition but don’t set yourself up. Don’t end up like our waiter friend.

If you have and questions, comments or need help with financing, please feel free to give me a call or email.

JB

11 Jul

The Importance of an Exit Plan

General

Posted by: Jonathan Barlow

A former boss and mentor recently told me that in any business arrangement, its important to have an exit plan. He said that things may be going really well but that you may want to change direction, create a new business arrangement or even do something entirely different.

Because of that, you want to understand what the costs are for making the change, ideally before you’ve even started on your current venture.

Believe it or not, the same applies to mortgage financing.

‘Why’, you ask yourself, ‘if I’m never going to move’?

Chances are you will, though. Everyone’s life changes – at some point or another each of us will likely end up breaking a mortgage contract and we’ll end up having to pay some of sort of penalty for doing so.

Early payout penalties arise not because the financial institution is mad at you, but because they’ve borrowed the money to lend to you, on similar terms, from their depositors. They simply need to cover the extra costs – called “breakage” costs.

Having an exit plan, understanding how much you can potentially pay to wind up your existing mortgage, is at least as important as getting the best rate you possibly can. Saving ten dollars on a monthly payment means little when you are faced with a penalty of thousands and thousands of dollars simply because you need to sell up and move away.

The main thing to be concerned with is how the penalty is calculated, as its different everywhere.

Huh?

Well, no two lenders seem to calculate the penalty the same way. One end of the range calculates penalties based on the posted interest rate (not the discounted rate they offered you) and the full amount of the current principal balance, while the other end use the discounted rate and 70% of the balance. Even in today’s low rate climate, the difference can be as much as $10,000 on a $300,000 mortgage. There are all manner of variations in between, too.

If you’re meeting with a Mortgage Professional at the moment, it’s a good idea to have some discussion about your exit plan. They should be able to come up with a great strategy to a) save you money on your payments and b) reduce the amount of the penalty you may potentially have to pay.

Already locked in to a mortgage? Find out what your penalty is today and if the amount makes you gulp, then see a Mortgage Professional 120 days before renewal to explore more options.

If you have any questions or need any help, please call or email me.

 

JB

7 Jul

BC; A new regulatory environment for Real Estate Agents. What really changes?

General

Posted by: Jonathan Barlow

For most Real Estate Professionals, I suspect it will be business as usual.

Lost in the negative press surrounding profit taking schemes and affordability, is the fact that the bulk of the Real Estate Professionals in this province continue to provide stellar advice to their clients, they continue to help thousands find a home and thousands of others to sell theirs.

Having worked in financial services for 30 years, I have been lucky enough to work with a bunch of them. For the most part, they are smart, hard working, engaging and wholly client focused.

Our own agent, Blake, exemplified that client focus, when he was helping us to find and acquire our current home. He initially spent several hours with us, discussing what we wanted and narrowing down the possibilities.

Being peripherally “in the business” at the time, I had my own ideas about what we wanted to look at, so added several possibilities to the list. Blake accepted this until we entered the second of my choices. He walked through the main floor of the dark , dank townhouse and then turned to us saying, “ I will NOT let you put an offer in on this place, NO CHANCE!”.

Being a great Real Estate Professional is akin to being a great fishing guide, you need to bear with clients who may have errr “foibles”. During the second inspection of what is now our home, while looking at the main floor bathtub, I remarked to my wife, in a loud voice, “I wonder if he’s going to charge us extra for those (curly) hairs in the tub?”

“ I DID NOT hear that!”, was the response from upstairs.

Great Real Estate Professionals earn their commissions, one client at a time. It’s up to you, as a client, to figure out which one you can work with. Ideally, you should spend a while interviewing each other. Its worth the time and effort – this is the person who is going to help you with one of the largest financial transactions of your life.

There has been no suggestion has to how the new regulatory body will work and what it will look like.

Hopefully, the Province will consider the options carefully, perhaps modelling it on something like the great industry/government partnership that regulates the travel industry in Ontario. Their regulatory body has a board of fifteen, five from the government and ten from the industry.

However it turns out, we can only hope the Province doesn’t inadvertently throw the baby out with the bathwater.

If you have any questions, comments or need help with financing, please feel free to give me a call or email.

JB

5 Jul

Wondering if you can save a bit by buying a foreclosure?

General

Posted by: Jonathan Barlow

 

Chances are, you’ve seen real estate listings that end with terms like, “as-is, where-is” or “court ordered sale” or even “ offers subject to court approval” and wondered if the listing prices were real. Or even wondered if you should be looking at foreclosed properties in order to make or save a buck.

My advice to you is to run the other direction as fast as you can.

 

Lets begin with the foreclosed property sales process to see why:

In BC, the process of taking possession of a property in default and then reselling it takes about a year, then another six months for the sale.  During this time, the Mortgagor (the owners) can live in the property subject to only to allowing reasonable access to the realtor. They can live in the property without paying a penny against the mortgage, potentially to the final closing date.

Some, like the Smith family, who have fallen on hard times, treat this as an opportunity to get back on their feet and continue to take pride in their home and ensure that it stays in good shape.

Others, like the Jones family, have rented the property out since they bought it, haven’t maintained it, and now that they are in default, abandon any pretence of caring for the property.

After a years worth of legal action, the mortgagee (the bank or whatever financial institution the mortgage is with) meets with a judge and agrees on a price to list the property at. The Judge, who acts for the benefit of the mortgagee (the Smiths or the Joneses), insists that it be at the fair market value.

The property is then listed. It sits on the market for three to six months, the listing price drops regularly.

At some point, someone approaches the listing realtor with an offer. Because the place is listed “As-is, where-is”, all of the normal subjects and conditions have to be removed before the offer is represented. There is no allowance for financing, inspection and remedying existing problems. Even the normal disclosure statement will not be provided.

It’s entirely up to you to have all your ducks in a row (and theirs as well) prior to submitting an offer.

Once the offer is agreed upon by the bank, the listing realtor takes the offer to court for approval. If your realtor is smart and experienced, you tag along. Once in court, the offer is presented to the master for review. If anyone else has been interested in the property, they now take the opportunity to come in with a competing, sealed bid on the property. You will be given an opportunity to counter, but its basically guesswork as to how much to bid.

The successful bidder is now instructed to close within a very short period of time.

Because the bank are selling the property under a legal order rather than as an owner and because you are buying “as-is, where-is”, they cannot be held accountable for any damage incurred between your last inspection and the possession date. They will make every effort to prevent it, but what if the Jones family, angry at what’s happened, entered the property and trash the place, or remove all the appliances and fixtures for their next rental property?

Remember there are no subjects on your offer – you can’t cancel it no matter what.  Then there are the clean up and fix up costs which you and you alone are on the hook for.

In the end buying a foreclosed property may end up costing you more than buying the property for sale next door to it that’s move in ready.

Still not convinced? Still want to give it a try?

Here’s some advice on going ahead:

-Find the most experienced realtor you can and stick to him or her like glue. This is not a task for your Uncle Manny, no matter what a great guy he is. There are about a dozen or so realtors (BC again) who specialize in selling foreclosed properties. Someone like that who has handled dozens or even hundreds of foreclosure sales can provide valuable service in ensuring the transactions flow smoothly.

-Find your financing before you start looking. In terms of financing, the best (and possibly only) terms you will get will be subject to less than 65% loan to value. Make sure you have easy access to the 35% cash commitment ready.

-Have lots of experience in the building trades or have experienced family or a friend who can come with you on the walk through. Nothing says buyer’s remorse quite like the crack in the foundation you failed to notice on first look or underestimating the clean up costs by $100,000.

-Find a qualified inspector with a good reputation and when you’ve found a property, pay him well to tell you what’s good and bad.

-If you’re looking at a Condo with a special assessment due and the bank says they’ll pay the special assessment, remember they’ll only pay that one. I guarantee you there will be a second one, which you will need to factor in to your costs.

-If you are wanting to buy a foreclosed grow op, make sure the damage has been remediated and a clearance certificate has been issued. No one will finance an unremediated one! Note there are only about three lenders who will finance one with a clearance certificate.

-Don’t think you can shortcut the process by contacting lenders directly. Remember, the decision maker is the Court’s Master, not the bank or credit union.

 

Still Interested? Really?

Call or email me with questions and I will do my best to talk you out of it.