Rent to Own Mortgage

A Rent to Own contract could be the answer for someone who is renting but is also having a hard time getting their down payment together. Rent to Own contracts usually are between 1 and 5 years long and can give the client the time they need to implement strategies on increasing their down payment or even improving their credit.  As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Rent to Own Mortgages.

In the Lower Mainland, Rent to Own is becoming more popular as housing prices are increasing, and renting seems inevitable. In fact, there are properties that are being built with Rent to Own financing in mind.

Initially, the contract is signed just between the renter (the buyer) and the Landlord (the seller) that states an agreed price, length of time of Rent to Own, and market rent (typical rent of a similar property) with the excess going toward down payment (usually $200 – $400/month). The lender is not involved yet.

For example, market rent for your property goes for around $1000.00. You agree to pay the Landlord $1400.00/month. The extra $400/month goes into an account that the Landlord has in place for you for the down payment. This is a great example of  a Rent to Own situation.

Regardless of the lender, the Landlord must keep pristine records of the extra money coming in and can show the history of any excess deposit. When the Rent to Own is registered on title, there will be a clear indication as to how much of the monthly payments are directed toward the deposit.

The client will want to work with a team of property purchase professionals that will strategize Action Steps to make a seamless Rent to Own experience. The client`s team would be:

1. MORTGAGE PROFESSIONAL

• Get pre-approved! In the pre-approval process, the Mortgage Professional will be able to advise on improving credit or the need to increase employment income if need be.
• As well, the Mortgage Professional understands lender policies and guidelines for Rent to Own contracts and will be able to advise on how to properly set up the Rent to Own.

2. SOLICITOR/LAWYER

• Make sure that your lawyer is familiar with Rent to Own contracts and that they work closely with the Mortgage Professional who knows what the lender is going to expect. This relationship is very important and one that should not be overlooked.

The down payment continues to grow over the life of the Rent to Own contract. At any time, you can add lump payments to the down payment, simply by giving the Landlord a bigger rent check. Keep in mind, the Rent to Own contract could stipulate that the down payment is non-refundable. Make sure you read the fine print and work closely with your mortgage professional and lawyer so that you clearly understand the terms of your Rent to Own contract.

The bank does not get involved until the time the renter (the buyer) makes an offer to purchase to the Landlord (the seller). The person paying for the rent to own does not have to qualify for a mortgage at this point because the Landlord continues to carry the mortgage on the property.

Rent to Own Properties can also be facilitated through a company such as a condominium developer. For example, the developer could offer a Rent to Own contract when entering a rental lease with an owner-occupied property that the client wants to rent.

The client may be charged a contract fee upfront (for example $10,000) to enter the Rent to Own contract. At times all or a portion of this contract fee can be used toward the down payment pending on what has been negotiated within the Rent to Own contract.

Over the course of the Rent to Own some of the obstacles to financing you will consider are:

• How to improve your credit rating
• Consider applying for an RRSP loan to further establish credit and take advantage of tax benefits
• Consider refinancing any outstanding credit
• Consider job changes to increase employment income
• Consider other sources to increase down payment

Rent To Own contracts are more than just paying rent to the Landlord and applying the rent toward the purchase of the property. There are details that you need to know when entering into a Rent To Own Contract. If you need help setting up a Rent to Own contract or for more information regarding this topic please reach out.

GLM Mortgage | Dominion Lending Centres is here to walk your mortgage planning path with you. Give us a call at 604-259-1486 and find out what your mortgage options are!

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Mortgaging a Property via Assignment

Mortgaging a property via assignment is a contract provision included in some real estate transactions that allow the buyer to resell or transfer a property to another buyer before the deal’s closing date. As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Mortgaging a Property Via Assignment.

This product was originally intended to give buyers a legal way of backing out of a purchase if for some reason their circumstances changed after they had put an offer on a property, instead of having to surrender their deposit. The clause was also meant to protect sellers, ensuring a sale would still go forward if another buyer could be found.

To qualify for a product like an Assigned Mortgage, there are some things you will want to first consider:

• Not all lenders offer to finance for Assignment Purchases
• Assignment Purchase products will contain the same features and conditions that you would expect of a traditional standard mortgage qualification
  • This means income and credit score requirements remain the same
• There will likely be additional documentation that will be required
  • Pertaining to the Purchase Contract and Contract of Assignment
• Some lenders will only finance on the original purchase price

The assignment clause allows real estate agents to sell a contract for a single property multiple times at increasingly higher prices as they make a commission on each transfer. Buyers in the middle also benefit by pocketing the difference between what they paid and the resale value. They also don’t pay any land-transfer taxes because the entire transaction happens before the deal officially closes, so the property is never technically in their possession.

The original seller receives less than what the property ends up being worth and the last buyer may be paying an inflated price, with the difference in value going to the real estate agent and the buyers in the middle.

The option of an Assigned Mortgage can be appealing to borrowers for a few different reasons:

1. Depending on how far along the process is, you could possibly be involved in choosing finishes of the property
2. Depending on your local market, you could score a good deal on an assignable property

The risk to individuals and developers, regardless of incorporation or not, is that the CRA is aggressive on assignments and will often investigate GST compliance long after the transaction has occurred. This leaves the taxpayer at high risk with a large tax liability if the sale of an assignment fee was not properly documented for GST purposes. As always, remember to consult a qualified tax professional with regards to your potential exposure and ensure that GST is reported correctly along the sequence of transactions.

Let’s look at this case study on Mortgaging a Property via Assignment together…

A real estate agent’s client reaches a deal to sell a property to an initial buyer for $1 million. The agent then takes that contract and resells it to a second buyer for $1.5 million. The agent in turn goes to a third and final buyer and sells the contract for $1.8 million.

For each transaction, the agent receives a commission. The initial seller receives $1 million minus the agent’s commission. The first buyer who bought the contract for the property for $1 million and sold it for $1.5 million pockets $500,000. The second buyer who bought the contract for $1.5 million and sold it for $1.8 million gets $300,000. The third buyer pays the land-transfer tax on the $1.8 million purchase price.

For any issues with Mortgaging a Property via Assignment please reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation and give you the best advice.

At GLM Mortgage Group, we are with our clients for the entire journey. From the beginning, we can identify client needs, any possible roadblocks, and give a variety of tailored solutions.

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Bridge Financing

Bridge Financing, also commonly referred to as a “Bridge Loan”, is a way to help literally bridge the gap between closing on your current house and your new place. This product allows you to carry the mortgage on two properties for a specified amount of time and for typically a maximum of 90 days. As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Bridge Financing.

How does Bridge financing work? These short-term loan products use your current home’s equity to cover some of the costs of your new home (for example, could be used for a down payment.) That way, you don’t have to miss out on your dream home while waiting on the cash from the sale of your current house.

What is the cost of Bridge Financing? You will be charged an interest rate on the amount of funds you are borrowing. This will be based on the lender’s prime rate and will vary. You can expect to pay prime plus 2-5%. You can also plan to pay an administrative fee. This will vary pending on the lender and can range from $200-$695.

Similar to most other financial decisions, there will always be advantages and disadvantages for Bridge financing. Here are a few things you should be aware of:

One of the most popular advantages of acquiring Bridge financing is financial flexibility. With this product, you will be able to use the equity you’ve built in your current home to secure the new purchase of your dream home. Since you will be able to access those funds via equity, you won’t have to stress about the sale closing of your current home before you close on your new home.

Although most terms for Bridge financing products are short, the interest rate will be similar to open rate mortgages, which are often higher than the interest rate you may have locked in with your current mortgage. If for some reason your sale agreement falls through on your current house, you may have to make up for the payments until a new sale is finalized.

To qualify for Bridge financing you will need:

• Have a current mortgage in good standing with equity
• A copy of the Sale Agreement for the home you’re selling
• A copy of the Purchase Agreement for the home you’re buying
• Valid pre-approval (with document review) with the lender of your choice

Like your home buying situation, your home financing needs are unique. Bridge financing may be the right solution for you if you would like the following…

• You’ve found your dream property and do not want to wait on submitting your offer
• You can’t afford a down payment without the money from your current home’s equity
• You want time between closing dates

If you’re a homeowner aged 55 and over, rather than taking out a regular Bridge loan, you could take out a CHIP Open Mortgage with HomeEquity Bank. The CHIP Open Mortgage can assist you in purchasing a new home when your existing property has not yet been sold.

Let’s have a look at this case study together…

• Meet the Ellis family, a couple in their early 70s who live in the Greater Vancouver Area in a home worth $1.3 million. Looking to downsize, they’re keeping an eagle eye on available properties on Vancouver Island, and finally find their dream home at a price tag of $550,000. Afraid to lose it, they act quickly to purchase the new place before selling their existing home — but don’t qualify for a large enough traditional loan, putting the dream they have for their future in jeopardy.
• This product is a CHIP Open Mortgage (A Reverse Mortgage with no pre-payment penalties) The couple was able to access $600,000, allowing them to purchase their new place outright and cover the costs of their move. With no repayments, the couple were able to properly prepare their home for sale and repaid the CHIP Open in full once the house sold.

Please reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation and give you the best advice. At GLM Mortgage Group, we are with our clients for the entire journey. From the beginning, we can identify client needs, any possible roadblocks, and give a variety of tailored solutions.

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Our Discovery Call

A Discovery Call is our first touchpoint with your client. We make a quick 5–10-minute phone call to simply connect with the client and gather some basic information regarding a mortgage pre-approval. After we ask the client all necessary intake questions, we will either send them a link to our online application form OR create and give them a custom game plan for the future.

Once your client completes the online application, we will have a more thorough knowledge of the client, giving us access to the client’s Credit Bureau, etc… We will use these details to create a custom plan for your client.

A few questions that we will always ask during a Discovery Call are:

• Employment
  • Are they an employee or self-employed?
  • What is their annual income?
  • Do they receive any additional income?
• Property
  • What price range suits their needs?
  • Are they currently working with a realtor?
  • What type of property appeals to them?
• Credit
  • What is their credit like?
  • Have they ever had issues (past or present) with collections/bankruptcies?
  • Do you have any car/student loans?
• Down Payment
  • Do they have any funds saved for the down payment? How much?
  • Where did this down payment come from? How long have they had it?
  • Are they a First Time Home Buyer?

Our online application can be completed from your mobile phone, laptop, or tablet. Your client’s application stays “live” for 36 hours. To put it simply, this means that the application can be re-opened and closed at the client’s convenience to ensure all information is filled out in the given period. It’s not uncommon for us to send a reminder to your client to finish the app before the 36-hour deadline ends or reach out to us for any help.

Through every step of our Discovery Call process, we update both the realtors and clients. We provide the realtor a quick summary email giving our professional opinions on what we think their client can afford after we connect on the phone. We also update the realtor when the pre-approval is completed. As for the clients, they are receiving multiple calls/emails from us along the way keeping them up to speed. Our clients can feel at ease knowing that WE are on top of things taking care of them!

During our Discovery Call, when we are asking our intake questions, we can usually gather a rough idea of their projected purchase price with their liabilities accounted for.

For example:

• Every $20,000 of income earns approximately $100,000 borrowing power
• Every $13,000 of credit card/ line of credit debt subtracts approximately $100,000
• Every $400 monthly car payment subtracts approximately $100,000 borrowing power

Let’s review this case study…

Joe Smith earns $80,000 per year. His wife Sarah earns $60,000 per year. The total household income is $140,000 annually. This income is equal to $700,000 borrowing power. The couple has one car payment at $400 a month. They have about $6,000 in credit card debt collectively.

These liabilities decrease the couple’s borrowing power by $150,000, leaving them able to borrow $550,000. Joe and Sarah do have $75,000 in savings. We add their savings to their purchase power, and they are now able to look for properties in the price range of $625,000. Discovery call.

If having us reach out to YOUR clients for a discovery call is something you may be interested in, please reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation and give you the best advice. At GLM Mortgage Group, we are with our clients for the entire journey. Fr

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Increasing Your Purchase Power

Most individuals that we connect with to discuss a Mortgage Pre-Approval also want to know how we can go about Increasing Your Purchase Power. More often than not, those individuals could afford to make mortgage payments. Usually, they already pay monthly rent in the same amount as a mortgage, or perhaps even more! As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with your Purchasing journey.

Part of our process as Mortgage Brokers at GLM Mortgage Group is to connect with new clients with a Discovery Call, which involves key questions on important factors of a Mortgage Approval. We spend 10 minutes gathering information on income, credit, and down payment and with that, can provide a possible purchase price, and a piece of mind to shop within one’s budget.

Sometimes at the end of the conversation, we find that an individual may not be able to purchase within the price range they had planned to and brings us back to the drawing board to discuss options and a gameplan for the Increasing Your Purchase Power in the future.

Now, the reason that someone may not qualify for a mortgage that they could afford payments on, is due to the Stress Test, which newest rules were released in June 2021 and decreased borrowing power by 25%. To pass the mortgage Stress Test, you need to qualify at the contract mortgage rate plus 2% or the benchmark rate of 5.25%, whichever is higher. The purpose of the Stress Test is to ensure that should interest rates rise – a borrower will still be able to afford their mortgage payment.

This is a tactic by the Bank of Canada to ensure that consumers can withstand rising interest rates, as well as tackle household debt issues in Canada by preventing consumers from getting into further debt – but it greatly affects your purchase power, as you will qualify for less.

There are a few options to consider, that can help Increasing Your Purchase Power, potentially bypass the Stress Test and qualify for the purchase you are hoping to make.

First, down payment – if you have 20% down payment, this can provide various options that will allow you bypass the Stress Test, which will increase purchase power. Local credit unions are provincially regulated and therefore can allow you to bypass the Stress Test, although this comes with a slight rate premium. Secondly, having a 20% down payment can also make Alternative Lending an option – but be sure you understand this, as it may be easier to qualify, but these interest rates will be higher and could cost you more in the long run.

Nonetheless, with a 20% down payment – there are two viable options to Increasing Your Purchase Power in the Pre-Approval stage.

Further advice that we share with new clients, when we find they may not qualify for what they hoped is bringing a Co-signor to the mortgage. This could be a friend or family member that will be on the mortgage with you, and on the title of the property as little as 1%. We would be able to factor their income, assets, and debts into the equation to increase the purchase power. The primary borrower is still responsible for making mortgage payments, but the co-signor is there as a back up, and is required to make payments should the primary borrower default.

Another solution to Increasing Your Purchase Power is to increase the down payment.

This could mean putting your plans to purchase on hold for another 12 months while you continue to save, perhaps withdrawing RRSP or other Investments or even a gift from a family member may be possible. Given the current market conditions, we are seeing family members offer financial aid to their kids and grandkids to make home ownership possible for them.

Lastly, to help with Increasing Your Purchase Power, you can INcrease household income and DEcrease household debt. Although these options have a positive effect on purchase power, it takes time to see these effects take place. Perhaps obtaining a second part time job is possible, to increase income – but keep in mind, lenders will want to see this sustained for 2 years to consider the income. Also, decreasing debt will increase purchase power significantly.

For every $14,000 of debt that we carry, or $400/month payment, our borrowing power is decreased by $100,000. If you have a significant down payment, it’s always more advantageous for qualifying, to use a portion to pay down debts. It’s important to understand tips like this as they will contribute to Increasing Your Purchase Power.

At GLM Mortgage Group, we are with our clients for the entire journey. From the Discovery Call, we can identify client needs, any possible roadblocks, and a variety of solutions. Our brokers know how to Increasing Your Purchase Power and know how to assess your unique situation, giving the right advice so you can best move forward in your plans to purchase a home.

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To qualify for a CHIP Reverse Mortgage in Canada, the following factors are assessed: age of the homeowners, location of the home, type of home, appraised value of the home, condition of the home and the amount of home equity.  The funds from a CHIP Reverse Mortgage can be used for a variety of reasons – increase monthly cash flow, renovations, debt repayment, travel, or even early inheritance to loved ones. 

In a CHIP Reverse Mortgage, the homeowner is not required to make any monthly payments. However, interest is calculated on the proceeds received. Generally, the interest rates are slightly higher than a traditional mortgage. If no monthly payments are made, the interest accumulates on the loan balance so that the homeowner does not have to pay anything upfront. There are 2 ways that one can receive their funds in a CHIP Reverse Mortgage:  

1. Lump-sum: Receive the full amount directly into a bank account with a single deposit. 
2. Regular Deposits: scheduled deposits into a bank account as either monthly or quarterly payments to create a cash flow

When applying for a CHIP Reverse Mortgage, home equity is calculated by subtracting any outstanding secured debts from the value of the home. To be eligible, the CHIP Reverse Mortgage estimate must be greater than, or equal to any outstanding secured debts. Additionally, the property must be owner occupied at least 6 months of the year, and the appraised value of the home must be a minimum of $200,000. 

A CHIP Reverse Mortgage can be very positive if you need cash to meet your basic living expenses. A CHIP Reverse Mortgage is excellent because it will allow you to continue living in your home as long as you keep up with property taxes, maintenance, and insurance and don’t need to move into a nursing home or assisted living facility for more than a year. CHIP Reverse Mortgages are also not taxable and are just seen as a loan advance, so it does not contribute to your taxable income.

A CHIP Reverse Mortgage also has its cons. There can be slightly high-interest rates and loan fees. A CHIP Reverse Mortgage also means you likely will not be able to pass your home down to your heirs. Other options that you may want to consider are downsizing, selling your house to a family member, or perhaps bringing in a renter for one or more of your bedrooms. 

CHIP Reverse Mortgages can be outstanding for the long term with monthly payments, but if you are looking for a short-term financial fix, a CHIP Reverse Mortgage may not always be the best strategy. If you are interested in learning more about CHIP Reverse Mortgages and if they are suitable for you or someone close to you, please reach out to us, and we will be happy to help!

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