Watch out for these deal-killing mortgage conditions.

Posted on February 19, 2024February 22, 2024 by markogel@gmail.com

(February 18, 2024)

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Securing a mortgage pre-approval marks a hopeful step toward homeownership. However, the path from pre-approval to finalizing financing conditions can be tricky. Overlooking key details during the pre-approval stage can turn a promising start into a declined application. This article explores common pitfalls, emphasizing the importance of addressing them early on to avoid the disappointment of a rejected mortgage application during the critical financing conditions period in a real estate purchase transaction.

Following are the most common qualification criteria that are often overlooked or under-prioritized in the pre-approval stages:

Down Payment Verification:

Lenders generally require proof that you have accumulated or had possession of your down payment proceeds for a period of 90 days. But where things get confusing is when applicants have frequently moved their funds from one bank account to another within a condensed time frame. This results in a tangled and very challenging interpretation of down payment verification for two main reasons:

Copious amounts of document collection may be required as the funds travel from one bank account to another.
Of all the bank statements provided to verify the tenure and whereabouts of your funds, if an unexplained deposit is identified that is greater than $2,000, a further 90-day verification will be required on that particular deposit. This is often the most overlooked thing when a mortgage broker or banker collects down payment verification documents during the pre-approval phase. A singular unverified down payment verification can turn a mortgage approval on its head and result in an 11th-hour crisis. In most cases, it’s just a major inconvenience as the applicant will have to provide further documentation, but where it could become a major/threatening issue is if the funds are sourced from a borrowing account (i.e., personal line of credit, credit card, loan, etc). If this is the case, the entire mortgage qualification needs to be re-qualified at a more demanding standard which often ends up in a crisis as the debt servicing ratios you qualified at will rise significantly in most cases. Moral of the story? Make sure none of your down payment sources are from another credit source (credit card, line of credit, etc), and if it is, disclose it to your mortgage broker from the onset to ensure it gets accounted for.

Property Taxes and Strata Fees:

Many applicants are unaware that annual property taxes and monthly strata fees factor into a mortgage qualification, and worse yet, many mortgage providers underestimate their value within the mortgage qualification. For example, if you’re pre-qualified for a $700,000 condo with an estimated monthly strata fee of $400 and an annual property tax figure of $1,500, this means that if you end up placing an offer on a property with a strata fee of $600 and a $1,900 property tax figure, you will exceed your allowable debt service ratios and slide into decline territory. Make sure your pre-approval accounts for strata fees and property tax, and more importantly, the values should be stated somewhere within your pre-approval document so you are completely aware of the limitations. Once you begin your property search and get a feel for price points, report back to your mortgage provider and request a tune-up for your pre-approval to reflect more accurate strata fees and property tax figures. This process of fine-tuning will ensure a more smooth and predictable outcome.

Condo Documents and Property Disclosure Statements:

Property deficiencies and non-structural condo/strata issues (financial and legal) are not accounted for in pre-approvals. With the property being the primary collateral source for a mortgage, lenders diligently review all documents associated with the current and past condition of the subject property. If a recent/current/evolving deficiency about the property is revealed within the strata/condo documents, a lender will analyze further to ensure that the future sale of the property is not impacted. If the lender is wary of the condition, they may request a larger down payment, or in some instances, outright decline the application based on the severity of the condition. Your mortgage provider must be aware of any property disclosure as they should immediately disclose it to the lender to ensure the condition complies with their (or the insurer’s) guidelines. In BC, a property disclosure statement is made available to prospective buyers that states any existing or past conditions with the property. Failure to disclose issues during the financing conditions period can leave you vulnerable to 11th-hour crises when lenders eventually discover critical items through their final funding checkers or closing legal providers. Avoid the getting-away-with-one mindset and be proactive and forthcoming if you feel that something may have been overlooked. The outcome will likely have far higher negative implications than any degree of benefit you may have received by not disclosing a potential issue.

New To Canada Intricacies:

The adaptation of provincial and federally mandated policies has made mortgage qualification for new Canadians extremely challenging and for many, prohibitive. The qualification criteria for temporary and permanent residents have remained the same for the past several years, but it is the implementation of the Foreign Buyer Tax and the Prohibition on the Purchase of Residential Property by Non-Canadians Act that have caused many seemingly standard purchase transactions to suddenly go sideways. Here’s what you need to know to avoid any pitfalls if you are a temporary or permanent resident purchasing a property in Canada: upon getting pre-approved for a mortgage, you must then get pre-approved for the right to purchase a property in Canada. As most mortgage providers have no idea about Foreign Buyer tax policies and prohibition legislation, make sure you suit up with a mortgage broker who is well versed about the policies and how they relate to mortgage qualification. Depending on which province you want to purchase in, the legislation varies accordingly. For British Columbia and Ontario: there are two legislations to be aware of that have specifically been drafted to SEVERELY DISCOURAGE Non-Canadian residents from purchasing real estate, they are:

Foreign Buyer Tax – in BC the tax is 20%, in Ontario 25% (applicable to all temporary residents who purchase property)
Prohibition on the Purchase of Residential Property by Non-Canadians Act – to be eligible for the purchase of a property, an applicant must have either been awarded their Permanent Residency or have at least 6 months of validity remaining on their work permit on the closing date of their purchase

Exemptions: Provincial nominee certificate recipients are essentially exempt from Foreign Buyer Tax in BC and Ontario (provided they fulfill the eligible exemption criteria). But when it comes to the Prohibition Act, it’s a different story, and this is where we have been seeing crises unfold with mortgage qualification. Many Provincial nominee recipients have been caught off guard by the expiration of their work permits upon being awarded the provincial nominee certificate. Understandably so, nominee recipients have been allowing their work permits to expire during their PR (Permanent Resident) application waiting period as their residency statuses automatically renew to an unspecified date until the PR application is approved. This automated renewal process is known as implied status and allows the nominee to continue employment and residence in Canada while their PR application goes through the process. However, when it comes to Canada’s banks, the implied status doesn’t appear to hold too much weight. Lenders continue to request a copy of the applicant’s work permit to fulfill the 6-month condition of validity as per the Prohibition on the Purchase of Residential Property by Non-Canadians Act. Even with their transitionary implied status, lenders are still requesting formal work permits. This has become a major deal breaker as almost every nominee recipient hasn’t renewed their work permit knowing that they can proceed as they are with an implied status, and by the time they realize that a formal work permit is required to remain compliant as per the Prohibition Act, it’s too late. The queue for work permit renewals is not a transactional type of process. Like most government programs, it’s a simple application process, but the servicing and completion process is lengthy and unreliable, thereby leaving nominee recipients in compromised positions as their completion date approaches. There are alternative financing scenarios, but they are costly (higher interest rates and fees). Please note that there are additional exemptions not mentioned in the post: For BC Foreign Buyer Tax exemptions, click here. For Ontario Foreign Buyer Tax exemptions, click here. For Prohibition on the Purchase of Residential Property by Non-Canadians Act exemptions, click here.

Need further clarification on any of the above? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

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Is your Mortgage Pre-Approval optimized for Maximum Purchasing Power?

Posted on January 30, 2024January 30, 2024 by markogel@gmail.com

(Jan 29, 2024)

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In the unforgiving terrain of Canada’s contemporary mortgage qualification landscape, prospective homeowners face an uphill battle. On top of stress-tested high-interest rates, a persistent affordability crisis, and intricate newcomer policies, there is the ongoing challenge of participating in a real estate market characterized by what seems to be a constantly rejuvenating demand. In a hyper-competitive market where every cent of income matters, the question lingers: Is your mortgage pre-approval truly maximizing your purchasing power? As you grapple with the complexities of the current environment, untapped methods may exist to extract more from your financial arsenal. Could your mortgage qualification be underestimated or underqualified, leaving potential untapped? The answers lie within the following paragraphs—explore seldom-used income qualification gems that have the potential to be game-changers in your relentless pursuit of optimal mortgage qualification in what is perhaps the most challenging real estate market on the planet.

Following are 5 key qualification tips that are often overlooked, and if utilized, could be the ultimate difference-maker in securing your real estate purchase (or refinance):

(1) Application Process: Expect a hefty amount of document and information requests

I personally never encounter resistance when requesting documents from customers during the application process. However, new clients who have had to switch mortgage advisors due to late-stage qualification failures often attribute the failure to a poorly drafted mortgage pre-approval. Concluding a mortgage pre-approval with a brief phone call explaining your maximum qualification amount is irresponsible, especially given what’s at stake—likely the largest investment you will ever make. Mortgage pre-approvals should be in document form, including scenarios, interest rates, calculations, and, importantly, conditions. If your current mortgage pre-approval doesn’t fit this description, then you are not pre-approved.

Examples of pre-approval conditions (to be disclosed in your pre-approval document):

If you increase your current debt load, your mortgage approval amount will decrease disproportionately
If your credit score decreases below 680, your mortgage pre-approval amount will likely be reduced
You must not be in arrears with the Canada Revenue Agency upon completion of your property purchase
The interest rates quoted within a pre-approval are subject to specific conditions (be aware of them!)
These are just a few examples; countless others exist

Steer clear of unsupervised rookie mortgage advisors. Ask them if they have a supervisor and request their contact information in case your qualification takes an unexpectedly restrictive turn.

(2) Income: Ask how much of your income is eligible for qualification

You’re probably asking yourself, why wouldn’t my income be eligible? Consider a scenario where an applicant earns a salary of $70,000/year and has also recently started a part-time job earning about $6,000/year. Full-time salaried incomes without probationary periods are simple to verify and often result in seamless approval. However, part-time employment/income is a different story. If the part-time employment is classified as casual, a 2-year average of employment with that particular employer is required. But, if the part-time employment is classified as permanent and/or guaranteed hours, then the applicant can qualify as per the current hourly rate. This could be a major boost, especially if the mortgage advisor defaulted to a two-year average where the prior year was a lower income.

Here are some other seldom-used income qualification methods:

Capturing a 2-year overtime or bonus average and combining it with current earnings. This method packs way more punch than doing the default overall 2-year average based on the prior year where the applicant likely was at a lower pay rate
When it comes to self-employed applicants, there are a million and one ways to qualify! Click Here to be redirected to my recent blog, “Mortgage Qualification Hacks for Self-Employed Applicants”

(3) Rental Income: There are at least 20 different methods of calculating eligible rental income

In places like Vancouver and Toronto with high real estate prices, rental income in the form of mortgage helpers (rental income from a basement suite within the property you intend to purchase) is often a decisive factor. Lenders have varying policies when it comes to how much of the rental income from a rental suite can be used as eligible qualifying income. The plain-jane standard in the industry is 50%, where 50% of the rental income is added to your overall qualification income. This often comes as a shock to many, as the common perception is that 100% of the rental income is eligible, but that isn’t the case (in actuality there are no lenders that accept 100% of the rental income).

When it comes to rental income, lenders vary drastically with their eligibility criteria. For instance, Lender A will allow you to use 50% of the rental income that is generated from your rental property and apply it as qualifying income. But Lender B is offering something different. Rather than applying the eligible rental income to your overall application income, they allow you to use it as an offset to your existing debt load and they further increase the allowance to 80%. As a result, you end up qualifying for significantly more!

(4) Networth: If you hold at least $250,000 in liquid assets, you enter another arena of qualifying

In many instances, applicants and their mortgage providers are completely unaware of this qualification gem. The qualification essentially allows you to boost your mortgage qualification dollar for dollar with your assets. For example, if you qualify for a $500,000 mortgage based on your verified income, but hold $300,000 in investments (or cash), the lender will boost your mortgage qualification to $800,000. For more detailed information about the High Networth Mortgage Program Click Here to read my past blog that reveals the key qualification criteria.

(5) 1-year band-aid mortgages: If all else fails…

Probably the most underrated and overlooked, this pathway has increasingly become prevalent in the past couple of years with the rapid escalation of interest rates. Within a span of 12 months, many homebuyers found themselves in precarious situations where they were blindsided by the fierce impact of generational high-interest rates. Mortgage approvals that were previously approved suddenly found their status severely downgraded, and in many cases, outright declined from their respective lender.

Thankfully, there was a solution. The Band-Aid mortgage providers, as I like to refer to them, stepped up and provided the relief that was needed to save home buyers from defaulting on their purchases. Not only did they salvage many transactions, but they arguably stabilized the entire real estate sector as a result. The value proposition from these lenders (formally known as “B” or “Alternative” lenders) is as straightforward as it gets: interest rates are generally 1.5% to 2.5% higher than traditional banks, qualification guidelines are loosened considerably, a fee of 1% to 2% is skimmed off the mortgage proceeds (therefore your down payment is proportionately increased), and lastly, the available terms generally range from 1 to 3 years. The objective of a Band-Aid mortgage is to secure your purchase (or refinance) with the intention to later refinance the same mortgage with a traditional lender (preferably after 1 year, or longer if required). Prior to committing to a Band-Aid mortgage, your mortgage broker should have a legitimate game plan that details your exit strategy (refinancing to a traditional lender upon the maturity date of the Band-Aid mortgage). If a 1 year timeframe is not realistic, then a 2 or 3 year term should be explored. This is a product that was traditionally geared towards applicants with bruised credit histories and income verification challenges, but lately, it’s broadened its reach to include applicants of all classes. Whether you are a high-earning medical professional awaiting your permanent residence status, or a self-employed plumber who declares a lower income for income tax purposes, this segment of lending is worthy of forming part of the mortgage broker arsenal of products and solutions.

Wondering if your mortgage pre-approval is optimized for maximum output? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 cell only | Calgary (Click Here to schedule a call with Marko!)

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Email: gelo.m@mortgagecentre.com

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Spouses with different residency statuses who want to purchase a home together

Posted on December 14, 2023December 14, 2023 by markogel@gmail.com

(Dec 14, 2023)

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As per the current legislation in British Columbia, if you plan to purchase a property and are not a Canadian citizen, Permanent Resident, or Provincial Nominee, you’ll be subject to a Foreign Buyer Tax of 20% of the purchase price due at the time of completion. For instance, if you, as a work permit holder, buy an $800,000 property in Vancouver, you’d need to pay $160,000 in Foreign Buyer Tax. However, becoming a Permanent Resident exempts you from this tax. But what if you’re in a marital or common-law relationship with one partner being a Permanent Resident and the other a work-permit holder (mixed-immigration-status couple)? If you both buy a home, would you still have to pay the Foreign Buyer Tax?

The answer is yes, but an opportunity exists to minimize the tax (potentially as low as 1%). The process involves registering you, your spouse (if applicable), and your bank (if financing the purchase) on the land title upon buying a home. You can then allocate a specific ownership proportion between you and your spouse. Let’s now return to the mixed-immigration-status couple, where one is a Permanent Resident and the other a work permit holder, the latter, being liable for the Foreign Buyer Tax, can minimize their tax payable by assigning a minimal ownership share. For instance, if the Work Permit holder is registered as 1%, they would only pay 1% of the tax on a $1M purchase, reducing it from $160,000 to $1,600!

Here’s the catch—the non-Canadian spouse must meet all of the following conditions: (i) they must be married or common-law for at least 2 years (with verification via documents such as a marriage certificate, lease agreement, utilities statement, or bank statement, etc), (ii) the Work Permit holder’s down payment cannot exceed their registered ownership share, and (iii) they must comply with the Prohibition on the Purchase of Residential Property by Non-Canadians Act, holding a valid work permit with 183 days or more of validity at the time of purchase.

What about mortgage qualification?

Regardless of whether you hold temporary or permanent residency status, there are numerous mortgage qualification programs tailored for newcomers to Canada within the Canadian market. The key challenge lies in identifying a lender whose eligibility criteria align with your specific application profile. These New-to-Canada mortgage programs vary widely from one lender to another, underscoring the importance of connecting with a multi-offering mortgage broker rather than relying on a single-offer bank representative. Submitting a single application through a mortgage broker grants access to multiple lenders, enhancing your approval prospects. Moreover, the competitive bidding process ensures favourable rates and diverse product offerings. Marko Gelo specializes in mortgages for new Canadians; call him right now to discuss your goals or Click Here to schedule a call that is convenient to you.

Disclaimer: The information above is intended to raise awareness of possibilities, provided all conditions are met. If you find that you meet the criteria discussed, the next steps should be to begin the mortgage preQualification process and verify further with your real estate lawyer regarding your immigration status as it pertains to the Foreign Buyer Tax and the Prohibition on the Purchase of Residential Property by Non-Canadians Act . For a complete reference to the BC Foreign Buyer Tax, Click Here to be redirected to the official webpage of the British Columbia Provincial Government.

Feel like a quick chat about any of the above? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

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Foreign Buyer Tax, Prohibition Act, and Mortgage Qualification

Posted on December 2, 2023December 2, 2023 by markogel@gmail.com

(Dec 2, 2023)

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In the ever-evolving landscape of real estate in Canada, non-Canadian residents find themselves in a complex web of regulations that significantly impact their ability to purchase a property. At the forefront of these regulations are two pivotal legislative measures: the Foreign Buyer Tax in British Columbia and Ontario, and the nationwide Prohibition on the Purchase of Residential Property by Non-Canadians Act. While the Prohibition is poised to conclude on December 31, 2024, the foreign buyer tax (at the moment) has no set expiry date. These two key policies act as barriers, preventing many well-intentioned non-Canadians from realizing their dream of establishing roots in Canada through property ownership.

Here is a summary of the two key regulations:

The Prohibition on the Purchase of Residential Property by Non-Canadians Act: as of March 27, 2023, work permit holders are allowed to purchase residential property in Canada provided that they hold a work permit with at least 183 days of validity, or more, remaining on the permit, and have not purchased more than one residential property. 183 days must be remaining on the permit on the completion date of the property.
The Foreign Buyer Tax (BC) or Non-Resident Speculation Tax (Ontario): Unless you are a Canadian citizen, Permanent Resident or Provincial Nominee you are subject to an additional land transfer tax of 25% in Ontario, and 20% in British Columbia. Click on the following links to see if you are eligible for exemptions: Foreign Buyer Tax Exemptions in BC, and Non-Resident Speculation Tax Exemptions in Ontario. The province of Alberta (and all other remaining provinces and territories) has not mandated any foreign buyer tax.

Can non-Canadians qualify for mortgages in Canada?

Absolutely! Although non-Canadians are subject to the hefty foreign buyer tax in BC and Ontario, work permit holders and permanent residents can otherwise purchase in the rest of Canada and qualify for a mortgage with as little as 5% down. As qualification programs vary with lenders and insurers, it is best to proceed with a formal pre-qualification to determine your precise qualification scope. Click Here to begin your free preQualification with Marko Gelo.

In Summary

In the dynamic realm of Canadian real estate, non-Canadian residents continue to grapple with the multitude of regulations that impact property acquisition. The forefront of these rules includes the Foreign Buyer Tax in British Columbia and Ontario, and the nationwide Prohibition on the Purchase of Residential Property by Non-Canadians Act, with the latter set to conclude on December 31, 2024. Summarizing the key regulations, the Prohibition Act outlines conditions for work permit holders, while the Foreign Buyer Tax presents additional levies in Ontario and BC. Notably, non-Canadians can still qualify for mortgages in Canada, subject to region-specific tax implications.

Make sense? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

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Email: gelo.m@mortgagecentre.com

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Mortgage Programs in Canada for Doctors who are in the process of or completing residency/fellowship

Posted on September 25, 2023September 25, 2023 by markogel@gmail.com

(Sept 25, 2023)

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In Canada, the journey to becoming a doctor is a long and arduous one, marked by years of rigorous education and intensive training. For medical professionals who are in the process of or have recently completed their residency or fellowship, the light at the end of the tunnel often comes with a daunting question: How can I secure a mortgage to fulfill my homeownership dreams? Fortunately, a select few of Canadian lenders offer a range of specialized mortgage programs tailored specifically for doctors, making the path to homeownership more accessible and accommodating for those who have dedicated their lives to healing and caring for others. In this blog, we’ll delve into the world of mortgage programs designed exclusively for newly minted doctors in Canada, exploring the benefits, eligibility criteria, and the crucial steps to embark on this exciting journey towards homeownership. Whether you’re a fresh medical graduate or simply curious about these unique mortgage opportunities, read on to discover how these programs can help doctors take the first step into the world of real estate.

The Key Qualification Feature:

For medical professionals who are either in the process of completing or have recently completed their residency/fellowship within 36 months of their real estate completion date, there exists a unique program that assesses borrower eligibility based on their future (projected) income. This program is unique in that it allows for the projection of future income provided that the applicant fulfils the 36 month eligibility window.

Here is a summary of the qualification criteria:

if still in residency or fellowship, Medical professionals must be registered or enrolled in a recognized medical residency or fellowship in Canada
newly practicing physicians who are currently earning income must complete on their purchase within a 36 month window from when they started earning income
Foreign-trained physicians who are licensed by a provincial college and are Canadian citizens or permanent residents can utilize projected income for 36 months post completion of their program
available for purchases, refinances, or renewals
only eligible for principal residence (owner occupied) properties, up to 2-units (duplex)
no investment/rental properties allowed
For high ratio mortgages (down payment less than 20%), the minimum down payment is 10% where 5% must be from own sources. The balance of the down payment can be gifted from an immediate family member. For conventional mortgages (down payments of 20% of greater), the minimum down payment is 20% of which the first 10% must be from own sources and the balance can come in the form of a gift from an immediate family member
maximum amortization up to 30 years, but only for conventional mortgage (20% down payment or greater). For down payments less than 20%, maximum amortization is 25 years
If in residency/fellowship: Obtain confirmation of enrollment of residency/fellowship including the medical specialty and identifying current year of enrollment Note: Exceptions will be considered for first year Medical Residents where confirmation from the provincial college website is not available before the mortgage closing (i.e., medical student is offered residency in March, mortgage closing date is May 1st, and residency begins in July). In such situations, obtain a letter of acceptance from the program provider. OR
If newly practicing physician: Obtain confirmation of program completion including stream of specialization and date of completion, provided the applicant completed their residency/fellowship program within the last 36 months OR
If newly practicing physician is foreign-trained and is within 24 month of completion or registered with a provincial college: Obtain confirmation of completion with specialization (if applicable) and confirmation of active college registration showing that the applicant is legally entitled to practice in Canada
The following projected incomes are subject to the completion of a formal preQualification with Marko Gelo:
- Medical residents/fellows in first or second year are permitted to qualify based on a projected income of $185,000
- Physicians in at least their third year of residency/fellowship will be qualified based on projected income of $225,000
- Residents/fellows in their last year or newly practising physicians who completed their residency/fellowship within the last 36 months can qualify based on their field or specialization as indicated within the internal Projected Income for Qualification Purposes chart (inquire directly with Marko Gelo to discuss your specific projected income). Projected income figures could range as high as an annual income of $300,000.

Are you a Doctor, Physician, or other Medical Professional that is in the process of or who has recently completed their residency/fellowship and wondering if you can qualify for a mortgage? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

Don’t want to miss out on the next blog post? Click Here to have future issues emailed directly to your inbox!

Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

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Email: gelo.m@mortgagecentre.com

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Work Permit Holders and Homebuying: Can Gifted Money Cover Your Down Payment?

Posted on September 22, 2023September 22, 2023 by markogel@gmail.com

(Sept 22, 2023)

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When qualifying for a mortgage, the down payment verification process typically requires documentation that proves you have had the funds in your possession for a minimum of 90 days and as long as 120 days. Lenders also allow down payment proceeds to be gifted from immediate family members.

Work permit holders follow the same down payment guidelines as Canadian citizens, except when it comes to gifted down payments. With work permit holders, gifted down payment proceeds are allowed, but only after the applicant provides a minimum of 5% from their own sources.

For example, on a $400,000 property purchase, a minimum down payment of $20,000 is required from own sources (your own money) and any down payment amount above $20,000 is eligible as gifted funds.

Are you a work permit holder and need help navigating your way through the mortgage qualification process in Canada? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

Don’t want to miss out on the next blog post? Click Here to have future issues emailed directly to your inbox!

Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text/WhatsApp | Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 cell only | Calgary (Click Here to schedule a call with Marko!)

Email: gelo.m@mortgagecentre.com

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What happens to a mortgage approval when the appraisal comes in lower?

Posted on June 18, 2022June 18, 2022 by markogel@gmail.com

(June 18, 2022)

Navigating your way through Canada’s real estate market has been anything but a walk in the park these days. With rising interest rates and heightened inflation, securing a real estate purchase with a mortgage has become a daring venture for some. But for many it’s business as usual albeit with some additional caveats and due diligence. The current economic environment is obviously under stress leaving many to wonder how this will affect their plans to purchase a property. For the moment, much of the stress is being directed on property values with varying impacts depending on which city or province you reside in.
When it comes to mortgage qualification, this has resulted in a more critical analysis of the property appraisal. For starters, it’s important to be aware if an appraisal will even be required when you place a bid on a property. Generally speaking, if you are purchasing a property with a down payment of less than 20% your mortgage is deemed insured which ultimately means you shouldn’t expect a request for an appraisal from the lender. An insured mortgage protects the lender against default in the event you are unable to continue your mortgage payments…interest rates are often lowest in this category as a result. The lenders enjoy the blanket of their newly insured security further by the assurance that they will be paid out based on the mortgage amount, not the market value. This is why appraisals are not required when purchasing with less than a 20% downpayment. However, when it’s all said and done it’s important to recognize that the home owner/buyer is the one bearing the cost for the insurance premium (tacked on to your mortgage principle). Most homebuyers are unbothered with the equity hit brought about by the insurance premium as it is the only means to purchase a property with less than 20% down payment in Canada:

But when it comes to uninsured mortgages (mortgages for properties with down payments of 20% or greater), lenders will almost always request an appraisal as the mortgage will not be insured. Lenders are generally comfortable with your 20%-skin-in-the-game contribution, but will initiate further due diligence with the request for an appraisal.
And here is where you have to be aware of the potential impact of an appraisal, especially as it relates to your mortgage qualification.

What happens if the appraised value is lower than your purchase contract offer?

As far as your mortgage goes, it still remains approved. It is only the mortgage amount that changes as it decreases proportionally to your loan-to-value (LTV) ratio. Here’s an example that explains the impact of a lower appraised value for a mortgage that was approved with a minimum down payment of $45,000 on a $700,000 purchase (5% down payment up to $500,000, then 10% on the balance, thereafter):

As you can see, the impact is quite serious. To proceed with the purchase, the home buyer would have to make up the shortfall with their own resources as they would not be able to lever up their mortgage qualification further as they are already qualifying at the highest possible LTV ratio (minimal down payment).
However, if your down payment exceeds the minimal requirements you may be safe as you can simply increase your mortgage amount further to account for the shortfall (provided you qualify for the increase in mortgage). Here is an example of a $700,000 purchase with a 25% down payment (75% LTV ratio):

From the examples above, one can conclude that simply levering up a mortgage to a higher loan to value ratio is enough to salvage the deal. This is correct, but be aware that levering up your loan-to-value ratio is a delicate procedure as there are three defining LTV zones; insured, insurable, and uninsured. The levering up technique is predictable and manageable when levering up within the same LTV zone. However, levering up from one LTV zone and into another zone is not so simple as qualification criteria changes significantly from zone to zone which ultimately leads to re-adjudication of your entire mortgage approval. Basically, you would be starting over with your mortgage approval and re-applying to a different qualification program or an entirely different lender.
If you are in a situation similar to what is described above, or anticipating you might be, contact Marko Gelo to discuss your options.

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Investment Property Mortgages

Posted on June 12, 2022June 12, 2022 by markogel@gmail.com

(June 12, 2022)

Key principles and how to qualify for investment property mortgages:

1) Use a Mortgage Broker

Whether you’re purchasing your very first rental property or expanding upon your multi-property portfolio, a mortgage broker should be an integral part of your team. Lenders have varying qualification rules when it comes to rental properties – it is critical to have access to as many as possible when you begin your qualifying process and mortgage brokers are your gateway to Canada’s top lenders. More lenders equate to more options which ultimately lead to more possibilities and opportunities.

2) Buying your first investment property is easy

Your first rental property can be acquired in one of the following ways:

(i) If you’re looking to upgrade from your current residence, rather than selling it, consider refinancing the property and using the funds as a down payment to purchase the new property. If you are successful, you now own two properties; a new principal residence and your newly re-purposed rental property! As you are purchasing a new principal residence, a minimumdown payment of only 5% is required (up to $500,000, then 10% on the balance thereafter up to $1M at which time the down payment minimum increases to 20%)

(ii) While continuing to live in your home, consider refinancing it and use the proceeds as a down payment to purchase your very first rental property. However, unlike the previous example, your minimum down payment is 20% as the subject property is classified as a rental/investment as opposed to a principal residence.

(iii) Sell your current property and ration the proceeds of the sale to serve as two separate down payments; one for your new principal residence and the other for a rental property (call Marko to explore how much you would qualify for).

3) Purchasing additional rental properties

If you haven’t incorporated the services of a mortgage broker for your first rental property purchase, you will certainly look to do so for your additional property purchases. Depending on your personal qualifying details a mortgage broker will place you with a lender that is better suited and accommodating to your qualifying income. For example, Lender A will allow you to use 50% of the projected rental income towards your personal qualifying income, whereas Lender B may allow for a higher portion of the rental income to be used. Furthermore, Lender B will also apply the rental income towards offsetting the overall debt liabilities…this allocation is monumental and drastically reduces the overall debt servicing ratio of the application.When owning multiple rental properties, it is critical to position/place each mortgage with the next purchase in mind. Very few mortgage brokers are informed and aware of the extensive qualification guidelines and policies of all the lenders. Try your best to commit to a single mortgage broker and stay the course with him/her as you expand your property portfolio. This will keep your process of acquiring more properties efficient, organized and strategic.

4) Product and Term Selection

All terms and product features typically associated with regular mortgages are also available for rental property mortgages. Here are some common product features and characteristics that investors typically seek out when mortgaging a rental property:*many investors swear by choosing variable rate mortgages mostly due to their minimal exit costs (in the event you sell or refinance ahead of your term)*maximum amortizations are a must…whenever possible, seek out the maximum amortization when securing a rental property mortgage. At the time this post was written (June 2022), the maximum amortization period for conventional “AAA” lending in Canada is 30 years. There are additional lenders that offer 35 year amortization and interest only payments, but the interest rate offering is higher and fees may also apply (ranging from 1% to as high as 5%)*select a product that converts your accumulated paid principle into a readvanceable reserve. For example, let’s say you are 5 years into a mortgage and have paid it down by $60,000. In a readvanceable mortgage, the $60,000 would be available to you in the form of a home equity line of credit that could be accessed by you at any time without having to re-qualify.

5) The end game

The immediate objective of owning a rental property is to increase your monthly income cash flow from the rental payments you collect. And in today’s shared economy (via AirBnB) many investors are deciding to re-purpose their rental properties from long term tenancy agreements to short term stays. Depending on the location of your property, the income generated from your short term stay agreements could significantly outperform the market value for extended long term agreements. The long term play of owning a rental property is the accumulation of equity from the ongoing mortgage payments and the natural market appreciation over time. Also worth mentioning is that the costs of ownership associated with your rental property are eligible tax deductions (consult further with a tax professional about these benefits).
Call Marko to see if you qualify for an investment property mortgage!

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How to get the lowest possible payment on your mortgage

Posted on June 3, 2022June 3, 2022 by markogel@gmail.com

(June 3, 2022)

With all the talk about interest rate hikes, many customers are left wondering what is the best mortgage option when it comes to manageable payments. One might simply conclude that the lowest rate yields the lowest possible payment. This is mostly true, but there’s more to it than the rate. Here are some products and features that achieve the lowest possible payments in today’s challenging market:

1) Select the highest amortization possible

•the higher the amortization, the lower the payment •with a down payment of less than 20% on a home purchase, your maximum amortization is 25 years •when your down payment is 20% or higher, the maximum amortization increases to 30 years •when it comes to refinances it is mainly an industry standard to offer a 30 year amortization. However, keep in mind that a refinance is capped at an 80% loan to value ratio and full re-qualification is required. For example, if your property’s current market value is $800,000, to be eligible for a 30 year amortization your current mortgage cannot exceed $640,000 ($800,000 X 80%). Simply put, refinances are only possible if your loan-to-value ratio is 80% or less at which point the maximum allowable amortization is 30 years.
Here are some examples of monthly mortgage payments with 25 and 30 year amortization periods:

2) Choose a variable rate mortgage with a fixed payment

•even with recent increases to Prime Rate in the past few months, variable rate mortgages still generate lower monthly payments than current fixed term market rates.•But what if Prime Rate continues to increase further? If the thought of increasing rates and payments leave you unsettled, you can opt for a variable rate mortgage that has fixed payments. So, if prime rate increases, your monthly payment will remain the same, but the principle and interest allocations of the your starting payment will adjust accordingly:

DISCLAIMER: it is crucial to have an in-depth conversation with Marko Gelo (a licensed mortgage broker in BC and Alberta) before you consider a variable rate mortgage with a fixed payment. You need to be aware of your unique trigger rate and how it could impact you when your mortgage eventually renews. This product can be both amazing, or catastrophic, depending on your unique qualification circumstances.

3) Recast or Refinance your mortgage to a more manageable payment

The key to this strategy is to understand that you are expanding your amortization with the primary objective of lowering the payment. You will definitely achieve lower payments, but you will not be improving the rate of paying down your mortgage. However, at any time you can increase your payments or make lump sum contributions anytime throughout the term of your mortgage and in no time you can get back on the path and perhaps return to the amortization you were initially at.

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Mortgage Qualification for Doctors in Residency Programs

Posted on May 17, 2022September 25, 2023 by markogel@gmail.com

Click Here to be redirected to an updated blog post (September 25, 2023) on Mortgage Programs for Doctors who are in the process of completing or have recently completed their residency/fellowship.

(May 17, 2022)

Everyone knows that doctors produce solid incomes, but the path to get there isn’t a walk in the park. Not until they complete their 4-5 year medical school and 2-5 year residency programs do they begin to see the fruits of their labour. This could all amount to 10 years or even longer depending on their choice of specialty. And then on top of that there’s the costly student loans that have accumulated over the years. Becoming a doctor is a journey, and it’s expensive.
It is when a doctor begins their residency program when they finally start earning an income, and like all professions, it starts small and increases over time. Except for doctors, it could significantly increase over time. Recognizing the hockey stick-like income trajectory, a few of Canada’s lenders have created mortgages that are exclusive to Doctors who are just starting their residency programs.
The key feature of this unique qualification program is that it recognizes that a residency income is not reflective of the near term, end game income for the profession. For example, a 1st year medical resident in BC starts with an annual salary of ~$58,000 and as they progress through the program (usually up to 5 years), they eventually graduate into the coveted higher 6-figure income range (by the time their residency is completed). So for mortgage qualification purposes, eligible lenders will allow a first year medical resident (earning $58,000/yr) to use a projected qualifying annual income of $185,000 to qualify for a mortgage. This is significant as it immediately propels the medical residents purchasing power and also provides ample cushion to account for (from a mortgage qualification standpoint) any debt burdens that have accumulated over the years. To put this into perspective, an annual income of $58,000 will amount to a maximum mortgage qualification of about $270,000. But under the Projected Income Medical Residents program, that same $58,000 medical resident applicant can qualify for a mortgage of up to $900,000 using an eligible projected income of $185,000. **these qualification amounts are based on qualification rates at the time this post was published (May 2022). Contact Marko Gelo directly for current qualification scenarios.
Here is a summary of Projected Incomes that can be used for mortgage qualification purposes:

Below are the key eligibility requirements for the Medical Residents Projected Income Program:

must be registered or enrolled in a recognized medical residency or fellowship in Canada (or newly practising physicians within the last 24 months)
foreign trained physicians are also eligible, but must be Canadian citizens or Permanent Residents and licensed by a provincial college
a 10% minimum down payment is required of which 5% must be from your own sources. The remaining 5% can be from borrowed sources or gifted from family members
New to Canada applicants are not eligible under the Medical Income Projected Program, but may be eligible under other niche qualification programs – inquire directly with Marko Gelo for more details