Debt Service Ratios - Easy to Understand
Debt Servicing Ratios are a big part of how a lender determines how much money you will qualify to borrow.
Debt Servicing Ratios are split into two categories:
GDS - Gross Debt Service refers to housing costs only.
TDS - Total Debt Service = housing costs + other debt payments.
There is often little correlation between the amount of income we can use on your application and what your actual income is unless you are on a fixed salary or pension.
Monthly Mortgage Payments and Minimum Debt Servicing Payments are also determined by lending guidelines and are not based on actual numbers when it comes to determining how much you will qualify to borrow.
It is quite common for buyers to struggle with the gap that exists between what they consider affordable and what the bank considers affordable. The issue come downs to the fact that the buyer knows what they can afford, but the lender (bound by guidelines and policy) disagrees. If the buyer hits this wall, they will need explanations, information, and guidance to keep everything moving forward. As a broker, my approach is to try and close (as much of) the gap that exists between the buyers expectations and the lenders thru my access to multiple financial institutions programs.
As we enter 2018, an increased amount of time is needed to secure financing in a great number of instances. The financing process has become increasingly challenging and is often frustrating for everyone involved in the transaction. As a Mortgage Broker, I am representing both the client and lender in the transaction, and both sides need to be comfortable or the financing simply doesnt get done.
Mortgage Financing in 2018
Mortgage Financing in 2018 - WHY and HOW
The Most Popular Questionfor banks and brokers has always been whats your best rate, and the assumption on the part of the person asking the question is that they will qualify for that rate. In 2018 though, (and actually for some time now) unless a full application is done, along with a detailed review of all the supporting documents; it isnt possible to quote rates accurately.
Problem is you WILLfind a banker, broker, or website that will tell you what financing you qualify for and what your rate will be without the required level of due diligence being done. I would estimate that 20 % of my book of business is made up of clients that relied on information that wasnt correct before they started house shopping and eventually hit a brick wall with the lender. This is NOT their fault as they are merely relying on information provided by either someone that seems to know what they are doing, or a great website that is unable to capture all of the required information, do a document review, and cannot effectively analyze an application.
An Experienced Mortgage Professionalcan help prevent a scenario where both a buyer and their realtor invest a significant amount of time visiting properties only to have the deal fall apart on financing.
The Buyer Probably Has(but not always) a financing condition in the offer and typically has 5-10 days to get their financing firmed up. The reality though is that if you are closer to the 5-day mark you likely will need to request an extension. Another reality is that lenders are no longer concerned about the financing condition deadline, or if the transaction even takes place.Yes, this is not the way to do business ...but this has become a business where common sense does not prevail. The need for the extension of financing stems from the fact that the approval process has become much more time consuming as the level of due diligence required has become....ridiculous in some cases.
The Regulatory Processthat lenders MUST adhere to is designed by a government that regulates an industry without fully understanding all of its moving parts. Lenders are extremely concerned that when the government walks in to inspect their files, every required process was followed, and every piece of paper needed is present.
If The Required Processwas not followed by the mortgage professional when they pre-approved the buyer, then there is a significant chance that the financing will fall apart when it is time to waive the financing condition. Sadly, it is rather common in these situations that the buyer cant reach the broker or banker that pre-approved them...and the website wont help. The truth is that in some cases bankadvisersand or brokers are avoiding the clients calls and emails as they have been informed by the decision makers that they cant deliver on the financing and in fact the buyer never qualified for it. When these situations occur, everyone involved in the transaction is usually in the dark as to what is happening, and both panic and frustration set in....but this CAN be avoided. Its NEVER been more critical that anyone purchasing a home works with an experienced Mortgage Broker :)
In a nutshell, if you are putting 20% or more of the purchase price of a home and qualified for a 450K you will be eligible for a 360K mortgage price in 2018. Over the past few years; there has been at least a dozen changes to lending guidelines some being more publicized than others. Each change that has come into place has made qualifying for financing more difficult. However, no matter what the government has thrown at us, people are still buying and selling real estate; but the process has become increasingly more difficult and time-consuming.
ANYONE THINKING ABOUT PURCHASING A HOME OVER THE NEXT 4 MONTHS SHOULD APPLY BEFOREDECEMBER 26THAND GET A REAL PRE-APPROVAL DONE TO QUALIFY UNDER THE CURRENT GUIDELINES.
Purchase + Improvements - WHY and HOW
With a drop in buying power, a buyer may no longer be able to qualify for the amount of house they want. This means that if a buyer wants that much house they may need to find a property that has not been fully updated yet and costs less. The nice thing about buying a home that has not been updated means that the purchaser gets to decide what improvements to do and doesnt need to pay for features that are not important to them. In many cases, a buyer can benefit by making improvements to a property that will increase the propertys value beyond the actual cost of the improvement.
The Purchase + Improvements Program has been around forever, but is seldom used. I think moving forward though; it may be something that can be utilized to bridge the gap (in part) between the amount of house buyers want and what they qualify for from a financing standpoint.
Debt Consolidation for Home Owners
This posting may be of interest to anyonethat has a fair amount of equity in either their home or in an investment property but fits into one or more of the situations below. As always; please feel free to share the information with whoever you like :)
5 Common Situations in 2017
A)Carrying too much debt on credit cards or lines of credit and just making monthly interest payments to protect the credit score but not getting ahead.
B)High Credit Utilization with multiple credit accounts that are at their limits or close to.
C)Property Taxes Arrears
D)CRA Income Tax Arrears
E)Late Mortgage Payments
As a Mortgage Broker,I see these situations pretty often, and almost always the client has done nothing wrong but has been dealt a life-changing event. When this happens, the common approach is to ask your bank for help. Unfortunately, most people find out that with the bank, it is black or white, approved or declined and their solution (if there is one) can put you in a worse position ultimately. Besides the bank not being able to offer the right solution, they frequently cant or wont even tell you what is showing on your credit file (which is preventing them from working with you) and or how to correct it. The reason why this happens iswell, there are a number of them, and they are all dumb in my opinion, but thats just me. The truth is though; its not the banks fault as they have to work within a set of guidelines that are not flexible. This world is financially challenging for many people and the banks have not yet adapted to this by being able to offer products and solutions that can help people.
Most people that carry a high level of financial stress are forced to spend time juggling money from one place to the other, and are receiving calls from companies that want a payment today on a credit card or need you to commit to the day when you will be making the payment so they can log it. When it has got to this point, the person is probably bringing this stress home every night, making it sodifficult to be parent, spouse or even just the person they really want to be. Now, if the person happens to be Self Employedwell then its a double whammy as this level of stress is probably adversely affecting their ability to do business which only makes matters worse.
I see all kinds of situations because of what I do, and being over 50 years of age, I have more than enough life experience to last me two or three lifetimes. What I can tell you is that I have never seen a situation yet where both the financial situation and the person are bad...as there is no correlation. Almost everyone that is struggling financially are good people that are just trying to cut their way thru a world that has become so expensive to live in.
Part of why I do what I dois because I get to help people. When I started my business, I had a couple of very tough years, and like everyone else, I went to the bank that I had been dealing with for 20 years for help. It didnt take long to realize that there would be no help. When I look back at that time, I had no idea what other options might be available to me and BTW, I did own a home with equity in it. I figured all I could do was to try and make more money. The take away for me was that the 70s were over, and being a loyal client at the bank would get me nothing.
These are the top 5 most common ways that things go sideways financially for people:
3)Helping a child or parent financially
4)A drop in business if you are self-employed or losing a job if you are an employee
5)Inflation - everything has simply become more expensive, and income hasnt kept pace.
Here is my message to anyonethat is either in a situation or knows a homeowner with equity in real estate that is:
1) I do want to help
2) I will be honest with you about what we can or cannot do
3) I will both give you the information you need to make an informed decision, and I will explain the options that you have... that are in your best interests.
4)I will put together a plan for you so that you can re-structure your financesand show you why it makes sense.
5) I will not try to sell you on anything, I wont overcome objections, and I will never follow up with you to see if you are ready to do something...but I will return all calls, texts and emails.
6) Do not let your credit become adversely affected...meaning dont wait if youre struggling. In 2017, a person is very unfairly judged by their credit file (its not just about the beacon score) and repairing credit issues can be a very long painful process.
Nobody ever needs to feel bad, ashamed or worried about approaching me as you are doing me a favour. You are giving me a chance to do good wherever I can...part of why I do this. The reality is that most of us have been there and may even still be there, and nobody needs to know your business. Everything I do with my clients is strictly confidential and I share the information with nobody. (Actually, the great thing about being over 50 is that I cant even remember the information to share with anyone). The last takeaway that I want to leave you with is that people make the best decisions that they can when they are making them. The truth is, those decisions were probably the right ones to make, and the reality is that everything impacts us financially good or bad.