Mortgage: You either have one or you’ve heard of one. And if you’re in the latter group, maybe you’re at a point where you ought to learn more. But it can be intimidating as a first-time buyer, if not downright terrifying, to admit your ignorance about such a big, seemingly important part of adulting.
It’s never too late to learn the basics about mortgages and mortgage pre-approval, especially in a place as real estate-focused as BC.
Get ready to learn, and read along.
Rejection isn’t the end
There are three insurers in Canada that provide high ratio mortgage insurance, CMHC, Genworth, and Canada Guaranty. If a lender receives a decline from an insurer due to the property, lending policy dictates they can’t proceed with the application. That doesn’t mean you can’t approach a new lender to try through a different insurer.
Working with a broker can be beneficial in these cases because they have the ability to work with different lenders if necessary. What may not fit policy for one lender/insurer, may be acceptable to another. Sometimes you go through all three insurers before you find the right fit.
Situations where a property may not meet an insurer’s guidelines include (but are not limited to): age, location, square footage, and/or overall condition.
Rental property purchase vs. owner occupied purchase
The lending environment now emphasizes the difference between financing for a rental property and financing for a property that is owner-occupied and/or a second home. The financing rates are lower for owner-occupied properties, because this lending scenario is deemed to bear the least amount of risk for the lender.
If your purchase agreement is written with possession that honours an existing tenant agreement, it will be treated as a rental purchase. If you are relying on high ratio approval (less than 20% down, for example) you will need the purchase agreement to be written with vacant possession. Rental property financing is approved with different lending guidelines due to the difference in risk for the lender. Financing for a rental purchase requires a minimum downpayment of 20%, and the available interest rates are higher.
Purchasing a fixer-upper
If you want to purchase a home that needs a bit of TLC, there are purchase + improvement programs that can help. Generally, this is for improvements up to $40,000. This type of financing must be arranged at the beginning of the approval process, so you might need a little extra time for your subject to financing. Keep this in mind when you’re writing your Offer to Purchase and let your realtor know.
The lender will need written estimates/quotes for the work that is to be done, and these are submitted up front in the process, along with your income and downpayment documents. The lender will issue an approval based on the higher value after the improvements, but will hold back the additional funds until you can provide confirmation that the work is 100% complete. The lender may request an appraisal of the property and copies of the paid quotes to confirm the Improvements are complete. You are reimbursed through your lawyer or notary’s office once the lender is satisfied.
Source: Daily Hive
