If this is Wednesday, it must be Mastermind. One of my favourite days of the week. What I like most is when everyone talks at once. While it is a bit chaotic it is great to see that everyone wants to add their two cents into the conversation. It’s a clear indication that everyone is interested and paying attention .
Today, we were happy to have Joe Sammut from Mortgage Architects http://www.mortgagegate.ca/index.htm come in to talk a little about the mortgage market. Some agents had expressed some concern that buyers were getting into financial jams before closings because properties were not appraising out. Joe was quick to point out that he was not seeing this trend however he focused the discussion on a couple af main points;
- Yes, bank appraisers are being more conservative and some secondary lenders ( non big five banks ) are using “fire sale appraisers”.
- Whether you are buying or simply refinancing, it is important to remember that appraisers don’t appraise over value. That is, don’t ever expect that $500k appraise at $550k.
- Paying over the asking price will pretty much guarantee more than a quick drive by appraisal.
- For the most part, the lender looks at three key lending criteria; occupation, down payment and credit.
- There is some tightening for self-employed people, offshore investors and new immigrants.
So the question of the day was; how do we ease the stress of financing? Not surprisingly the work starts with us on the front lines. It is important to have an honest conversation with your buyer from the beginning. Don’t be afraid to ask the big questions;
- If there is a shortfall between the appraised value and purchase price, do you have the means to make up the difference?
- If the interest rate goes up, will the mortgage payment still be manageable?
- Are you aware of the closing costs involved with this purchase?
- Do you have enough money available to do minor repairs or improvements?
The take away here is that communication is the key to a successful real estate transaction. You are working with a buyer to find them a home that they can afford. If the client is unwilling to provide you their mortgage details at least stay in contact with their mortgage broker to make sure you don’t sell them something they can’t afford. It is important to either have a strong understanding of the mortgage market or have a good broker who is an available member of your team. Perhaps that’s why they say that behind every great real estate agent is a great mortgage broker.
Naturally I hope to hear from you if you have anything to add to this post. Have a great week!
Happy Wednesday and welcome to this week’s Mastermind post. It’s great to see over half my office show up mid-week to shoot the breeze. If you missed today, you missed a great discussion on the recent move by CMHC to cut back on the amount of mortgages it insures. We were lucky to have Bosley’s own mortgage consultant, Joe Sammut, from Mortgage Architects, at our meeting to shed some light on the subject. If you haven’t had a chance to read The Financial Post’s story on the subject you can look at it here http://natpo.st/zlXZ0U Of course the media is all over this so if you are looking for a different point of view have a look at this article from Mortgage Trends. http://bit.ly/zf9h8d Both articles offer an in-depth view of the recent news.
During our meeting we wanted to get an understanding on how potential changes could affect first time buyers particularly those who are self-employed. Joe shared with us one of the biggest changes made by CIBC ( and likely to be followed by the other big banks ) that they will no longer be using “stated income” in their loan approval processes. As Joe points out, it is a classic example of short-term pain, long-term gain. Stated Income has been a problem for some time but the tightening of the rules doesn’t actually mean that the banks are worried about increased risk.
Of course our concern is people being penalized because of the career paths they have taken. Over the last few years the Cottage Industry, defined as a small group of people working from their homes, has grown into the Cottage Economy, a much larger segment of the population who own their own businesses. These business owners make up a huge part of the Canadian economic engine. On the surface, the move by CMHC sounds like an opportunity to lend less to entrepreneurs but the reality is that the high ratio rules still apply. If they have less than 20% down, they still qualify for high ratio insured mortgages. It is important to note three important things about what is going on in the world of mortgages. First, that the rate of default of mortgages is currently less than 1%, second, CMHC has a substantial war chest saved up for any sudden increase in defaults and, three, the government imposed cap on CMHC insured mortgages is rising, not just due to an increase in high ratio mortgages given but by many of the big banks using CMHC to insure low ratio mortgages. I tend to agree with Canadian Mortgage Trends in their take on the situation. Look for the government to restrict the insuring of low ratio mortgages and raise the ceiling on the total value of insured high ratio mortgages. My suggestion is to read both articles thoroughly. Remember; If you can’t explain it, you don’t understand it.
Have a great week!