Purchase + Improvements

Did you know you can buy a home that has problems and get these problems fixed within 3 months of moving in? 

This product is called a Purchase PLUS Improvements.  There are a few rules, but basically, if you like a house but it has, for example, a poor furnace and shabby roof, you can purchase this home and get the roof and the furnace replaced.  This, of course, increases the value of the home. 

So—how can this be done?

If you see a place and indentify a few problem areas like those stated above, you should initially tell your real estate agent that you will need to get a new furnace and roofing specialist in the house soon after an agreement of purchase and sale has been signed.  Next, I would require the agreement of purchase and sale, the MLS listing, and two quotes (one for the furnace, one for the roof).  The following will show how your mortgage would then be determined: 

---------------------------------------------------------------------------

Sale Price                             $170 000.00

Improvement                         $12 000.00            (Roof - $5000, Furnace-  $7000)

                                             $184 000.00

CMHC                                     $  5 328.00

Total Mortgage          $189 328.00

-------------------------------------------------------------------

The Rules: 

1. The improvement can only equal a 10% increase in property value if insured by CMHC and a 20% increase if insured by G.E. Capital.  This part will be handled by the broker agent.

(In our example above, the maximum improvement is $17 000.00 to $34 000.00.)

2. The work must be completed within 3 months of the closing date.  You need to discuss with the sub contractor to assure the 3 month deadline will be met.

3.  No one gets paid until all of the work is complete.

4. Most improvements need an appraiser to confirm work is actually completed.  This typically costs about $100.00. 

My Recommendations: 

1. Co-ordinate work (roof and furnace) so all workers finish around the same time.  Also, ensure sub contractor understands when he/she gets paid.

2. Take before and after pictures.

Overall, this product can be very helpful to buyers.  If you find the perfect place, and then find there is a huge “BUT, this needs work...” there is still an easy way around it. Please call or e-mail if you would like more details about the Purchase Plus Improvements product, or any other mortgage product. 

I offer a variety of options for every situation!

Harsh Realities: The Importance of Mortgage Life Insurance

          I believe that sometimes a person can be over-insured, but in relaity I feel most people are just the opposite.  When I first discuss insurance I tell clients this is a very good exercise because they need to assess where they are at when it comes to their insurance needs. This exercise forces people to evaluate their lives and to make sound financial decisions.  This idea was reinforced last year when two of my mortgage clients faced a harsh reality: 

          The first instance occurred the first week of January 2010, when I arranged a refinance, putting the clients in a good financial position. The applicant had been laid off for a considerable amount of time in 2009 and he was especially relieved at the reduction in personal financial pressure. At the time, part of the pressure he felt came from the recent arrival of their new baby.  Both clients were in their twenties.  Using the equity in their home, the refinance paid off every single debt, along with the original mortgage. Tragically, only two weeks later, the husband was killed instantly in a snowmobile accident.  The mother (co-applicant) was left with an infant child while still off on maternity leave.  Although grieving the loss of her husband, she was at least in control of all financial responsibilities, because Canada Life Insurance paid off the lender, First Ontario Credit Union, in short order.

          The second instance was during the spring of 2009, a husband and wife, again with a one year old infant, who purchased in 2007.  They were all relaxing together on their front lawn when the mother forgot that she needed milk to feed their baby.  On returning from the store, she lost control of the car and actually hit a tree on her own property, causing her death. In addition to the grief the husband was experiencing, he was having financial problems due to a lay off from work. The wife had been the only source of income at the time of the accident.  The mortgage insurance was the saviour in this family’s tragedy.

          The truth is, none of us can predict life’s physical and emotional challenges, but these two couples were able to protect their families, not by gambling, but by protecting themselves with mortgage life insurance.

Happy New Year & FAQ's

Welcome to 2011!

One of the best decisions an applicant can make is to seek out an experienced and knowledgeable broker-agent.  Finding someone who educates you and meets your needs is the key to a successful and beneficial mortgage.  Remember, the broker-agent should meet your needs. 

With this in mind, periodically I will blog frequently asked questions, in the hopes of aiding existing and future clientele.  Please take advantage of my blog, Facebook page, or e-mail address if you have any of your own questions you would like answered.

FAQ #1

Are all lenders the same?

Every financial institution—bank, mortgage company, or credit company have some common policies, but they absolutely do have different rules.  One common example is a specific bank that will do a commercial mortgage product but the applicant must occupy part of the property.  This, of course, is not always your intention.  Not all people are self employed and need a place to operate. You may simply want to buy a commercial property for business/investment reasons. 

FAQ #2

How do mortgage insurance premiums work?

You should be aware that Canadian banks are restricted from lending you more than 80% of the value/sale price of a property.  If you have 5%, 10%, 15%, etc. for downpayment, a lender must get your application approved by Canada Mortgage and Housing Corporation (CMHC), Genworth (GE) or Canada Guaranty.  In this case, your mortgage will be insured.  If you fail to make payments the insurer pays the lender the money owed and the insurer takes over ownership.  If you ever default on an insured mortgage, the insurer will not insure another purchase for 5 years.  The insurance premium is based on amount of downpayment.  The less put down, the higher the insurance premium.  Here is the standard charge for 25 year amortization:

                                                                5%          -              2.75%

                                                                10%        -              2.00%   

                                                                15%        -              1.75%   

                                                                80%        -              1.00%

 (If you use a 30 year amortization, add 0.2%, and if 35 year amortization, add an additional 0.2%).

 Using 25 year amortization and a sale price of $200,000.00 here is how your mortgage is calculated:

                Sale Price:                            $200,000.00       

                5% Down:                            $   10,000.00

                Difference:                            $190,000.00

                Ins. Premium (2.75%)            $    5,225.00

                Mortgage                             $195,225.00

This is a onetime charge on your property if you do nothing more with your mortgage.  If you refinance in the future and take a new amortization, there will be an insurance premium charge. (You will only be charged a new premium of the new money required during the refinance, if you keep the same amortization).   Use the above formula or my website calulator to do your own mortgage calculation or read more about insurance and links to specific insurance company websites here.