How to Confirm Income

One of the most important factors that lenders look at when assessing a credit request such as a mortgage is a customers capacity to repay the loan. Now it may seem as simple as just providing a paystub or a letter from your employer but lenders may not just look at your current ability to pay but other factors such as the stability of your employment and job security. For example, if you work in an industry that is highly seasonal in nature, you may be asked to provide not only a recent paystub but also Notice of Assessments for the last 2 years. Now today I want to go over the different ways to confirm income and what documents your lender may expect from you prior to your credit request. Most importantly, I want to clearly define what these documents are or may look like because a lot of times when I ask for things like Notice of Assessments, I’m getting T4′s or indiviual prepared tax returns. Every lender will have its own policies when it comes to confirming income so use this only as a general guideline.

Salaried or Hourly Income
If you are salaried or receive regular hourly income, typically you will be asked to provide a recent or a few recent paystubs dated within the last 2 months. In addition to the paystubs, you may also be asked to provide a recent letter of employment, also dated within the last 2 months. These documents should indicate your name, your employer’s name, and your base pay. If you are providing paystubs, they should also show your pay period and your pay rate per hour. For a letter of employment, the name and title of the person should be indicated on the letter. If you work for a family business, most lenders will usually consider you to be self employed and will not accept a letter of employment. If your bank account is with the same lender, they may consider looking at your direct deposit history for the last 2 months. Since it discloses your net pay, most banks will use a certain multiplier to estimate your gross pay.

Self Employed or Fluctuating Income
If you are self employed/Professional, employed by a relative, have fluctuating income such as commissions, bonuses, profit sharing, overtime, gratuities, fluctuating hourly, seasonal employment, contract employment or receive other investment income, then you will most like be asked to provide your 2 most recent years Notice of Assessments from Revenue Canada. To clarify what we consider most recent, your 2009 NOA may be used up until June 30th, 2011. After that deadline, you will be asked to provide your 2010 NOA.

So what is a Notice of Assessment? It is the form that the Canada Revenue Agency sends to all taxpayers after processing their returns, that states the amount of taxes to be paid or refunded. A T4 is what you receive from your employer to file your tax return but does not give us any indication of whether you will owe taxes or receive a refund. A T1 General also does not constitute as a Notice of Assessment because this is what you or your accountant prepares to submit to the CRA. If you do not have a copy, you can obtain one by accessing the Canada Revenue Agency Web Site or alternatively, by requesting a copy from CRA by phone.

Line 150 on your Notice of Assessments provides a total of all reported sources of income so lenders will take the average of your last 2 years. If you have any income taxes owing, lenders will ask that it be paid prior to granting you any credit. There are certain programs in place for self employed individuals who may have numerous write-offs and cannot show the require income on paper. Please visit my blog on Self Employed Borrowers to learn more about these programs.

Other Sources of Income
You may receive other sources of income including rental, alimony or child support, maternity or parental leave, or other investment income including Non Canadian Currency. The best thing to do in these instances is to contact your lender to find out what they will accept as proof for these sources of income.

No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Happy Canada Day!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Peace of Mind for a TD Canada Trust Customer…

As a Mortgage Specialist with TD Canada Trust, my goal is to provide new and existing customers with mortgage advice…but with convenience. Since almost 9 out of 10 first-time homebuyers use the Internet to research mortgages according to CMHC, I set up this blog to do just that. I want to thank those of you who have provided me with positive feedback on my blog and I hope that the information I continue to provide will be useful to you or anyone you know in the future. Today I want to share a story from a TD Canada Trust customer who gave me permission to share his experience. I am glad that my blog on Porting or Replacing your Mortgage gave him peace of mind when he engaged in the purchase of a new house.

“I wanted to thank you for your blog on ports and replacements. As a TD Canada Trust customer with a mortgage held by TD, my wife and I engaged in the purchase of a new house utlizing the Port, Blend and Increase. However, the sale of the old house created a gap of about 53 days after the close of the purchase. We were told that we needed a bridge loan, but we were able to pay the 5% deposit required, closing cost on the purchase and was also given 1% cashback incentive by TD. This eliminated the need for the Bridge financing to the surprise of the local branch manager and the lawyer.

What I was concerned with was the accounting and probably the pessimism that TD would forward me the money for the purchase without funds from the sale. Even more suprising was that the 1% cashback that basically carried the two mortgages for the 53 day gap. Your blog gave me the real understanding that essentially the Port was an opportunity to pay off the mortgage associated with the sale and that we were actually quite well planned with the actions that we took and with the 1% cashback “lucked out”. And that we really are going to carry 2 mortgages.

Without your blog, I would have continued to have sleepless nights. Thank you. Your blog has been helpful and in fact outlined the opportunities in plain language that TD customers have. Again, Thank you. Vince”

No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Co-signors, Co-applicants, Joint Applicants and Guarantors

I recently completed a mortgage for a first time homebuyer who wasn’t aware that her co-signor was also going to be on title of the home, so today I wanted to share with you the meaning of co-signors, co-applicants, joint applicants and guarantors. More importantly, I want to clarify the differences between the four of them and how it can impact your financial situation should you decide to co-sign for someone down the road.

Co-signors and Co-applicants are two terms that are used interchangeably. They are usually required in cases where someone cannot qualify on their own. These reasons might include no current or past borrowing record, poor current or past credit history, insufficient income, limited financial worth, or no tangible security. Most co-signors and co-applicants are restricted to family members of the person applying but TD will consider non-relative requests on an exception basis. Always check with your Financial Institution on what their rules are. Now, a co-signor or co-applicant is equally responsible for the debt until its fully repaid so even though you may be just a co-signor and someone else is paying the debt, it is still your liability in the bank’s eyes. This means that if you apply for credit down the road, they will include this liability on your application, potentially impacting your ability to qualify. As a co-signor or co-applicant on a mortgage, you will also be on title of the home.

Joint applicants usually apply to spousal situations where common assets and liabilities are shared, so like husband and wife or common law relationship. Each are also equally responsible for the debt obligation. Both spouses may or may not have income that can be available to satisfy debt-servicing requirements but if the real estate is owned jointly, both spouses must be included in the application and sign as mortgagors.

So that leaves us to our last term and that is a guarantor. A guarantor basically guarantees a mortgage but they are NOT on title of the property. So why wound anyone want to provide a guarantee? Well for one thing it can help strengthen an application for those wanting to help out a family member or close relative but it also gives them the ability to utilize the first time homebuyers plan if they haven’t done so already. There may be other personal reasons why people don’t want to be on title but at the end of the day, this is the main difference between guarantors and cosignors. What a lot of us don’t know is that most lenders will not even include the income of the guarantor because income from other parties to the mortgage is only used when they have an interest in the property. The percentage of secondary income used depends on the quality and durability of the guarantor’s employment. So when I say that a guarantor may help strengthen the application, it’s not actually helping the main applicant qualify, but rather adds an extra cushion in the event of default.

So I hope this clarifies the definitions of co-signors, co-applicants, joint applicants and guarantors. If you are ever in doubt, always seek independant legal advice before entering into any contract. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

What Newcomers Need to know

As a newcomer to Canada, it can be very daunting settling into a new place, besides also starting new employment and trying to look for a place of your own. Credit and work history are so important when trying to obtain a mortgage so today I wanted to talk about how to begin building your credit history as soon as possible and some tips that may help you get approved faster. What I am going to share with you today will apply mostly to those who have immigrated to Canada within the last 3 years and who are looking for an insured mortgage but do not have Canadian Credit Bureau history. Every lender has different policies and each scenario is always reviewed on an individual basis.

So as a newcomer to Canada, how do you qualify for a mortgage? Besides falling within the standard debt service ratios, you must have relocated to Canada within the last 3 years, have your landed immigrant status and obtain a minimum of 3 months full time employment in Canada. If you are being transferred under a relocation program, we may consider a shorter time frame on an exception basis. Since you probably won’t have Canadian credit history, here are some tips that will help you show that you are able to repay a mortgage.

• Open a bank account and use it regularly
• Pay your bills on time including rent, utilities, cable, and insurance premiums
• Apply for a credit card or small loans to prove that you can pay on time
• Try to remain with the same employer for an extended period of time

Insurers such as CMHC will consider factors other than traditional credit history when considering your application for a mortgage. For example, they will consider a 12 month rent payment history and proof of 2 other payment for 12 months such as a utilities or a cable bill. If this is not available, they will consider payment of any 3 bills for 12 months such as childcare, insurance premiums or regular savings. Some lenders may accept a letter of reference from a recognized Financial Institution outlining history and past credit experience or even 6 months of bank account statements. Now when it comes to the down payment, 5% must come from your own resources. The rest may come from a corporate Relocation Subsidy or be gifted by an immediate family member. The best thing to do is to consult with your lender or give me a call and I can help. To find out more about CMHC loan insurance premiums, click here. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Thank you!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Source: CMHC – Buying your first home in Canada

Is it Time for a Mortgage Check-up?

Hi! It’s Josephine Ng, your Mobile Mortgage Specialist with TD Canada Trust. While many of us visit our Doctors and Dentists to ensure our health is in check, how many of us are checking our financial health by reviewing our mortgage? With many changes that we all go through including career, kids, retirement and who knows, even new found money, having the right mortgage can make a huge difference on our financial health. So today I want you to take a moment and think about the following things.

Mortgage Term – Is your mortgage coming up for renewal? If so, how are you choosing your mortgage term? Instead of just signing the renewal letter without considering your current needs, you may end up savings thousands of dollars by spending less than 15 minutes speaking with a mortgage advisor. You should put just as much thought into a renewal as you did when you signed the initial deal.

Interest Rates – This is obviously one of the most important factors to consider. If you’re making a commitment to be mortgage free in 25 years, you should have a longer term view of what interest rates will look like over that period. If they’re going up, make sure you can afford the higher monthly payment that may come at renewal time, or lock into a fixed rate if you’re on a variable. If rates are dropping below your existing rate, you might want to refinance or renew early. Choosing between a fixed or variable option can be a tough decision but the more adverse you become to risk, the less likely a variable mortgage will be right for you. To get more insight on this topic, please visit my blog on Fixed or Variable. I have also attached our Historical Rates for your information.

Consolidate – Consolidating higher interest unsecured debt into your mortgage can save you significant interest costs and may possibly help you get out of debt sooner. It may also help you free up some cash flow by combining all your debts into one monthly payment. The best thing to do is to always continue making the same level of payments which will reduce your principal and lower your interest costs. The Example attached demonstrates how one family with mortgage, line of credit, and credit card payments exceeding $1800 per month was able to reduce their annual interest expenses by $4200, while also saving over $900 per month in debt repayments. By consolidating all of their financial debts and exploring the benefits of a home equity line of credit, the family has the ability to better manage their monthly payments.

Amortization – Knowing how amortization works will help you to understand how to properly manage your debts and also pay it off quicker. Amortization is how long you are scheduled to repay a mortgage or loan. Most banks will allow you to make a certain percentage of lump sum payments against the principal of your mortgage and increase your monthly payments. For tips on paying down your mortgage faster, please visit by blog on Saying Goodbye to Your Mortgage Faster.

At the end of the day, understanding your whole financial situation and not just your mortgage can help. Even something simple like undertaking renovations can affect your mortgage options. A mortgage also has its tax advantages if you’re thinking of investing in a business, buying a rental property or purchasing other investments. The interest paid on money borrowed on a principal property can be written off against revenue from those investments. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. It may be a lot easier to review your situation now and do something before your situation changes. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

The Importance of Home Inspections

Hi everyone! It’s Josephine Ng, your Mobile Mortgage Specialist with TD Canada Trust. Are you in the market for a new home?  Not only is a home one of the biggest investments you’ll ever make but one that doesn’t come with a money-back guarantee which leads to what I want to share with you today and that is the importance of doing a home inspection. Most of us wouldn’t think twice about how a chimney can affect the structural integrity of a house but seeking advice from a home inspector and even an insurance expert before you buy can help prevent any surprises that can be very costly to fix. For about $500, a home inspection will identify what repairs need to be made and at what cost. Depending on your financial situation, the report could have an impact on your purchase decision or it may even give you some bargaining power with the seller. A home inspection looks at the structure and major systems including the roof, exterior, electrical, heating, cooling and plumbing. So what exactly should you be looking out for? An article I found on the Globe and mail shares some tips on what what you should be aware of.

The roof – Is there is any deterioration and any improper installation of downspouts, gutters, vents, and chimneys?

Plumbing - Is the plumbing system outdated? This can lead to potential hazards and costly water damage if it isn’t maintained or updated.

Heating – An older heating system, such as an oil furnace, could leak and cause damage to your home and the surrounding area if not maintained properly.

Foundation - Cracks or dampness in the foundation could indicate larger issues that are costly to repair.

Back-up Valve/Sump Pump - A functioning sump pump will drive water from the lowest part of the basement to avoid flooding and water damage.

Windows – Windows that aren’t properly sealed could lead to water damage, pest problems and increased heating and air conditioning bills due to drafts.

Exterior – An overall review of the exterior structure of the home will identify problem areas that could lead to water damage, mould or even structural problems for the home.

Use this Checklist to review the report you receive from the home inspector. Remember, no matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Thank you!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Original Source: The Globe and mail

Bridge Financing

Hello everyone. Its Josephine Ng, your Mobile Mortgage Specialist with TD Canada Trust. Today I wanted to talk about a topic that not everyone is too familiar with and that is Bridge Financing. I have had several customers recently inquire about this option or have actually needed one so I thought I would blog about it. Bridge loans are basically temporary loans for existing home owners to bridge the gap between the purchase of a new home and the sale of their existing home when the closing dates are different. It allows you to access the equity in your home before the sale in order to purchase a new home. Now for most purchase and sale transactions, people will try to line up the same dates. But in the event you take possession of your new home a few days or even a few months before the sale of your existing home, a bridge finance may be required. Usually, most lenders including TD won’t provide bridge financing to their customers unless they have comitted to taking a mortgage with them. However, it never hurts to ask. In the lending world, there’s always exceptions that can be made.

The maximum term that a bridge finance can be held is 90 days. Collateral mortgage security may be required in some instances when the term exceeds 90 days. The amount of the loan obviously cannot exceed the available equity of your property being sold. Talk to your lender or feel free to give me a call to find out how to calculate the amount available to you for a bridge loan. There is usually more to it than just calculating the difference between your sale price and outstanding mortgage. We also have to take into consideration any pre-payment penalties, 2nd mortgages outstanding, real estate commissions, and other closing costs. The interest charged on bridge loans are usually a variable interest rate that fluctuates with the banks prime lending rate. When the lawyer handling the sale of your home receives the funds, the bridge loan must be repaid. One important thing to note is that all parties on title of the existing home must be on the bridge finance loan as borrowers.  So to qualify for a bridge loan, you must have the following:

• Approval for a TD Mortgage or Home Equity line of Credit on the new residence
• Firm purchase agreement with all conditions waived
• Firm sale agreement with all conditions waived

If your existing mortgage is not with TD, then you will also be asked to provide copies of the Discharge Statements for all encumbrances on title, lawyers fees etc. Remember, no matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Porting or Replacing your mortgage

Hi everyone! It Josephine Ng, your mobile Mortgage Specialist with TD Canada Trust. Last week I touched a little on IRD and how choosing the wrong term can cost you thousands of dollars. So today I wanted to talk about what options you may have to avoid paying a penalty with your lender if you decide to move and take out another mortgage. Two things I should note here. First, the information here is specific to TD Canada Trust. Second, most portability and replacement options are only applicable if you take out another mortgage with the same Financial Instution that you took your first mortgage out with.

So what’s the difference between portability and replacement? Portability waives all or part of your pre-payment charge, and allows you to take your current rate and term with you when you move or refinance. This is usually applicable to fixed rate mortgages only. A replacement mortgage also waives all or part of your prepayment charge when you have already paid or are being charged 3 months compensation on the discharge of your existing mortgage and you are replacing it with a new closed term mortgage taking a new rate and a new term. These are usually applicable to variable rate mortgages only. So for example, lets say you are currently locked into a 5 year term at 4.5%. Youre 2 years in and you decide to move. Assuming that interest rates are the same or higher, it doesn’t make sense for you to pay a penalty to take out a new term and new rate on the purchase of your new home. So in this scenario, you may want to port your mortgage. Let’s look at another scenario. If you are currently locked into a closed variable mortgage term, most Financial Instutions will charge 3 months interest penalty if you pay it out before the term is up. Again, if you decide to move before your term is up, this mortgage is replaceable. In other words, after you pay your 3 months compensation and you take out another closed mortgage of equal or greater value, this charge should be reimbursed.

With a port, typically the posession date should be 120 days before or after the payout of your old mortgage. You must have a firm agreement for both purchase and sale and like I said earlier, they’re only applicable to fixed rate mortgages. If your new mortgage happens to be more than the old mortgage, the existing rate is transferred with additional funds priced at current rates. The final rate is a blended rate of the existing and new rates. With a replacement mortgage, the new mortgage must be granted within one year of the old mortgage discharge. And if you’re existing mortgage has an IRD instead of a 3 month compensation charge, then you won’t be eligible for a rebate. Most replacement rebates are applicable to variable rate mortgages only. Keep in mind that the new mortgage must be replaced by a new CLOSED term mortgage (variable or fixed) and the amount can be less than, equal to or greater than the discharged mortgage.

This may all seem very confusing but the bottom line is to make sure that you ask your financial institution what their policies are for porting and replacing. Most people who take out a  5 year fixed term don’t end up staying in their home for 5 years. The last thing you want to find out is that you cannot port or replace your mortgage and pay a hefty penalty. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Important Questions to Consider Before Choosing the Right Mortgage

Hi Everyone! It’s Josephine Ng, your Mobile Mortgage Specialist with TD Canada Trust. With over 12000 listings in and around Calgary at the end of may, I have been getting a few inquiries on payout penalties and porting options which I’ll touch on next week. But today I wanted to go over some very important questions that you, as a first time home buyer or existing home owner should consider before choosing a mortgage. Last week I talked a little bit about IRD and how the lowest rate may save you hundreds, but the wrong term can cost you thousands. So how do you figure out what term is best for you? Well here are some questions that your mortgage specialist should be asking you and something for you to think about before making  your next mortgage decision.

1. Are you intending to pay off your mortgage or make any prepayments over the next few years?
2. Do you have any plans to sell your home or move within the next few years? If so, Will you need the same financing or more?
3. Are you more comfortable with a fixed term where your interest rate is locked-in, or a variable term where your interest rate can fluctuate from month to month?
4. Do you feel comfortable watching the interest rates so that you can lock in when rates increase?
5. How comfortable are you with interest rates that fluctuate?
6. Do you plan on borrowing for home renovations or for investments in the next 12 months?
7. Based on current mortgage interest rates, would you consider refinancing to consolidate any high interest credit balances you may have outstanding?
8. Other than rate, what else is important to you?

Without going over these basic questions, you may end up choosing the wrong term and end up paying thousands of dollars in penalties. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to add to this post, feel free to leave me a comment. Have a great weekend!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Mortgage Terminology

Hello! Its Josephine Ng, your Mobile Mortgage Specialist with TD Canada Trust. It didn’t occur to me how difficult it can be to make sense of home financing terminology until somebody said to me the other day, what is a HELOC? For those of us who are familiar with mortgage terminology and using acronyms like VIRM, ETO, REFI etc…for others it may be a completely different language! So I wanted to take some time today to go over some mortgage terminology to help you better understand what it all means.

1. VIRM (Variable Interest Rate mortgage) – A mortgage for which the rate of interest may change if other market conditions change. Also referred to as a floating rate mortgage.

2. HELOC (Home Equity line of Credit) – A flexible mortgage alternative using equity available in your home to take advantage of low interest rate with ongoing access to funds.

3. Refinancing – Renegotiating your existing mortgage agreement. This may include increasing the principal or paying out the mortgage in full.

4. Porting – This allows you to move to another property without having to lose your current interest rate. You can keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.

5. Open Mortgage – A mortgage that can be pre-paid any time without penalty.

6. Conventional Mortgage – A mortgage that does not exceed 80% of the purchase price of the home. Mortgages that exceed this limit must be insured against default and can also be referred to as high ratio mortgages.

7. Mortgage Term – The number of years or months over which you pay a specified interest rate. Terms can range from 6 months-10 years.

8. Home Equity – The difference between the price for which a home could be sold (market value) and the total debts registered against it.

9. Appraisal – The process of determining the value of property, usually for lending puposes. This value may or may not be the same as the purchase price of the home.

10. Amortization – The amount of time over which the entire debt will be repaid assuming the same interest rate.

Call or email me if you have any questions. And remember, no matter what type of mortgage financing you are looking for, it makes sense to speak to me first. Thank you!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Source: Mortgage Terminology

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