Vancouver rental properties

ALERT: Non-Conforming Strata Properties Continue To Be A Problem For Some

In a post dated May 7, 2010, I alerted readers that Canadian mortgage insurers were not insuring “non-conforming strata” properties. For the full post read here.

I subsequently wrote an update post on May 19, 2010 advising that the decisions by the mortgage insurers had been reversed and all was okay again. Read more here.

During that time frame, most lenders I spoke to had no issues providing that financing for those types of properties on a conventional basis (equity of 20% or more).Therefore, I thought the issue had died since the insurers were again okaying them. All was good.

Well, apparently not. I was just sent an email by a reader of my blog and was told of a potentially serious problem that he had with a lender. I have his permission to publish what he sent me but he wanted to remain anonymous. This is what happened to him.

“Hello Wayne,

I wanted to thank you for your above noted article. My wife and I have recently agreed to purchase a new property that is part of a non-conforming strata. The purchase completeion date is later this month.

We were pre-approved for the mortgage on the new property by Coast Capital, which holds the mortgage on our current property. Coast Capital was informed that the new property is non-conforming with no Form B, no regular meetings, and no minutes of meeting. Coast Capital was also aware that we would be putting more than 20% of the total mortgage value towards a down payment.

Coast Capital informed us after we had removed all of our subjects on the purchase agreement that it could not provide us with a mortgage for the property because it is non-conforming despite our significant down payment. This has left us scrambling to find another lender at the last minute.

We are now working through this issue with our agent and broker but I wanted to let you know what my wife and I recently encountered with Coast Capital and encourage you to publish more articles on this issue because there appears to be a lack of understanding about this issue amongst agents, brokers, and lenders.”

This was the first time since early spring of 2010 that this issue has creeped up again. I have sinced spoke with a handful of lenders and have been advised that there are no changes to their guidelines and are okay with these types of properties.

I was informed by the writer that he did manage to obtain financing elsewhere and it appeared that all turned out okay. I wish to thank him for writing me and telling me his story.

Aside from the potential problems with properties of these types, I would also like add an additional caution. NEVER, EVER remove the subjects on a property unless you are 100% certain that the financing is in place. Even if you are pre-approved make sure you have a firm commitment from the lender before doing so. The type and condition of the property may be the problem and not you.

As always, I want to hear from you.

Wayne Mah, Senior Mortgage Planner, The Mortgage Centre 604.880.1899 / mah.w@mortgagecentre.com

Vancouver rental properties

Rates lowered by CIBC and RBC

CIBC and RBC led the way today by announcing lower rates. All rates from 2 year terms and up were lowered by 10 bps across the board. With this latest decrease the posted 5 year fixed rate at both lenders is now at 5.49%.

No announcements by the other lenders at this time but they will surely follow.

Vancouver rental properties

Rates Lowered Unannounced

RBC, without a press release, lowered their posted rates today by 0.10% across the board. This is the second time in under 2 weeks that mortgage rates have been lowered.

Based on current bond yields, we can anticipate futher rate decreases in the near future. No other lenders have followed RBC’s lead thus far but we can expect them to match in the coming days.

Wayne Mah, AMP / Senior Mortgage Planner / mah.w@mortgagecentre.com / 604.880.1899

Vancouver rental properties

How To Finance A Former Grow-Op Property

Living here in beautiful British Columbia has some definite perks. The mild climate, gorgeous scenary, and for those that like to partake…B.C. bud.

Now I am not getting into the debate over pot use but wanted to detail the steps required to purchase a property that was a former grow-op. In B.C. there seems to be a huge number of homes that are used for the illegal cultivation of marijuana. Once these places are shut down by the authorities or are known to have contained a former grow-op, selling and buying becomes much more complicated.

To start, the “stigma” of the property being a former grow-op stays with the property FOREVER in B.C. It must be disclosed on the Property Disclosure Statement by the seller regardless of how much time has past.

Now when it comes time to finance such a property there are many lenders that will not provide mortgages on them knowing what they were previously. Also, of the two major mortgage insurers (CMHC, Genworth) Genworth will not insure a mortgage on former grow-ops. They will only if the dwelling is bull-dozed and rebuilt from the ground up.

Luckily, there are still lenders and CMHC that will finance these properties. Here is what is generally needed:

1. If the property was shut down by the authorities, a new occupancy permit must be issued by the city/municipality. Normally this would require that the property be brought back up to building code.
2. An Environmental Phase 1 Assessment, which is an air quality test to ensure that there are no toxic mould or other harmful contaminents in the property.

The above two items are generally what are required. However, some lenders and also in some cases, an Enviromental Phase 2 assessment may be required. This is a much more extensive review of the property and would involve taking drywall samples, flooring samples, etc. Again to ensure no toxic mould or other harmful contaminents are present in the property.

Obviously properties of this type require a lot more work and documentation in order to obtain financing but it is still quite possible.

If you would like to discuss this further or have a comment I would love to hear from you.

Wayne Mah, Senior Mortgage Planner, The Mortgage Centre 604.880.1899 / mah.w@mortgagecentre.com

Vancouver rental properties

So It Begins…Bank of Canada Raises Bank Rate Today

The Bank of Canada raised the Bank Rate by 0.25% today. It is now at 0.50%. This is the first increase by the central bank since July 2007.

With this rise I expect all major lending institutions to rate their Prime Rates by an equivalent amount – from 2.25% to 2.50%. This means that if you are in a variable rate mortgage or have a line of credit, you will be paying more.

This is most likely a start of a series of rate increases by the Canadian central bank over the foreseeable future as the economy continues to improve. For some this may be a time to re-evaluate your debt and adjust accordingly.

The next Bank of Canada meeting is July 20, 2010.

Bank of Canada Press Release

Wayne Mah, Senior Mortgage Planner, The Mortgage Centre 604.880.1899 / mah.w@mortgagecentre.com

Vancouver rental properties

UPDATE: Strata Duplexes Now Okay

CMHC has just announced that they will now be insuring mortgages on “non-conforming stratas” again. This reverses an earlier decision (see previous post). A requirement is that title insurance must be taken out.

This is super news for both buyers and sellers. Now buyers can go as low as 5% down again!

No updates from the other two insurers as of yet.

FURTHER UPDATE: Other insurers are on board as well.

Wayne Mah, Senior Mortgage Planner, The Mortgage Centre 604.880.1899 / mah.w@mortgagecentre.com

Vancouver rental properties

Warning: Possible Financing Problems On Strata Duplexes

Our office recently encountered financing problems for a strata duplex. We discovered that currently no mortgage insurer will approve such a property. Not CMHC, not Genworth and not Canada Guaranty .

This is a very recent change!!!

I found this very strange and having been in the industry for many years I decided to find out why. In the past these were not an issue.

Some background on these types of properties. Although strata duplexes are not rare, they are not abundant. I have seen some strata four-plexes as well in the past. As these complexes are small (usually only 2 owners) many do not follow the rules and regulations of the B.C. strata property act (holding meetings, having bylaws, collecting monthly strata fees, etc.). This is called a “non-conforming strata”. Why would they when there are only such a small number of owners? The owners would just have an informal agreement to do what needs to be done.

Apparently, this is the problem and has caused the recent change by the insurers. With no “formal” structure I was told there have been instances of “litigation” between owners in a few complexes. Ultimately this involved the lender and thus the insurers. The insurers do not want to be involved in such incidences and thus are now not insuring such properties.

This is a big problem as this means a minimum of 20% down if you wish to purchase such a property. Ultimately, our client could not make the purchase. They were upset and so were the real estate professionals involved.

I have been told by one insurer that they are working with their legal department to see if there is a remedy and get these properties okayed again. However, in the meantime the only way they will approve loans on such properties is if they fully comply with the B.C. strata property act. This mean to hold meetings, keep minutes, implement bylaws, etc.

Thus far I am not aware of any lenders not approving mortgages on these properties if the client has more than 20% down (bypassing the insurance regulations).

I would love to hear your comments. Are you planning to buy or sell one of these properties? Have you encountered this problem?

Wayne Mah, Senior Mortgage Planner, The Mortgage Centre 604.880.1899 / mah.w@mortgagecentre.com

Vancouver rental properties

Financing for Americans Purchasing A Property in Canada

The following information is specifically for our United States’ neighbours who are interested in financing a property purchase in Canada. If you are interested in information about financing but are from elsewhere around the world please refer to Financing A Property Purchase In Canada From Overseas.

As Canada and the United States share the largest border in the world, citizens from both sides of the border travel back and forth extensively. And not surprisingly a large number own, or wish to own, properties in the other’s country. Financing for these cross border purchases is quite easy due to the close ties between our two nations.

There a two basic methods to finance a purchase in Canada if you live in the United States:

1. Finance the purchase through a U.S. lender, perhaps using the property you own in the U.S, and buying the property in Canada outright.
2. Obtain financing via a Canadian lender.

As an American citizen, a purchaser is able to finance up to 80% the value of the property in Canada. Qualifications that are used for Canadian citizens would be applied. The approval would be based on your income, credit history, and current debt load.

Documents typically needed:

1. A completed application.
2. Confirmation of your income via a letter of employment, recent paystub or tax filing.
3. Confirmation of your downpayment via 3 months of bank statements. Any irregular deposits would have to be verified as to source.
4. A credit bureau will be obtained and reviewed by the lender.

That is basically it!

Please note that in Canada most lenders do have what we call a “sliding scale” for higher valued properties. You may be able to borrow 80% of the value if qualified for modestly priced homes. However, for properties over $1 million they will be treated to this “scale”. As an example, the lender may only finance 80% of the first $750,000 and 50% of the balance of the purchase price. So the higher the value the less “overall” percentage you will be able to finance.

This information is to be relied upon as a general guideline only.

Please contact me for a more detailed discussion about your specific needs.

Wayne Mah, Senior Mortgage Planner, The Mortgage Centre 604.880.1899 / mah.w@mortgagecentre.com

Vancouver rental properties

Rates On The Rise Again!

The Royal Bank announced that effective tomorrow they are raising all rates by 0.25%. As an example their posted 5 year fixed rate would rise to 6.10%. This increase is on top of ones that took effect last week that were up to 60 bps.

So far no other major lenders have matched these increases but I expect them to follow suit shortly.

Wayne Mah, Senior Mortgage Planner, The Mortgage Centre 604.880.1899 / mah.w@mortgagecentre.com

Vancouver rental properties

Financing A Property Purchase in Canada From Overseas

For many years now people have been purchasing properties in Canada as a second home or as an investment in large numbers. With the recent Winter Olympics just over, the number of enquiries on how to finance such a purchase has exploded.

I am going to go over this here. Please note that there are more favorable rules for our American purchasers which I will detail here Financing For Americans Purchasing A Property In Canada

As it is difficult to easily verify income and credit for buyers from other countries most mortgage lenders in Canada will not finance these types of purchases. Generally only a few of the mainstream banks will provide these types of loans.

So how much can you get?

The main rule of thumb is 65% of the value of the property. I would caution that if you want to buy a property over $1 million in value that it is highly UNLIKELY that you will get 65%. Most lenders will apply a “sliding scale” to larger loans to reduce their risks on higher end properties. A typical example of a “sliding scale” would be to use a formula such as “75% of the first $500,000 and 50% for the reminder of the value of the property” to determine the maximum loan they would be inclined to do. This is the same for Canadians so no they are not making a special rule just for non-residents!

What documentation is needed?

1. We always begin with an application that must be completed disclosing fully your income from abroad, assets and liabilities.
2. As previously indicated income verification is quite difficult as documentation varies widely from country to country. Therefore, in most cases this is waived or not a requirement. This is why the loan percentage is lower.
3. A satisfactory bank reference letter will be required. This would be a signed and dated letter from the bank you mainly deal with from your home country stating how long you have been a customer along with comments on how you have used credit in the past.
4. A three month history of your bank account would be required to confirm your downpayment. Anti-money laundering laws are very stringent in Canada so the three month history would be used to view any “unusually large and irregular deposits”.
5. A Canadian bank account must be opened from where the mortgage payments can be automatically withdrawn from. You can do this after the mortgage is approved.

That is it!!!

Extra tip:

I generally don’t like to push one particular bank/lender as each applicant has different needs. However, for non-resident purchasers I do suggest that if you are in a country with HSBC Banks to see if you can become a “Premier’ client with them. HSBC is one of the lenders in Canada doing mortgages for non-residents and as a “Premier” client with them it has been my experiece that we can get higher loan amounts and things are simplified somewhat as the underwriters here in Canada can contact your branch wherever it is in the world.

Please note that the above is a general guideline and each application may result in additional criteria being required.

As always your comments or questions are welcome.

Wayne Mah, Senior Mortgage Planner, The Mortgage Centre 604.880.1899 / mah.w@mortgagecentre.com

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