Rent Real EstateCanadian Mortgages: Turning "No" Into "Yes"
Many Canadians who have been turned down by a bank or who are afraid to
apply for a mortgage because they are certain they will be rejected may
be eligible for the financing they need to buy a home if they ask a
different lender. However, rising interest rates may be their enemy.
David Dodge, Governor of the Bank of Canada, and the Bank"s semi-annual
Monetary Policy Report both made it clear
recently that because Canada is in better economic shape than expected,
interest rates will be on the rise to head off inflation. The Bank
projects that the Canadian economy will grow between 3 1/2 and 4 1/2 per
cent at annualized rates in the first half of 2002, and will continue to
expand until it is at full capacity in the second half of 2003.
Since January 2001, the Bank lowered interest rates by 375 basis points
to bolster business and consumer confidence. Now the Bank plans to "to
reduce the substantial amount of monetary stimulus in the economy." It
began by raising the overnight interest rate by 25 basis points to 2.25
per cent on 16 April. The Bank expects to continue raising rates "in a
timely and measured manner."
As interest rates go up, the amount of mortgage you may qualify for goes
down. It also means that borrowing the same amount of money gets more
expensive. If you"d like to buy a home, why not talk to a mortgage
expert before rising rates put financing out of reach.
Canadian banks, because they can afford to pick and choose customers,
prefer to deal with those who have good credit ratings and stable
employment histories. If you have had a few credit disasters or declared
bankruptcy, there are other mortgage lenders who will be pleased to help
you.
Self-employed people are looked on with similar disfavour by traditional
lenders. You may be required to provide 3 or 4 years of income tax
returns showing consistent earnings before you"ll even be approved for a
car loan, never mind a mortgage. Once again, there are mortgage lenders
who appreciate your credit capacity.
What makes you a less than attractive mortgage applicant?
No borrowing history because you are just starting out or have
lost your credit identity through divorce.
Less than three consecutive years taxable income of an
acceptable level.
Current late payments on credit card, RRSP, car or personal
loans.
An extended period of late payments on the same items.
Self-employment.
Bankruptcy.
Poor credit rating caused by the above items or errors in your
file that you have not had corrected.
What can you do to make yourself a more attractive borrower?
Talk to a mortgage broker, mortgage company or real estate
broker to find out which of the dozens of lenders other than the Big
Five Banks would be interested in your business. Canadian bankers focus
on your verified-monthly cashflow, but other lenders will consider
additional aspects of your financial situation in helping you arrange
financing. Even most bankrupts can arrange financing, so do your
research.
Equifax or another large credit reporting agency
and ask to see your credit file so you can correct any errors. No charge
for this. Expect to provide documentation to resolve outstanding issues.
Establish a good rating by borrowing to buy a car or open an
RRSP and then by scrupulously making every payment ahead of due dates.
Visit a non-profit credit counselling service for help paying
off debts and improving your ability to handle money.
Save to accumulate as large a down payment as possible, but
remember a minimum of 5 per cent may be all you need.
Existing or commercially-built residential properties are
generally easier to finance while commercial properties, rental
buildings, vacant land or a house you are building for yourself may
require specialized lenders.
Depending on your credit rating and current situation, you may be
charged from 1/4 per cent to 1 per cent more. There may also be
arrangement fees involved. Have these quoted in writing, in advance.
Check with Canadian mortgage broker or real estate associations to
confirm type of fees and arrangement costs to expect.
When arranging a pre-approved mortgage, negotiate as long a commitment
period as possible. If the lender will guarantee the rate for 90 or 120
days, you"ll be under less time pressure to find the ideal home for your
family and your pocket.