It has now been over a month since the Office of the Superintendent of Financial Institutions (OSFI) announced its sixth change to its B-20 guidelines, which are otherwise known as the mortgage rules that must be followed by all federally regulated lenders.
I have heard a number of mortgage brokers are saying the borrower rejection rate from large banks and traditional monoline mortgage lenders has gone up as much as 20 per cent since the beginning of 2018! A home that you may have qualified for last year, for some, is now considered to be too expensive for you due to the mortgage qualifying rules.
As a result, alternative lenders are seeing an increase in business as brokers are now directing some home buyers toward borrowing options that are beyond the reach of OSFIs’ newly implemented tighter lending requirements. Along with this option comes higher rates, upfront fees charged to the borrower and lastly, a higher down payment.
If this route is not for you, another option is to look at purchasing a less expensive home with the plan to put some upgrades into the property at the time you buy it.
This is called a “purchase plus improvement” mortgage which covers the sale price of the home, as well as any renovations that would increase the value of the property. You can qualify under this program with as little as 5% down payment and it is available through the prime lenders who offer best rates such as Banks, Mortgage and Trust companies as well as Credit Unions
With these types of mortgages, the lender will provide additional financing to improve the property. A buyer could make upgrades to the property such as new paint, flooring, carpets, windows, hot-water tank, new furnace, kitchen and/or bathroom updates, new roof, basement finishing, and more.
The costs of the improvements planned must add equal value to the house or the lender and Insurance Company may not allow them all to be financed. They may also put a cap on the dollar value they will allow to be put into the property which varies with the different lenders
How does it all work? Borrowers must provide a quote from a reputable contractor at the time their mortgage application is submitted to a lender for approval. This quote will detail the work to be done and the costs associated with it. Once both the lender and the insurance company approve the improvement amount, it is added to the mortgage total.
On closing day, all mortgage funds are advanced to your lawyer which includes the amount allocated for renovations, who will hold onto it until the renovations are 100% complete – this means that you won’t get any of the additional money until ALL of the renovations are done. Do be aware you will likely have to access additional cash so initial deposits can be paid to the contractor and work can begin. When the renovation is complete, the lender sends an appraiser to your home to confirm the work outlined on your quote is completed in a professional manner. Once confirmed, the lender will authorize your lawyer to release the improvement dollars to you and you can pay the contractor. Depending on the amount of the upgrades to be done an invoice for payment provided by the contractor may only be required before the funds are released in lieu of an appraisal
Questions? Contact the MortgageGirl via email – firstname.lastname@example.orgPhone 780-433-8412, Facebook, Twitter to discuss your options. Jackie is a former banker turned Mortgage Broker with over 35 years of experience. #expertadvice #benefitfromexperience.