Monday, April 29, 2013

Ever wonder how a lender looks at your mortgage application?



Ever wonder how a lender looks at your mortgage application?
By Lisa J. Gryba | GoldenGirlFinance.com – Mon, 15 Apr, 2013
Lenders are in business to make money...not lose it. Consequently, when a lender approves a mortgage application, it wants to ensure that it will be paid back within the terms of the mortgage contract.
To assess your application, most lenders look at the 5 'C's of credit...
1) Character
Character is the general impression you make on your lender. The lender will form a subjective opinion as to whether or not you are sufficiently trustworthy to repay the loan. Your educational background and experience in business (if you are self-employed) will be reviewed. The length of time at your current employment and your current residence are considered. The longer you have been at both, the higher you will score on the character scale.
2) Capital
Capital is the money you personally have invested in the property, otherwise known as your down payment. The more of your own money you invest as a down payment, the more likely that you will do all you can to maintain your payment obligations. Capital is also reflected by your ability and willingness to save money and accumulate assets. The higher your net worth, the more you have as a cushion for repayment in the event that you run into a financial setback.
3) Credit
Credit is the evaluation of your habits in performing credit obligations. The information about your credit history is stored at both Equifax and TransUnion credit agencies and indicates how well you have paid your bills over the last 6 years. All major credit cards, auto loans, leases, etc., are reported to the credit bureau. A lender will evaluate your ability to maintain your obligations and try to determine how well you live within your means. Some individuals make the mistake of not paying the minimum monthly obligations on loans and credit cards with the expectation of making a large payment the following month. These missed payments appear on their credit report branding them as "late payers" for the next six years.
4) Collateral
Collateral is additional security that you can provide to the lender. In real estate transactions, this generally means the property. If for some reason you cannot repay the mortgage, the bank wants to know that the real estate the mortgage was taken out on is of sufficient value and in demand. A real estate appraisal will determine the value of the property being financed and any discrepancies that may affect the ability to resell the property in case of default. Generally, a property that is located within the city is considered a better risk than a farm in a rural area. Simply put, there are more buyers for the home in the city than for the rural farm and therefore it is easier to sell.
5) Capacity
Capacity refers to your ability to repay the loan; this is typically the most critical of the five factors. The lender will want to know exactly how you intend to repay the loan. The lender considers your income and existing expenses, including the new loan payment. If you have the capacity to make an additional payment (the monthly carrying costs of the loan), then the probability of you successfully repaying the loan is fairly high.

Thursday, April 25, 2013

12 House-Hunting Tips to Help You Make the Right Choice



As at close of markets Monday
TSX +25.13 to 12,090.68 (CP)   with buyers largely unwilling to step up after further signs of global economic malaise sent stocks sharply lower last week.
DOW +19.66 to 14,567.17    mixed amid data showing that sales of previously occupied U.S. homes dipped in March. The National Association of Realtors said Monday that sales were down to a seasonally adjusted annual rate of 4.92 million, from 4.95 million in February. Sales in March were 10.3 per cent higher than a year earlier
Dollar +.02c to 97.46cUS    
Oil +$.75to $88.76US   
Gold +$25.60 to $1,421.20     amid a growing conviction that inflation is firmly under control. Buying gold as a hedge against inflation has supported gold prices to record highs of almost $2,000 back in 2011

Canadian 5 year bond yields markets -.01 to 1.18
The spread (obtained by subtracting the bond yield above from the NEW industry average 5 yr rate published mortgage rate of 3.19)  is centred within the desired profit range at 2.01 .  If the increase in bond yield continues upward, the spread shrinks, which could prompt interest rates to rise. The range for investor desired profitability is currently in the region of 1.90 and 2.10
http://www.marketwatch.com/investing/bond/tmbmkca-05y?countryCode=bx

12 House-Hunting Tips to Help You Make the Right Choice
Stay organized and focused on your quest for a new home, to make the search easier and avoid surprises later
In the hunt for the perfect house, it's easy to get swept away by a home's most charming details (a gracious front porch) and play down the important stuff you'll be kicking yourself for later (the price is over budget). And if you are touring multiple open houses each weekend, keeping everything straight can get complicated.
Set your priorities and streamline the house-hunting process early on, and you can breathe easier knowing you have a handle on things. It's probably the most important purchase you will ever make, so take a few deep breaths and make a plan before diving in — you'll be glad you did.

These 12 tips can help you stay organized and focused on the important things during your house hunt.

1. Set your priorities. Before taking a look at any houses, sit down and write out everything you want in a home, with input from all members of the household. Then choose your top five, or even top three, must-haves.

Once you start looking, all sorts of charming features are bound to sway you; keeping your priorities list close at hand can help you stay on track.
2. Make a comparison chart. After you have seen a dozen or more houses, it becomes very difficult to keep track of the features in each one. Make things a little easier by creating your own comparison chart or checklist to bring along to each home, and make notes on it during or immediately after each tour.

Beyond the basics (beds and baths) consider including notes on landscaping, the condition of the roof and exterior, natural light in each room, storage space and cost per square foot. Consider this chart a personal tool — something you can look back on to help guide your decision making, not a substitute for a good home inspection.
3. Walk through once and let yourself soak it all in. When you tour a home for the first time, the excitement can make it difficult to focus on ... well, anything at all. So I say, just go with it. Have fun, wander around and mentally note your first impressions of the space. Once the butterflies have died down, it's time to get to work.

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4. Then go back to the beginning and start again. Walk back to the front of the house and literally begin your tour again. This time, pull out your clipboard and pen, take your time and approach the home as if you were an inspector rather then a potential buyer.
5. Bring furniture measurements. Jumping the gun? Maybe. A deal breaker? Probably not. But if every room in the house presents problems with your current furniture situation, you could effectively be adding thousands of dollars to the price if you have to purchase new furniture — something that is probably better to know sooner rather than later.
6. Sketch a floor plan. You do not need to have any real drawing skills to make a superbasic floor plan on paper, and having it to refer to later is priceless. Just do your best. Starting at the front door, draw boxes for rooms and mark doors, windows, stairways and openings roughly where they are.

7. Ask to take photos (or even a video). It's amazing how quickly memory fades. Make sure you have backup by creating a floor plan and taking photos or a short video tour if possible — it will really give you a full picture of what the house looks like. Be sure to ask the Realtor for permission before taking any photos or video. And even then, it is assumed that they are for personal use, so don't post them to your Facebook page or blog ... at least not until you own the house.

8. Open the closets and cupboards. Proper storage is a really important factor in how a home looks and feels when you are living in it. Note the number and size of cupboards and closets throughout the house, and don't be afraid to peek inside. If the current homeowner has them packed to the gills, that may be a sign that the house doesn't have enough storage for its size.
9. Lift up the rugs. While this is not something you necessarily want to do during a busy open house, if you are back for a second look and are really considering making an offer, it is important to know what you are getting into. Rugs (and even furniture) can be used to conceal damaged flooring, so you have a right to see what's going on under there. Just let the Realtor know what you want to see, and he or she should accommodate you.


10. Look high and look low. It is important to get a good look at the house that could be your new home, so make a point of focusing on things outside your usual line of vision. Check out the ceilings, walls, floors, trim, windows, roof and under the sinks.
11. Check out the property at different times of day. If you do come back for a second showing, make it during a different time of day from the open house or first tour. In the evening, notice not only the changes in light, but the atmosphere in the neighborhood. Are people out sitting on porches? Are kids playing outside? Is it noisy? You are bound to learn and discover different things about the house each time.
12. Take a moment to envision how you would use the space. Just because the current owner (or staging company) has the second bedroom set up for guests doesn't mean you can't use it as an office, a home gym or a nursery. Paint colors, furniture arrangements and window treatments can also all be swapped out, so use your imagination and really put yourself in the home.

http://www.houzz.com/ideabooks/9394274/list/12-House-Hunting-Tips-to-Help-You-Make-the-Right-Choice

Monday, April 22, 2013

Get ready condo flippers, Canada Revenue Agency is hunting you





As at close of markets Friday

TSX +69.21 to 12,065.55 (CP) closed higher at the end of a volatile week that saw the TSX sink further into negative territory for the year amid a new round of concern about the pace of the global economic recovery.

DOW +10.37 to 14,547.41

Dollar -.03c to 97.44cUS amid data showing inflation pressures remain weak

Oil +$1.05to $87.73US 

Gold +$3.100 to $1,395.60 falling below US$1,400 for the first time in two years last week as gold producers sustained sharp losses amid sharply rising costs just to get the precious metal out of the ground.

Canadian 5 year bond yields markets +.01 to 1.19
The spread (obtained by subtracting the bond yield above from the NEW industry average 5 yr rate published mortgage rate of 3.19) is centred within the desired profit range at 2.00 . If the increase in bond yield continues upward, the spread shrinks, which could prompt interest rates to rise. The range for investor desired profitability is currently in the region of 1.90 and 2.10
http://www.marketwatch.com/investing/bond/tmbmkca-05y?countryCode=bx

An informative article for your investment clients as we enter the final week of tax season.

Get ready condo flippers, Canada Revenue Agency is hunting you

Garry Marr | 13/04/20 | Financial Post

You just sold your condo, you made a hefty profit and know you have to pay your taxes.

The bill might be more than you think.

If it's your principal residence, there's no tax, as long as you have the paperwork to prove it. The Canada Revenue Agency is taking a closer look at the condominium sector in what some in the industry have dubbed the "Condo Project."

Even if you own up to it being an investment property, you may not be allowed the capital gains tax break and that means a bigger hunk of your profit going to Ottawa.

Let's say your gain is $100,000 and your tax bracket is 46%. Capital gains are taxed at 50% so you would only owe $23,000 on that profit.

Not so fast! If the CRA says you are in the business of flipping condominiums, get ready to pay based on the gain being counted as income for a tax bill of twice the amount at $46,000. And, it gets worse. You could also face a fine of up to 50% of the tax owed for making a false disclosure.

With the deadline for filing taxes coming up April 30, you might want to think very carefully about how you record that housing sale you made in 2012.

Sam Papadopoulous, senior public affairs advisor-manager with CRA's Ontario region, acknowledges that the strength of the condo sector has attracted the attention of the taxman.

"We do from time to time target some sectors more closely than others," he said. "We look at the real estate market in general. Of course, [there is more focus], it's a hot market."

People in the industry have a different view.

Some suggest it fits in with the recent budget when Jim Flaherty, the finance minister, announced his government was taking a closer look at loopholes and tax cheats — hoping to shrink its deficit in the process.

One of the issues attracting the attention of the CRA is assignment clauses, where one person agrees to purchase a condo before it is built but ultimately sells his or her right to buy that condo before the building is even registered.

Builders usually collect a fee for that privilege but ultimately when title is registered at the land registry office the original purchaser's name is nowhere to be found.

While most builders are unlikely to voluntarily supply a list of properties in their building that were assigned, they could be forced to cough it up if they are audited by the CRA.

Those people who have assigned their units to another buyer are going to be hard pressed to prove they planned to use the unit as an investment property rather just flipping — meaning the CRA is highly unlikely to allow them to count money made at the lower capital gains rate.

"If you keep [assigning property] then it is not capital gains, that's trade and that's income," said Mr. Papadopoulous, adding you do it a "couple of times" and it's income. "Of course, that's part of [what they are investigating]."

The warning to people flipping property and thinking they can get away without reporting the gain is pretty clear.

"We live in the information technology age," said Mr. Papadopoulous, who wouldn't get into how CRA is tracking down the tax evaders. "We are putting our resources to work and following the trail where we can."

Robert Kepes, a Toronto tax lawyer at Morris Kepes Winters, said he's seen the CRA go after people who have been living in a property and still question it as a principal residence.

CRA starts with a letter to a taxpayer asking them for details about when and why they sold their property and people often fill out the questionnaire without legal advice.

The issue goes all the way back to 1971 when there was no tax at all on capital gains so everybody tried to avoid counting gains as income.

Mr. Kepes says the distinction between income and capital is as simple as the difference between a tree and the fruit that it bears.

"The tree is capital and it produces a fruit and the income is the profit that is derived when that fruit is sold," he says.

If your condo is that tree and your rental income is the fruit and you make a profit from that rental income, that's taxed as full income. You eventually sell the tree for more money and that's just a capital gain, taxed at the 50% rate.

If your entire businesses is just trading trees and not producing fruit, that's business income.

"The Income Tax Act asks what was your intention when you bought that condo," said Mr. Kepes. "These principles are easy to describe but harder to prove in fact."

The law is like a civil case, a judge doesn't have to believe you beyond a reasonable doubt, but a judge does have to conclude you are more believable than the CRA.

"We have to bring all kinds of intrinsic evidence," says Mr. Kepes, noting some clients will produce something as simple as a change in address on their driver's licence to show they were using their condo as a principal residence.

If you never actually moved into the condo, it's going to be tough to prove that it was principal residence.

You may never have produced income from the profit but that's not to say you didn't plan to, so perhaps you could get the capital gains exemption.

"The question can be 'how did they come to sell the property,'" said Mr. Kepes, adding the CRA might look at whether you were advertising the property for sale.

Brian Johnston, chief operating officer of Mattamy Corp., says the CRA has ways to get information on sales.

"They audit real estate companies, look at the name on the contract and look at the final deed and see a difference," said Mr. Johnston. "They see Bill Smith bought it and Joe Blow is on the deed. They want to know how this happened and follow the paper trail."

He has some sympathy for consumers confused about the whole process.

"I think the government should make it a little simpler in terms of filing for principle residence exemption," said Mr. Johnston. "It's a real gray area of the law. The government has not done a good job for Canadians trying to specifically identify all the rules around [selling homes and paying taxes]. People might have inadvertently made mistakes."

Condominium developer Brad Lamb, who has been audited several times, said ultimately it's better to be more conservative when you're filing — meaning just count the gain as income if you are in doubt.

"If you are prolific buyer or seller of properties, whether it's condos or not, you have to govern yourself accordingly. If you don't, you'll get caught and be fined," said Mr. Lamb. "I decided many years ago when I started buying condominiums, after talking with my accountant, you can pay [lower tax] or you can fight 50 years with Revenue Canada."

 





Sincerely,






 Victor Peca


“YOU GET BY GIVING”   SECURING HOME FINANCING SINCE 1994