Canadian Bigger Pockets Members?

99 Replies

Hello, looking to add some Canadian BP members or join to some groups. Im new to real estate and as useful as BP is Canada has different guidelines laws to follow. I won't be annoying and message you constantly I promise! Any help is appreciated, thank you!  

@Jacob Perez @Stuart Bartwicki  @Jordan Han @Brianne H. @Mazin El-Achkar

Ive read that there are some new regulations coming into Canada for 2018. These articles say that there will be a 20% decline in the amount banks will loan out to home owners. 

Also, being new I have a few questions I'm ignorant too. Since BP is mostly United States orientated, how do some of the guidelines BP suggests parallel to Canada? Such as--BRRRR are banks willing to refinance up to 70% of the ARV?

Any particular rules when it comes to getting a CMHC or FHA loan for a 5% down payment? From what I Understand in the U.S you can get Another FHA after a year of living in the residence. Is this the same as Canada?

Any one have any opinions on where we are in terms of a "housing peek" in our mother Country? 

Any thoughts or answers would be great!  

Originally posted by @Roman Stefaniw :

@Jacob Perez @Stuart Bartwicki  @Jordan Han @Brianne H. @Mazin El-Achkar

Ive read that there are some new regulations coming into Canada for 2018. These articles say that there will be a 20% decline in the amount banks will loan out to home owners. 

Also, being new I have a few questions I'm ignorant too. Since BP is mostly United States orientated, how do some of the guidelines BP suggests parallel to Canada? Such as--BRRRR are banks willing to refinance up to 70% of the ARV?

Any particular rules when it comes to getting a CMHC or FHA loan for a 5% down payment? From what I Understand in the U.S you can get Another FHA after a year of living in the residence. Is this the same as Canada?

Any one have any opinions on where we are in terms of a "housing peek" in our mother Country? 

Any thoughts or answers would be great!  

Roman:

Those "new" regulations/restrictions on residential mortgage lending are simply a return to what lending practices were before all the loosening that occurred in the past 12 - 15 years.

In Canada, an insured, high-ratio mortgage is available (through CMHC, or one of the private insurers: Genworth or Canada Guarantee) for owner-occupants with LTVs up to 95% on a SFH or duplex or 90% on a triplex or quadruplex. Under the CMHC guidelines you may only hold one high-ratio mortgage at a time.  If you moved from the original property to acquire a new one with a high-ratio mortgage, you would need to discharge (or port ... if that still occurs) your mortgage to a new property.    You could refinance the original property with a conventional mortgage to discharge the insured mortgage.

@Roman Stefaniw The new rules taking effect are for those with 20% down or more having to pass a "stress test", which is not only qualifying for the mortgage at the actual interest rate, but needing to qualify for it at the posted rate (which for a 5 yr fixed is I think 4.99% right now). Last year the same stress test was applied for borrowers with less than 20% down, so really they've just extended it - HOWEVER, in theory that only applies to federally regulated banks, which if you go through a provincially regulated credit union, in theory they are not obligated to follow the rule. Whether they do or not is up to them. 

Word of advice though if you're looking at taking a mortgage you see yourself paying out or refinancing - go with a variable mortgage, as the payout penalty is usually only 3 months of interest. On our first flip I didn't know that and had a 5 year fixed, and got hit with an interest rate differential penalty - $7200! I'm currently getting a mortgage on a different property, and if I went through Scotia with their 5 year fixed, if I paid it out in the next 4 years, the penalty varies between $11,800 - $12,750. So be very clear on your prepayment penalty fees before you sign your life away. They can still do ports but with restrictions, and then they'll give you a blended rate, and the 2 mortgage components don't ever come due at the same time, and it's messy. Generally do not recommend, though I did it on one property and the lender gave me back my prepayment fee in full from the property it was ported from. 

If you're doing a BRRR, as far as I'm aware you can get up to 80% LTV. I am currently doing a refinance and they have told me as long as I have 20% equity in it, I can take out as much as I want.

CMHC/Genworth need to be owner occupied and they do charge quite a bit for the premium (I think about 4% but I could be mistaken, haven't had to use it in a while). So it can easily add $10k+ to your numbers, but if the alternative is being able to get into real estate or not, then it could very well be worth it for you. 

Originally posted by @Brianne H. :

@Roman Stefaniw The new rules taking effect are for those with 20% down or more having to pass a "stress test", which is not only qualifying for the mortgage at the actual interest rate, but needing to qualify for it at the posted rate (which for a 5 yr fixed is I think 4.99% right now). Last year the same stress test was applied for borrowers with less than 20% down, so really they've just extended it - HOWEVER, in theory that only applies to federally regulated banks, which if you go through a provincially regulated credit union, in theory they are not obligated to follow the rule. Whether they do or not is up to them. 

   

Depending on where the credit union operates, it could very well be subjected to the same lending regulation prescribed by OSFI.  An additional factor is credit unions commonly treat all rental property as "commercial" when it comes to rates whether they are residential (1-4 unit) or truly commercial (5+).  I love working with credit unions as they are local and truly understand what we are doing and the areas  in which we invest - they are also a good solution for smaller commercial properties (6 - 12 units) which are often "too small a deal" to be of interest to the commercial arms of the Big-5 and other Schedule I lenders.

CMHC/Genworth need to be owner occupied and they do charge quite a bit for the premium (I think about 4% but I could be mistaken, haven't had to use it in a while). So it can easily add $10k+ to your numbers, but if the alternative is being able to get into real estate or not, then it could very well be worth it for you. 

The CMHC Premium Calculator can be found on-line. The rate varies depending on the LTV of the financing.

@Brianne H. Hey, Thanks for the info! I really would have never thought of that for flipping a house. Definitely will be doing a variable! Too but you got stung with a 7200$$ penalty! I actually had an appointment today with a Credit Union and she said the will refinance up to 80% which totally took me by surprise. I thought if anything it would be less than 70. 

Do you have any experience with Scotia Bank lending you money for mortgages/rehabs? My local credit union said they will reimburse your rehab money once the work is completed. Which isn't bad if you have the extra money...May need to find a private lender though. :)  

@Roy N. @Brianne H.

Is there any such thing in Canada that you guys know of where you can get another get another mortgage for a 5% down payment after a year of living in the residence? Similar to the FHA that BP is always talking about. Or is is just easier to go with the 20-25% down payment on your next property?

@Roman Stefaniw I think what your credit union person is talking about is a mortgage + improvements. We are actually trying to get one right now, and yes once the rehab is complete and they have someone come out to verify the work was done they will give you additional money for the improvements. I don't know how that might differ if you're looking for a non-owner occupied property, like a BRRR. I can't see it making a ton of sense if you were just doing a flip, but if it was a BRRR and they're okay with doing it on a non-primary residence, that might be the best way to go.

For our first 3 properties, it was through Scotia, but they were all technically primary residences as they were live-in flips for us. The first was the 5 yr fixed at 3.09% that we got dinged the $7200 on. The second mortgage was also through Scotia (they said they would reimburse us 20% of the $7200 penalty if we went with them again) but this time on a 5 yr variable. By that time my rate was 2.1%. When we sold #2, we had to pay the penalty  (about $1600 or so) but we managed to be able to do an almost perfect port with a $4k top up amount on a second mortgage through Scotia, so we got that ~$1600 back. Then when we sold #3 it was still the same variable mortgage so we just paid out the penalty and were done with it. We've not had a mortgage for the last few months as we are in a temporary rental until our primary house is finished, which should be in about 2 weeks. 

If you're looking for cheap money for rehabs, I would suggest getting lines of credit. My rates are between 4.5% - 8% at the moment, and most are interest-only payments while I have a balance, and I can use it as I please. Now, if you're looking to get an unsecured LOC, here's the way to do it (from personal experience):

You make appointments at as many banks and credit unions as is feasible, all in the same week. Then at each appointment you show up with pay stubs, a letter of employment, and if necessary maybe your last tax return page (if you have self employed income). You do the credit application for as much unsecured LOC as you can, and you say it's for home improvements (which it is. But they love to hear home improvements because it's the biggest checkmark on their list of "What will the client use the money for?" paperwork. Apparently don't say that it's for some costs related to developing a property because one guy at RBC said that technically you must only use a draw mortgage for property development and you're not allowed to use an unsecured LOC and he actually turned me away. What?!) They will run your credit and hopefully you will be approved for as much as they are willing to lend you. At Scotia, the lady told me that if you ask for $25k or under and have decent credit and income, you're just about automatically approved. Any more than that and it's a little more of an in-depth application.

Now the reason you do this all in one week is because when they all check your credit, you'll have multiple hits on your credit report, but to the credit bureau, they'll see it as you rate-shopping, and they will only ding you as if you've had your credit checked once or twice, not 4+ times or whatever it is. Also if bank #1 approves you, your credit report won't have updated yet by the time you get to bank #4, so it won't muck up your DTI ratios at ban #4.

I have done this and between my husband and I, we had an existing $15k and $17k LOCs, and together we upped our combined LOCs to $117k, at TD, RBC, Scotia, and ATB. This was all in June 2016. We then ended up not using any for a year, but this past summer we bought 7 acres and put a house on it, and we did it all with a land loan from ATB and unsecured LOCs. However we needed more cash so we approached the banks and asked for an increase. RBC declined, we didn't go to ATB as they were the highest interest rate and we haven't used that LOC yet, but TD and Scotia agreed to bump it. Scotia also gave me a pre-approval for a low interest credit card which I am using too. For all of our LOCs, we now have $178k in unsecured available credit. Add in our credit card limits, and we have $231k. Astounding if you think about it and if play your cards right.

@Brianne H. Awesome. LOC seems to be a very useful tool. I will go make some more appointments with other banks to see what they offer. Thank you for taking time to explain this in such detail! There are many helpful people on this site its great. Hopefully one day I can be of help to other people.

Hey Roman, welcome to BP, there are several regular Canadian contributors sharing wealth of knowledge. Happy to help in anyway. I invest in Ontario, however live in OC, Calif.

Each mortgage insurer has their own requirements. The first property I bought with 5% down was with CMHC as mortgage insurer. The second one I bought was through Genworth with 5% downpayment and I still own my first one as well (less than 2 years apart).

If you use CMCH to buy a second home with only 5% down they they require the first property to have at least 20% equity (you would order an appraisal to verify this is the case). BUT Genworth does not. Under Genworth rules, as long as you qualify on paper and can afford a second property then all you need is 5% downpayment on the second property with no appraisal needed on your first home. My mortgage broker told me this and I was shocked. I closed on my second property last month with no appraisal needed on my first home.

Originally posted by @Alex Cons :

Each mortgage insurer has their own requirements. The first property I bought with 5% down was with CMHC as mortgage insurer. The second one I bought was through Genworth with 5% downpayment and I still own my first one as well (less than 2 years apart).

If you use CMCH to buy a second home with only 5% down they they require the first property to have at least 20% equity (you would order an appraisal to verify this is the case). BUT Genworth does not. Under Genworth rules, as long as you qualify on paper and can afford a second property then all you need is 5% downpayment on the second property with no appraisal needed on your first home. My mortgage broker told me this and I was shocked. I closed on my second property last month with no appraisal needed on my first home.

 Alex:

Both CMHC and the two private insurers are governed under the same regulations.  While what you describe above happens frequently, it is typically involves a certain degree of don't ask, don't tell on behalf of the mortgage agent/broker.