Buying a home in BC – A guide for Albertans

It will be no surprise to the average Albertan that we contribute a lot to BC’s tourism industry each year. In fact Albertans are third in spending in BC, only behind people from BC themselves and Americans. I am sure many of you have spent time in BC and thought that it would be nice to own real estate here. I recently purchased a 2nd home in Kelowna and while the process of engaging a Realtor, getting preapproved for a mortgage and searching for a property is the same, it was the process afterwards that differed as follows:

1) Property Disclosure Statement (PDS) – this is a very informative document draw up by the seller which has several pages of questions about the property in question. The seller has to be truthful in his responses and covers many items such as any issues with the land, the building, the strata etc. This document is required in BC and I have no idea why not required in Alberta. A very useful document

2) Real Estate Deposit – In Alberta, when buying a property, you put down an initial deposit as a sign of good faith a few days after the signing of the purchase agreement. In BC, you only put down this initial deposit after all conditions have been met.

3) Completion date and date of possession – On the BC purchase agreement there are two dates – the Completion Date and the Date of Possession. The completion date is the date that title and ownership is transferred to the new buyer as well as the funds are transferred from the buyer’s lawyer to the seller’s lawyer. The date of possession date is the date the buyer is allowed to take physical possession and is typically at 12 noon on the day following the completion date. In Alberta, there is just a date of possession. So, when you are planning on reserving that moving van, may sure it is on the possession date

4) Taxes – Property Transfer Tax – BC has what is called a property transfer tax. This is a tax that all buyers in BC pay and is calculated as 1% on the first $200,000.00 of the property’s fair market value, 2% on the amount between $200,000.00 and $2,000,000.00 and 3% on the amount between $2,000,000.00 and $3,000,000.00 and 5% of the rest. Lenders will not allow you to finance this cost as it is a tax and adds no value of any kind to the property. Alberta doesn’t have such a tax.

5) Taxes – Speculation and Vacancy Tax – The speculation and vacancy tax is an annual tax paid by some owners of residential properties in designated taxable regions of B.C. The tax is designed to discourage housing speculation and people from leaving homes vacant in B.C.’s major urban centres. This tax is .05% of the property’s fair market value each year. This tax doesn’t exist in Alberta.

6) Mortgage foreclosure – In Alberta if you stop making your mortgage payments, the lender and/or CMHC can only go after the sale proceeds of the property in default. In BC, they go after the property and your other personal assets

7) Review of Condo Documents – In Alberta, it is a common practice to have an outside third party review the condo documents to determine if there are any potential issues. In BC, this isn’t a common practice and I had to search around to find a company that would. This company was started by an Albertan who recognized a need.

I am always surprised when a similar process in one province (buying a home) is so different in another. Having said that, I am able to provide mortgage financing on properties anywhere in Canada that lenders will fund, including BC.

If you have any questions or would like to inquire about buying a house in BC please let me know!

Buying a home in BC – A guide for Albertans2021-08-20T12:44:20-06:00

Financing for Self Employed – there are Options!

Are you considering becoming self-employed? You are not alone as Intuit Canada recently found out in their 2018 survey entitled “Vision 2020: Empowered and self-employed in Canada.” Based on their survey, they predict that 45% of Canada’s workforce will be self-employed by 2020! In a similar article from 2018, CBC found that people working for themselves account for 86% of Alberta’s net job growth since the recession ended. (I wasn’t aware that it had ended but maybe that is just me).

Lenders have paid attention to this and have developed new programs to help self-employed individuals obtain mortgages.

Back in 2005 to 2007, it was incredibly easy to get a mortgage if you worked for yourself. However, CMHC and Genworth experienced a large number of mortgage foreclosures starting in 2008 so they tightened up the qualifying rules. This has been the case for years but lenders are becoming more creative in how they determine a self-employed person’s income for qualifying purposes as follows:

1)      Confirm Income – by taking a two-year average of Line 150 from client’s T1 general – under this program, lender takes a 2-year average and uses the result as income. Normal interest rates, insurance premiums and qualifying percentages apply.

2)      Stated Income – lenders understand that the self-employed make more money than they might declare on their tax returns (by leaving the excess in their company). This program allows the client to state an income to be used for qualifying. Income stated must be reasonable for the industry the client works in. Under this program a 10% down payment is required and the insurance premium is higher. Normal interest rates apply.

3)      Average corporate deposits – a number of lenders will ask for 3 months of corporate bank statements, add up the deposits and use this as income. With this program you will need a minimum of 20% down payment and interest rates are higher and most lenders will also charge a lender fee.

4)      High qualifying ratios – lenders will take earnings from Line 150 for business for self-clients and increase it by 15%. They then use the result as confirmed income but qualify using very high ratios. Interest rates are higher, fees apply and a minimum of 20% down payment is required

5)      Net Equity Analysis – here lenders review a company’s financial statements and determine how much a self-employed client could withdraw from their corporation. Based on this estimated withdrawal, the lender runs the numbers and determines how much the client would qualify for. Normal interest rates apply but the down payment requirements are much higher.

As a result of these programs, self-employed clients shouldn’t feel that they can never afford a house!

Please note that I have summarized these programs and if you would like to discuss them in further detail, please feel free to contact me!

Financing for Self Employed – there are Options!2021-07-15T14:56:12-06:00

Is Your Variable Rate Mortgage Adjustable?

For the past several years both fixed and variable rates have done nothing but fall. With such historically low fixed interest rates (and the spread between fixed and variable being close) I have, until recently, been recommending to my clients that they select the fixed rate option. This changed with the Bank of Canada reducing the Prime lending rate again (two rate reductions in eight months). This indicates to me that the Bank is still concerned about how poorly the Canadian economy is performing. As a result, I feel that the variable rate option will save the most amount of interest and have been recommending it to my clients. However, please understand not all variable rate mortgages are the same!

There are actually two kinds of “variable rate mortgages” – Variable and Adjustable.

1. Variable Rate Mortgage – these are typically offered by the big 5 banks. Here the monthly mortgage payment is set to be a certain amount and never changes even when interest rates move. So if interest rates go up, less of the monthly payment goes to principal and more to interest. If rates go high enough and the required monthly mortgage payment is now entirely interest only, no principal reduction takes place. If rates go even higher, the monthly mortgage payment no longer covers the interest portion. The portion not covered is added back to the mortgage balance – this is known as reverse amortization. This is what happened in the US in 2008. The client was making his mortgage payment but his mortgage balance kept increasing. Eventually the mortgage was worth more than the value of the house with the result the client walked away from the house. Some lenders in Canada even have a “trigger point” which they will trigger if they feel that the house value is not as high as they like compared to the mortgage balance. If this trigger point is reached, the lender then can call the mortgage unless the client can supply an appraisal to confirm the house has a certain value.

2. Adjustable Rate Mortgage – The monthly mortgage payment is set initially based on the rate but if interest rates climb, the portion paid to principal always stays the same. Since the interest component has now increased (with the rate increase) the monthly mortgage payment is also increased. This way the portion going to principal is maintained and the needed interest is paid. No risk of reverse amortization or reaching a trigger point.

Conversion Rates – Both variable and adjustable rate mortgages allow you to convert to a fixed rate mortgage at any time without cost. The key here is to ask what fixed rates the lender will offer you upon conversion. The big 5 have both posted and discounted rates. They will usually offer you something like one percent below posted rate. If you take the time to do the math, you will usually find that this reduced rate is still higher than their discounted rate offered to new clients – nice game. Monoline lenders (non big 5 banks) only have discounted rates and therefore only offer you the same rates they offer their new clients.

So, if you are now considering something other than a fixed rate mortgage, you need to consider the points above and determine which is best for you. Eight times a year I send out a Variable Rate Mortgage Watch to help you decide when the time has come to convert from a variable rate to a fixed rate mortgage. If you have any questions on this discussion or any other mortgage related matters, please feel free contact me and any time!

Is Your Variable Rate Mortgage Adjustable?2021-07-15T14:56:12-06:00