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Mortgage Finance Strategies To Help Your Client Afford More

(in a hot sellers market)

Presented by: Paul Davidescu from Level Up Mortgages

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MORTGAGE MARKET DYNAMICS

More inflation = higher fixed rates

Early-End of 2022 for Variable Rates

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MORTGAGE LENDERS ON THE RISE

LIBERALS PROMISE CHANGES

Enforce an anti-flipping tax
Introduce a rent-to-own program
Ban blind bidding and foreign money on purchasing

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2.54% Rates for lenders who are flexible with credit score issues, mortgage helpers & 40-year amortizations

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RATES RISING

The mortgage market has been very busy and here is some of the latest news on rising rates and decreasing buyer affordability

COVID means lots of expenses, printed money, and inflation. Fixed rates are up .2% since I last spoke to your team in June. VRM predicted to stay low til late 2022 but some analysts are not ruling out an earlier increase
Liberals win = lowering prices. Self explanatory although the rent to own program is interesting where if you see a home you really like but are 1-2 years away from properly qualifying, you can settle in by first renting it and buy it from a lender in the future at a set price.
Mortgage lenders outside of banks are getting closer to matching their rates plus giving people a lot more buying power and leeway

What do bubbles and balloons have in common?

You knew it wouldn't last long. Rates are back on the rise because someone is blowing in the inflation balloon again. After an inflation report came out much stronger than anticipated on Wednesday, rates took a steeper jump from the gradual rise we've seen this week. To take a step back from a more in-depth explanation; as inflation rises the value of bonds decreases, which in turn forces investors to compensate by demanding higher rates of return. So It should be no shock to anyone following the rate roller coaster that we had seen two-month lows just last week, but following the results of the inflation report, we're back in the low 3s again. Will the inflation balloon keep getting bigger or will it burst? Will rates continue to rise or will they stabilize?

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CURRENT RATES

The mortgage market has been very busy and here is some of the latest news on rising rates and decreasing buyer affordability

COVID means lots of expenses, printed money, and inflation. Fixed rates are up .2% since I last spoke to your team in June. VRM predicted to stay low til late 2022 but some analysts are not ruling out an earlier increase
Liberals win = lowering prices. Self explanatory although the rent to own program is interesting where if you see a home you really like but are 1-2 years away from properly qualifying, you can settle in by first renting it and buy it from a lender in the future at a set price.
Mortgage lenders outside of banks are getting closer to matching their rates plus giving people a lot more buying power and leeway

What do bubbles and balloons have in common?

You knew it wouldn't last long. Rates are back on the rise because someone is blowing in the inflation balloon again. After an inflation report came out much stronger than anticipated on Wednesday, rates took a steeper jump from the gradual rise we've seen this week. To take a step back from a more in-depth explanation; as inflation rises the value of bonds decreases, which in turn forces investors to compensate by demanding higher rates of return. So It should be no shock to anyone following the rate roller coaster that we had seen two-month lows just last week, but following the results of the inflation report, we're back in the low 3s again. Will the inflation balloon keep getting bigger or will it burst? Will rates continue to rise or will they stabilize?

‘

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Sell through education to empower people to make their own decisions

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This is us on DD half a decade ago pitch an app.

When we got there we realized they didn’t know a thing about technology we thought they would for sure know about so mid pitch, we had to go off-script and gauge what they needed education on…

This helped us get an offer and later inc a deal after the show...but the lightbulb went off that to have people make big spending decisions - you need to listen more and educate.

That’s the premise of today where I want to equip you with scenarios and ways to nudge your investor clients and buyers to be educated and empowered to buy with you.

What BS offers or requests are you getting from clients? Do you feel like some clients don’t value you? Ask for a discount on your commission or jerk you around?

Nothing irks me more than:

Clients not appreciating you or wasting your time
Clients who settle in life out of fear or ignorance

Most of the strategies we will go back to these points. I want to help you protect your schedules with time-wasters who likely cannot get financing and to empower you to know how to use financing education to build confidence in your clients to buy more and faster.

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ABOUT

BACKGROUND

FINANCING SPECIALITIES

“Run the numbers to save the most money long-term and, plan for tradeoffs!”

Born in Mexico City, grew up in Vancouver, lives in Toronto. Studied at UBC and ESADE in Barcelona, Spain

Tech workers with commission and RSU income, Real Estate investors, Newcomers, First-Time Buyers, across 50 lenders in BC/Ontario

PAUL

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AGENDA

Case Study “My client can’t afford enough mortgage from their bank”

Rules of thumb on affordability�

Case Study “My client is self-employed and can’t afford enough from the bank”

Special Self-employed Programs (> 20% DP)
Mortgage Stretching Strategies
Non-Stress Test & B-Lenders (with 20% < DP)�

Best First-time Buyer Programs

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RULES OF THUMB: KNOW YOUR MORTGAGE AFFORDABILITY

HOUSE INCOME MULTIPLE

Take your household income and multiply it by five

A $120,000 gross salary = $600,000 mortgage affordability*

DEBT SINKS AFFORDABILITY

Subtract $100,000 for every $400/month you owe on a car loan or $13,000 of credit card debt

With a $400/mo car loan the $600,000 limit reduces to ~$500,000

*If you have a 30-year amortization mortgage (remember you need at least 20% down payment for this), multiply household income by six.

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Is your client like

MIGUEL?

Miguel - First-Time Buyer

Is on probationary period now and has just for PR.
Makes $90k a year plus $20k bonus
Has down payment problems and needs a gift from his uncle to pay the minimum DP
He paid off his consumer proposal last year
Wants to afford a $500,000 condo

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SOLUTIONS TO SQUEEZE MORE BORROWING POWER

Flex Down Mortgages: Unsecured Credit Borrowing

What: For under 20% down payment mortgages, up to the first 10% can be from an unsecured line of credit or credit card
Consider this: Very few lenders and one mortgage insurer allow this

Extra Income to consider:

Child Tax benefit (under 13 years old)
Work disability benefits
Side hustle income (2 years average)

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Is your client like

ADAM?

Adam - Self-employed

Runs a property management company for 2 years
He makes $200k a year but claims only $80k personally
Has over 20% down payment
Has a company truck loan of $1200 he has personally guaranteed

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STRETCH MORTGAGE

CO-SIGNER OPTIONS?

RENTAL INCOME?

NET WORTH PROGRAM?

OTHER MORTGAGE LENDER?

Ways to stretch mortgage affordability:

Can a family member who makes income co-sign and be on title? Not for Andy but if he could find someone who net of their expenses can be lent $300,000 ($60k income) they could bridge his gap between $700k and $1M.
Andy noticed that he has an isolated extra room in the townhome - can he use a mortgage helper? If it doesn’t have its own entrance, kitchen, and washroom, then lenders do not count rental income. It needs to be “self-contained”
Now what if Andy has $300,000 in savings - will the bank consider this? On select net worth programs, if Andy has over $250k he can stretch dollar for dollar beyond his original $500k pre-approval…but there is one kicker. They count net worth after he pays his $200k-ish of down payment/closing costs. If he had ~$500k, he would have about $300k in the bank which could be added to his original $500k pre-app to hit the $800k pre-app he needs
Last option - stepping into the twilight zone and considering a lender beyond his bank.

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(ALTERNATIVE) MORTGAGE LENDERS

“There are $13–14 billion worth of outstanding mortgages held by between 200 and 300 active alternative lenders.” CMHC (2019)

WHAT ARE THEY?�

Federally regulated institutions which have flexibility over banks to allow more Canadians to access the housing market

WHAT RATES?

Usually .99%-4.50%. Prime Mortgage Lenders compete with bank rates but are less flexible. Alternative “B” Mortgage lenders start at 2.50%

WHY ARE THEY ON THE RISE?

Flexibility! 1-3 year contracts

�

Alternative Mortgage Lender Market Share Rise

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(ALTERNATIVE) MORTGAGE LENDERS

WHO USES THE MOST?

Self-employed
People who want to afford more
Past Bankruptcy or Consumer Proposal

MISCONCEPTIONS

Expensive? Try 2.54%
Bad terms? Afford 50% more
Slow? Faster than banks

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BANK VS MORTGAGE LENDER: $200k Difference

COSTS GAP (ALT LENDER)

$13,345.68 - Mortgage costs
$8000 - Lender Fee
What do you value your family’s mental well-being and stress?

OTHER CONSIDERATIONS

Rent for 1 year and pay $24,000 of rent?
At 20% appreciation, the same home is worth $1.2M next year

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Choosing an Alt Lender over a Prime Lender?!

Banks are the strictest on debt you need to pay off - some mortgage lenders are not.
Run the numbers and keep cheap debt if it means you save on taxes or make more money with investments.
Quicker home access if you have credit issues, debt problems, or simply don’t meet bank protocols.

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RECAP: Key Points

Get to know your prospects and sniff out when they might have issues with their mortgage

Under or over 20%?
Self-employed or First-time buyer?

Have a “stretch goal mortgage pre-qualification” if needed

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RESOURCES AVAILABLE

First-Time Buyer Course Access: https://bit.ly/PaulFTHBCourse
First-Time Buyer Guide: What NOT To Do
Foreign Buyer Taxes: http://bit.ly/ForeignHousingTaxes
Alternative Lenders: http://bit.ly/AlternativeLenders

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WHY PARTNER WITH ME?

Top client education: clients stay with you and refer friends
Staff rates with TD, Scotia, etc: you avoid working with banks
A communicative client journey: you win deals!
Access to our course on building smart sales systems to automate client follow ups and work with who is ready.

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PAUL DAVIDESCU

LEVEL UP MORTGAGES

604-809-3188

PAUL@LEVELUPMORTGAGES.COM

THANK YOU!

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APPENDIX

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STATED INCOME PROGRAMS:

Pitch The Lender Dragons

If you have lots of write-offs, you can have me pitch you to a lender for more income
You need to show two years of steady self employed income to be considered with prime best rate lenders
Certain wholesale lenders let you go off your bank statement income (last 6 months) or through a stated income program

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REFINANCE FOR DP & BETTER RATES

(Even when it hurts)

WHY IS REFINANCE MORE TIMELY THAN EVER?�

Rising prices means more equity to tap into for DP or debt consolidation
Rates are still are record lows (not for long)

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HOW A REFINANCE WORK

Must always own 20% of your home

$1,000,000 home with 50% equity, you can take out how much?

$200,000
$300,000
$500,000

An appraisal and legal fees must be incurred (~$1500)
Can happen within 3-4 weeks from start to finish
The client must be able to qualify (in most cases)

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RESTRUCTURE AND RUN THE NUMBERS!

Do their GDS/TDS debt-service ratios line up? If not...

Can we refinance to lower their rate and extend amortization?
Do we need to pay off debt?
Any unused income for the application?

Child Tax Benefit
Side Income or new co-signers

What lender is most rental income friendly?

Ranges from 50%-95%

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2. BRIDGE FINANCING

What if your closing date for the new home is before the closing date of the old one (within 90 days)?

First, have a firm Purchase Agreement
Refinance first home for deposit (optional)
Mortgage and Down Payment Loan given on closing date
When old home sells, proceeds go to lender to pay back DP loan

Buying $1M home with $200,000 DP + $10k Deposit

Qualify for $800,000 Mortgage but DP is loaned ($190,000)
E.g: Proceeds from home sale are $500k and $190,000 paid back

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HOW TO BE FASTER

You and clients have the confidence to look at places sooner�
Shorter (or no) Conditions with offer due to pre-approval�
You can negotiate a quick close if mortgage docs are already in hand

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HOW TO BE STRONGER

You can put in a higher bid based on mortgage ceiling�
A written pre-approval letter proves your eligibility

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Pre-Approval FYI’s

Hard Credit Pulls take away (1/900 =.01%) and there is a 45-day grace period between checks. You make up score in 2 weeks

Do you rather lose .01% of your score or go in with no pre-approval or worst, over-estimate your mortgage ceiling?
Free credit score sites are 30-40 points off

Even a written pre-approval letter is NOT guaranteed

Property and Strata Documents
Clients losing job or not being past 90 Day Probation
Clients take on more debt than allowed to
Lender is delayed and cannot close in time

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First-Time Home Buyer & Other Incentives

Land Transfer Tax Rebate

Beginning January 1, 2017, no land transfer tax would be payable by qualifying first‑time purchasers on the first $368,000 of the value of the consideration for eligible homes. First‑time purchasers of homes greater than $368,000 would receive a maximum refund of $4,000.

2) Home Buyers Plan (First Time Buyers)

Can withdraw up to $35,000 from your RRSPs (up to $70,000 if 2nd buyer on title)
Must be in RRSP account for 90 days prior
Must be returned within 15 years (interest free)

3) New House HST Rebate

The new house HST rebate in Ontario rebates 75% of the Ontario portion of the HST, up to a new home purchase amount of $400,000. This results in a maximum rebate at a provincial level of $24,000 ($400,000 x 0.08 x 0.75). This is called the Ontario New Residential Rental Property Rebate (NRRPR)

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How to Add Urgency

“How can I add more urgency to buyers?”

Recap: Add Urgency with Knowledge

Rising Interest Rates from Record Lows

Cashback promos

Illustrate Opportunity Cost

Mortgage Regulation Changes

FTHBI/DP help

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Fear kills your ability to see beauty

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