If you are considering refinancing your existing mortgage, or want to better understand what a mortgage refinance action is all about and how it may or may not be beneficial to you, your family, and/or your business, then it makes a great deal of sense to seek out competent professional advice.
The good news here is there are a large number of mortgage professionals, be them brokers or agents or specialists, that have a considerable amount of training and experience on the subject matter and who are readily available in virtually all areas to provide assistance.
The challenge is getting the best advice for your particular circumstances which is not going to be automatic when speaking to any form of mortgage professional.
This is certainly not because mortgage reps are trying to mislead you in any way.
The mortgage industry is highly regulated and the standard of conduct on all players and participants is very high.
The issue you need to be concerned with when selecting a mortgage adviser of some sort is how relevant what they represent is to your particular circumstances.
For instance, if you go to a lending institution like a bank, they have very capable individuals that work in the field of mortgages.
They are also paid to meet your needs as best they can with the products they provide.
If they products they provide are not the best fit for you, it may be hard to tell at this point as you are only getting the point of view from an internally focused source of information.
The alternative is to work with a mortgage broker who is arms length to the actual sources of mortgage financing and who may be in a better position to apply more options and bring more considerations to the table than someone who may only be marketing their own products.
So being able to identify and focus in on the most relevant options is certainly a big part of any mortgage refinancing decision.
The other part of getting sound advice is dealing with a mortgage professional who can work through all the different options with you so that the best available options are well understood.
Let’s face it.
You don’t refinance your mortgage every day.
And for most, any mortgage financing decision is going to be one of the larger financing decisions they need to make.
So working with someone that has the experience, knowledge, and teaching skills to help get you comfortable with all the information available is going to be key to making a good solid financial decision that you’re going to have to live with for a while.
This is another reason why mortgage brokers and agents are a solid option for getting advice and guidance.
In most cases, it does not cost you anything to use them, and they come with more of a broad market representation which is beneficial not only from an available program point of view, but from an experience point as well due to the large number of different scenarios and solution sets they work through on a regular basis.
If you’re looking to refinance, or just have some questions, I suggest that you give me a call and we’ll go through your situation and questions together.
Self employed mortgages are a significant segment of the residential mortgage market.
And over the last number of years there have been a lot of changes take place in how lenders approach this market creating a certain amount of confusion at times among existing and/or potential borrowers.
To make more information available to self employed individuals, we decided to list out the most commonly asked questions we get over and over again about self employed mortgage qualifying.
These are not listed in any type of order.
And there are certainly a lot more questions asked on the subject, but these are the most common ones.
The key things to qualify are all about the paper work.
The more detail you can provide to support your business existence and earnings the better.
Items like articles of incorporation, shareholder resolutions and agreements, business financial statements, personal income and net worth, and so on are going to be important to building your case for eligibility.
And if income verification is not straight forward, all the more reason to provide a comprehensive income package to the lender right at the time of application.
Because self employment can take on many different forms, its always good to provide as much detail as possible to give the lender sufficient background information to make a decision in your favor.
Yes, self employed mortgages can qualify for mortgage insurance.
In fact, the mortgage insurance companies have programs specifically designed for the self employed.
More specifically all mortgage insurance programs for self employed individuals fall into two categories, namely income verification and stated income.
Income verification works similar to employed mortgage programs in that the verification is specific to income you report personally for income tax to the Canada Revenue Agency.
Stated income is used when there is not enough personal income declared to meet the debt servicing requirements of the lender’s program.
There is no difference in interest term offerings for self employed mortgages.
You can get either a variable or fixed rate term provided that you can qualify for them, just like an employed person would have to.
Where there can be a difference is in the premium you may be required to pay for an insured mortgage depending on what type of program you qualify for.
For instance, an income verification program will have a lower mortgage insurance premium than a stated income program.
The income verification process is about what you have taken out of your business personally to live on.
So the focus is on your personal income tax return and the notices of assessment provided by CRA once your return has been processed.
Because business results can vary from year to year, which can also influence the funds you take out of your business, a lender could also look at a three year average of personal income to get a better picture of what the average available cash flow for debt servicing actually is.
One key to securing a self employed home mortgage is the manner in which the application is put together and submitted to targeted lenders with relevant programs for your particular requirements.
A complete and thorough application should include as much information about your business as possible so the lender can quickly get comfortable with your financial background and ability to repay the mortgage over time.
Because we are talking about self employed, the lender may not understand the business and any confusion or doubt can lead to a decline.
One of the ways to properly assemble an application package that increases the likelihood of a positive result is to work with an experienced mortgage broker who can outline all the relevant information that should be included for your particular situation.
A mortgage broker with experience securing mortgages for self employed individuals can be a valuable asset to getting the financing you’re looking for.
While the most of the fundamentals that apply to home mortgage refinancing are always going to be valid, there are changes that take place each year that can impact the refinance process.
So today let’s take a look at what I will call the 2012 mortgage refinancing basics that you should have a good working knowledge of before considering any type of a refinancing strategy.
To start with, the most common reasons today to refinance an existing residential home mortgage is to try and take advantage of lower interest rates, consolidate consumer debt, gain incremental capital for some other purpose, or some combination of the first three.
As we remain in a low rate environment with record levels of average household debt it stands to reason that mortgage refinancing is going to continue to be primarily focused around these two areas individually or in combination.
One of the more significant changes to refinancing considerations relates to mortgage insurance rules.
Over the last few years, the minister of finance has mandated the continued decline of the amount of mortgage financing could be made available for a refinance action, and in July of 2012, the limit has been further reduced to a maximum of 80% loan to value.
While non insured mortgages are also at a max lending amount of 80%, insured mortgages still play a purpose for those individuals who still may not be able to secure a top level rate, even with the 20% equity in place.
But if you’re in need of 85% loan to value from your mortgage funding then you may need to look to a private lender who has the flexibility to consider requests above 80%.
The potential cost items you need to consider when refinancing have not changed in recent years and remain 1) prepayment penalties, 2) appraisal fees, and 3) legal fees.
The prepayment penalty is really the key to determining if a getting a new mortgage in place to pay out the old one makes sense at any given point in time.
If the prepayment penalty is very high, working through the rest of the number may result in you being worse off over time. That’s why its going to be important to contact your existing mortgage provider and get a statement from them of your exact prepayment penalty before you even start considering any options.
And while appraisal fees and legal fees can seem almost trivial in comparison to a prepayment cost, they also need to be factored into the analysis so that you have a clear picture of the cost and benefit of any options you want to consider.
Yes, you can still refinance with bad credit and in fact there can be even more options for you today than just a few short years ago.
Today there are several sub prime or “B” lender options as well as private lender options available.
The key with bad credit tends to be in estimating the time before your credit will be improved.
If you have some bruised credit that does not allow you to qualify for a new “A” mortgage today, but is expected to be corrected in a year or two, then it may make more sense to leave the existing first mortgage alone to take advantage of its rate and secure a private second mortgage to fill the gap in funding.
Then, when your credit has improved, an “A” credit refinancing can be completed.
This is a good reason why its so important to look at all the options and crunch the numbers to make sure that any mortgage financing decision you make is going to end up being the lowest cost, highest benefit to you.
One of the best ways to accomplish this is to work with an experienced mortgage broker with a solid track record of mortgage refinancings.
If you’re considering refinancing your home mortgage, I suggest that you give me a call so we can go through your situation together and review all the relevant options in detail.
Today we are going to cover what I find to be some of the main challenges that borrowers and property owners experience when they attempt to refinance a self storage unit or property.
By being able to proactively address these issues before even applying for a new commercial mortgage, you’re going to be more likely to get the financing you’re looking for in the time frame you’re working in.
The first main challenge is the quality and strength of the financial statements that are provided by the tenants.
This is extremely important when you’re trying to refinance a construction mortgage where you most likely only have partial occupancy at the point at which construction is complete.
The lender is going to focus in on cash flow, and if you have recently opened your doors to the public, you may only be at 50% occupancy or less, which is not likely going to provide enough cash flow to provide adequate debt servicing for a long term mortgage. Yes, the projections can likely demonstrate repayment once occupancy is increased. But from a lender’s assessment of risk, they are going to be concerned as to when you will actually be able to achieve the planned level of average occupancy.
A second major potential challenge is the commercial appraisal.
Because a self storage property is income producing, one would think that the appraised value would predominantly be based on the income or cash flow generated now and in the future.
That’s not always the case due to the fact that there can can significant cash flow swings in self storage as a result of average occupancy periods being short in duration. As a result, appraisers will tend to lean towards a cost assessment of value instead which can result in a lower market valuation for the purposes of commercial mortgage financing.
The potential consequences of this is that you might not be able to get the amount of mortgage funding you require to retire the existing mortgage and potential provide additional capital for other purposes if that was part of your reason for refinancing in the first place.
This leads into the next challenge which relates to trying to increase the amount of mortgage funding to generate funds for other purposes.
With “A” mortgage lenders, there can be a high level of focus on the use of funds for a new mortgage. If you are increasing the mortgage amount on a self storage property and are planning to reinvest it into the property, thus increasing its market value, then its more likely that particular utilization of mortgage proceeds will be acceptable to an “A” lender.
However, if you’re looking at taking the funds out of the equity in the property and utilizing the money for an unrelated activity, such as starting up another self storage facility, or consolidating other debts, then its less likely that an “A” level commercial lender will approve that application of funds.
This may require you to focus more on sub prime commercial lenders or private money lenders that are less concerned with additional mortgage proceeds being applied elsewhere. These secondary financing sources will likely come at a higher cost of financing, but may still be worth it if there is enough benefit gained from being able to have more flexibility with the use and application of incremental mortgage proceeds.
If you are considering refinancing a self storage facility or require a refinance action right away, I suggest that you give me a call so we can go through your requirements together and discuss the different financing options that may be available to you.
Today we are going to be talking about some of the main challenges that you can have when trying to get a mortgage in place to complete the purchase of a warehouse property.
One of the main challenges is focused on the age, condition, and layout of the building.
For instance, with older buildings, the layout and infrastructure may not be conducive to how the market would be defined for similar space, which can cause “A” lenders at least to have no interest in lending against these types of assets.
Another challenge with financing existing buildings is placing lending value on improvements that have been made. If the the purchaser is planning to rent or lease out the space, the improvements made for or by the last tenant may have no value to a future tenant or the average tenant in the market place. So the result can be a commercial appraisal that comes in lower than the purchase price which will require a larger equity investment on behalf of the purchaser.
Overall, when you get into warehouse properties that are over 20 years in age, it can be difficult to get these financed through “A” commercial lenders.
The second most common challenge I see when warehouse financing is related to the tenancy of the building.
Lenders can be very interested in the financial profile of each tenant as well as the manner in which they are utilizing the rented or leases space.
Tenant concerns are partially related to cash flow and partially related to security.
From a cash flow point of view, stronger tenants that have lease terms in place for at least as long as the lending term contemplated will have a greater chance to help attract an “A” lender than a warehouse that does not.
From a security point of view, all “A” lenders today require environmental audits to make sure all financed properties are being kept up to the standard of the day and even if the seller or purchaser can provide a clean environmental report at the time of purchase, the tenant usage of the property could still cause a lender not to issue a commitment to finance which could result in financing needing to come from sub prime commercial and private mortgage lenders.
The third major challenge I see is the commercial appraisal that is going to be used by the lender to establish the size of a potential mortgage.
As mentioned earlier, a warehouse facility may have functionality and utility in it that the average tenant does not have any use in. So if you are acquiring a property where there is going to be tenant turnover, or could be tenant turnover in the future, keep in mind that the valuation of the complete package of real estate, improvements, and fixtures you are trying to acquire may be discounted through the lending process which will reduce the amount of financing available to you.
If you are looking to purchase a warehouse property and want to better understand your financing options, I suggest that you give me a call so we can go through your financing needs together and discuss different commercial mortgage strategies that can meet your requirements.