Throughout the past 15-20 years, we’ve had to sit back and watch helplessly as our registered clients struggled to obtain financing for their renovations, which normally requires some form of secured, equity financing, including the re-structuring of a mortgage and/or consolidation of debts.
Lately however, mortgage borrowing has become an even more complicated issue than it has been in past years.
And with the dozens of individual mortgage products being constantly introduced by the various types of lenders across Canada such as the Chartered Banks, Credit Unions, “Alt-B” Lending Institutions, etc. it has simply become too difficult for most homeowners to understand or to gain access to what should be their best and most important mortgage solution, without the help and guidance of a skilled and experienced Mortgage Broker.
Whether you are a first-time buyer, or you need to refinance your existing mortgage, you must first find out what lending options are available before getting yourself “saddled” with the wrong type of mortgage loan, simply because you may feel a certain degree of loyalty toward a particular lending institution, or because its the most “convenient” place to go.
Such short-term thinking can often lead to long-term, negative consequences, and our general recommendation is to ensure that you have examined as many alternatives and options as possible before “taking the plunge.”
To help you make that decision safely and efficiently, The Renovation Co-op offers a free Mortgage Broker Referral Program to all registered clients.
The Mortgage Broker Referral Program is managed by The Canadian Renovation Funding Program, which is also responsible for overseeing all subsidy and rebate programs that are currently offered through The Renovation Co-op.
Upon the client’s request, the Broker Referral Program will recommend a specific, Co-op Approved Mortgage Specialist who will be best-suited to fulfill the client’s own, unique lending requirements.
Note: All recommended, Co-op-Approved Mortgage Brokers have established themselves as being totally career-minded, highly-skilled professionals, and whose proven track records of customer loyalty and personal dedication will always be directed toward the client, and not the lender.
And, as each of our recommended brokers are self-employed business owners, when it comes to long-term relationship-building it is you (the client) who actually becomes the broker’s “employer.” And the only way for the broker to retain that long-term “employment” with you, is to always act in your best interest…and not that of a bank’s or other institution’s..
Mortgage Lending Categories…
The five major Canadian institutions (referred to as “The Big Five”) are known as Schedule “A” Lenders. These chartered banks sell Mortgage loans to customers who have A+ to B+ credit ratings, low debt service ratios, and whose total family income meets or exceeds a specific set of guidelines.
For mortgage re-financing purposes, the homeowner’s equity must also fall within a specified, minimum percentage of the home’s appraised value.
Historically, the largest percentage of first-time home buyers have purchased their mortgages through one of the “big five” banks.
Years ago, mortgage loans from the banks were referred to as standard, “cookie cutter” loans, mainly because the profile of most bank-qualified, first-time home buyers were more predictable and standardized, where a simple, formula-driven approval was applied.
And with limited competition from alternative lending choices, banks appeared to use more stereotypical profiling when approving a new mortgage
For example: Husband and Wife Ownership, where the husband was the main wage earner, employed by the same company for more than 4 years, and where the average age of first-time home owners was lower (25-28 yrs old) than today (30-32 years old), which reflects the current diminished affordability for first-time home buyers.
However, these so-called “cookie cutter” loans have disappeared because in today’s world, there is no such thing as a standard, “cookie cutter” client. The staggering population growth over the last 20 years throughout the Toronto GTA and across the region has resulted in a wide diversity in sources of income, which are now more commonly comprised of full and/or part-time employees who work from home, along with a rising number of self-employed individuals, etc.
In addition, due to the high cost of home values and higher property taxes, along with many social changes, the actual types of home ownership have also evolved. For example, due to the high cost of housing (especially within the core of the GTA) single individuals have opted to partner with one or two friends or acquaintances to purchase a home jointly, sharing all of the living expenses.
And on a social level, the wide public acceptance of more diverse, alternative lifestyles coupled with the growth of what had previously been considered as “non-standard” types of income have literally forced the banks to throw out their previously-standardized loan approval profiling.
As a result, the 5 major banks have had to become much more accommodating with regards to their mortgage approval guidelines. while ensuring that such loans will be “safe” in terms of risk. This has led to the development of dozens of more personalized, custom-tailored mortgage loan products offered by individual banks.
“Alt- B” Mortgage Lenders are medium-to-large-scale mortgage institutions that serve those clients who may fall short of meeting one or more specific lending qualifications required by major banks.
These Mortgage lending institutions charge slightly higher interest rates than banks, but normally offer more flexibility within their mortgage lending criteria, approving a wider ranges of self-employed clients and individuals with hard-to-prove income.</p
“Alt-B Lenders” include Trust Companies, Credit Unions and many variations of private and publicly-traded mortgage firms that are available both locally and across Canada.
As the housing market continues its meteoric rise across the region, fierce competition between each of the five major Canadian banks has never been greater. However, the banks’ loan approval qualifications have also increased.
As mentioned, the major Canadian banks have been forced to develop a wider, more inclusive selection of mortgage loan products to better accommodate the
ever-changing socio-economic demographics across the nation. And while the major banks have been able to more precisely accommodate the growing numbers of clients who have somewhat unique, unconventional sources of incomes, they are still limited by their historic intolerance of low-to-moderate risk.
Regardless of their seemingly more “eased” and “inclusive” lending parameters, the loan qualifying requirements demanded by each of the “Big 5” still remain the most conservative and restrictive of all existing types of mortgage lending.
In addition, much of the low-risk lending standards of the Big 5 Banks is due to more stringent government regulations imposed on all chartered banks (such as the new, federally-mandated “Stress-Test Lending” parameters that all bank clients now face, along with the banks’ own, individual qualifications, which are in place to keep its shareholders safe and satisfied.
Private Mortgage Loans have become a strategic option for many homeowners who need specific funds for renovations, debt consolidation (where the immediate refinancing of an existing mortgage may be impractical due to high pre-payment penalties, etc.), or where the client’s credit may be an issue.
The Private Mortgage Industry has grown in leaps and bounds across Canada, offering numerous types of more sophisticated lenders ranging from private individuals and small companies (who mainly invest in private 2nd mortgages between $20,000- $50,000), to larger-scale investment firms that offer both private residential and commercial mortgage financing for amounts between $100,000 to over $20 Million.
Private Construction Loans
These are equity-based loans that are approved by the lender, and based upon the future value of the home (the home’s approximate, appraised value following the completion of the construction.
Construction financing has always been a high-risk investment for lenders, and remains highly-specialized. Such lending not only requires an experienced mortgage broker with years of construction-related financing, but whose network of private investors include individuals and/or companies who specifically offer such lending.
Private Residential Construction Loans (mainly used for projects such as 2nd-storey additions, rear extensions and Custom Homes) can also be risky for contractors. Payments to the contractor are disbursed at various stages (“progressive” or “staged payments”) that signify the completion of specific benchmarks reached
throughout the entire project. For example: $xxx paid on completion of foundation work, or $xxx paid on completion of framing & drywall, etc.).
Such progressive payments are made upon a series of completed inspections conducted by the lender’s appraiser or other representative, and the timing and coordination of such inspections and payments to the contractor depends entirely upon how well the lender is set up to deal with such issues, which can have a direct impact on the contractor’s cash flow throughout the project.
Of course, this all depends upon the client having hired a more specialized Mortgage Broker, whose network of lenders are already set up to deal with such administrative issues.
If you need a private construction loan…make sure you hire a broker who regularly arranges construction loans!
And although the five major banks, along with many Alt-A Lenders have always included construction loans within their own portfolios of advertised mortgage services, they have remained very “clumsy and disorganized” when it comes to administrating such loans (and they know it!).
In addition, most contractor payment terms and schedules associated with construction loans offered through the banks are often too restrictive and/or impractical for the residential construction industry.
That said, there are dozens of mortgage brokerage firms that claim to provide numerous types of construction loans but again, if the broker is ill-equipped to deal with construction-related lending, both the client and the contractor may find themselves running into serious trouble throughout the course of a major renovation project.