Newcomer PR mortgage questions

[YVR123]

You bought a property


You bought a property in Kitsilano, one of the most prestigious Vancouver suburbs, as a student with no credit history? Look I'll openly contract myself and say that "this is Canada, and anything is possible" so well done to you.

Know nothing about real estate law. But just want to point out the Kits (Kitsilano) is IN City of Vancouver and is NOT considered a suburb in general.

 

[moscatojuices]

Know nothing about real estate law. But just want to point out the Kits (Kitsilano) is IN City of Vancouver and is NOT considered a suburb in general.

Suburbs are interpretative, back in Australia every distinct area is known as a suburb.

 

[steaky]

There is really limited risk, if you collect a decent down payment. Even then, risks can be mitigated. There is really little risk to buyer or seller. Generally, over time, real estate prices increase. That's been the way since time immemorial. Yes, markets can decline for a time but, if you can afford to hold on, the market will recover and exceed its previous high water mark. That means, the borrower (in legal parlance the mortgagor), will be motivated to keep up the payments.

Should the borrower be unable to keep the mortgage in good standing, then what? Well, you, the lender (mortgagee) will no doubt be asked to offer some accommodation, such as temporarily accepting lower payments, or some such. The borrower might see scant prospect of recovery any time soon and they might seek to salvage some or all of their equity in the property by selling it and paying you out. The only risk you face as mortgagee is that, if the mortgagor is selling into a weak market, that has experienced serious decline, then the property will sell for less than what remains owing against it. Than can happen, particularly where the seller has taken a down payment of 10% or less. But on say, a $500k property, if you take 20% ($100k) down, the property will have to decline to $400k in value before you are at risk. It's the purchasers who will have lost their equity of $100k.

The worst case scenario is that you have purchaser(s) who have lost their equity in the property, have stopped making payments and are continuing to occupy the property. Yes, then you a pretty much faced with retaining a lawyer and commencing foreclosure proceedings. If there is no equity in the property, that can be a somewhat summary procedure. You get an appraisal showing the property has a negative value from the purchasers' perspective and the longer it sits there without being sold is costing you money. You can be sure that at point that they are also not paying property taxes, insurance, etc.

Ordinarily, in foreclosure proceedings, the first step is to get from the court an "order nisi" of foreclosure. The word "nisi" is Latin for "unless". The borrowers will stand foreclosed "unless" they pay up. The usual time for that order to run for 6 months. The purchasers have 6 months in which to "redeem", meaning to come up with the money to pay you out. But, if there is no equity in the property, you can ask for an abridged redemption period - as short as one day. During the redemption period, either side can ask the court for an order for sale. If there is some, but limited equity in the property, the lender can both ask for the order as well as for an order for "conduct" of the sale. The lender gets to select the realtor, listing price, etc.

So, let's say the redemption period has run out, there has been no sale, no redemption by the purchasers. You go back to court and ask for a "final order of foreclosure". That has the effect of reconveying the title to you. You then own the property again and are free to sell again, rent it out, or do as you please. The borrowers are really not out of the woods at this point. Let's say that $500k house sold for $300k during the process. The mortgage debt was originally $400k. Presumably, unless it was an interest-only mortgage, their monthly payments would have reduced the principal debt somewhat. So, let's say that, in the end, the balance owed was $380k. In the foreclosure, you would have obtained a "judgment on the covenant" for $380,000 plus costs. So, the purchasers now have a personal judgment against them for any deficiency. The judgment is good for 10 years and may be renewed. You can take all kinds of steps to enforce it. You can seize and sell assets, such as their BMW, You can take out a garnishing order against their wages, bank accounts, etc. You can summon them (once a year) to attend an examination in aid of execution. You may find yourself, in time, in the happy situation of selling again into a recovering market and making money. In short, it's not all doom and gloom.

When I bought my Kitsilano property, I was living with my high school sweetheart. She, too, signed the agreement for sale as covenantor. She was all worried about us taking on a large debt. She was also a UBC student, with 2 more years to go for her masters. I was 8 months away from starting my law articles. I told her that, if we could not keep up payments, so what? We would sell and get out. Absolute worst is we would lose our deposit. Even then, so what? We were young and likely with decades ahead to recover the loss. It would have been worth the try. And it was. We managed, and that early venture into Vancouver real estate provided us with financial comfort for life, we would not otherwise have received.

Doing what we did was not all beer and skittles. There was sacrifice. For a few years, we did not eat out, take vacations, etc. For the first year of ownership, I parked my car in the backyard. I had a choice of paying the mortgage or insuring and operating my car. I chose the mortgage. We accepted the idea of living with tenants. The house was a legal duplex, used as a triplex, which was standard in the area. We rented the 2 basement bedrooms separately. A UBC law student lived in one for the first year. A Greek fellow, who spoke no English, lived in the other room. We inherited him as a tenant from the vendors. He was living there when we bought. In fact, his room had a padlock on it and we never saw that room until he moved out after a year. He moved out when I asked him for a rent increase of about 3%. But, he was okay. Usually not around. Only on Sunday mornings for the most part was his presence evident. Then he would play loud Greek music and chain smoke. The smoke would move through the rest of the house via the heating ducts and, as well, come up the stairs from the basement and seep under the door. Because it was not a true triplex, the internal staircase has never been removed and there was a door leading from our kitchen to the basement.

Having rental income basically paid the mortgage. That left us to cover utilities, property tax, maintenance, insurance, etc. So we paid out no more than we would have paid to rent similar accommodation. After awhile, we rented the whole basement to 2 married students. The rental market was then soft and we had to cut the rent to find tenants. Something not seen in Vancouver in recent years - declining rents. But it can happen.

I could go on and on, and some here could go on and on calling me a liar. I find it offensive and defamatory, but I'll get over it.

Endnote: I mentioned our Kits house being vendor financed by a device known as an "agreement for sale". Still valid, but less used in recent times. Vendor financed mortgages are more common. Not a lot of practical difference between the two. But, with a mortgage, title to the property gets transferred to the buyers, with the mortgage registered against it. But, lawyers know that the mortgage has the effect of transferring "legal title" to the mortgagee and leaving "equitable title" with the mortgagor. The mortgagor has the "right to redeem" and to a conveyance of the legal title upon making full payment. With an A/S, the title remains in the name of the seller and the A/S is registered as a charge on title. In case of default, one does not apply for "foreclosure". One applies for "cancellation" of the A/S. In cancellation proceedings, the standard redemption period is usually 3 months, not 6.

Maybe not now, but we could also get into the niceties of second and subsequent mortgages, rights of junior encumbrancers, priorities, etc. We could also talk about pledges of title documents as a form of security. All very interesting (to some of us).

I forgot about it in responding to the initial "liar" post, but while I was living in that Kits house and paying on it, my sweetheart and I bought a small parcel of oceanfront in the southern gulf islands. Again, the vendor financed it. By that time, I was working as an articled student. She had finished school and just got her first job, as I recall. Again, we would never have obtained a bank loan, not for a remote, vacant lot and us with limited income and assets. We paid 25% down. The vendor said "I will finance, but not on the 'never never plan'". He said by that he meant he wanted a large down payment and monthly payments that would see the debt paid quickly. So, we ended up with a mortgage with both a 5-year term and a 5-year amortization period. The monthly payments amounted to almost the full amount of my salary as an articled student. It was tough initially, but our incomes were rising and it got less burdensome as time went on. Where we lived was always our #1 priority. For years were paid out more of our income for our housing than the so-called "experts", including the banks, advise or allow. I think the rule of thumb is about 30% or thereabouts. There were extended periods where we paid, quite contentedly, more than 50%. Yes, we forsook restaurant meals, a second car, a new car, trips, etc. But vendor financing helped us immeasurably. Some may call it unusual in the extreme, or a tissue of lies if it makes them feel good, but that's how we got our start.

Thank you for the explanation and good notes. I actually think this was true. The vendor takes up the role of a private lender in the transaction .

 

[Daren2023]

Hi guys be careful not to get into a lot of debt after moving to Canada. Debt is evil! You pay 4x the price of a house when you get a mortgage. Credit scores are dangerous because they help you get more into debt and then you have to work for the bank. Please watch The Dave Ramsey Show on YouTube. This is a very popular show in the USA about building wealth and staying out of debt.

 

[iSaidGoodDay]

Hi guys be careful not to get into a lot of debt after moving to Canada. Debt is evil! You pay 4x the price of a house when you get a mortgage. Credit scores are dangerous because they help you get more into debt and then you have to work for the bank. Please watch The Dave Ramsey Show on YouTube. This is a very popular show in the USA about building wealth and staying out of debt.

It is impossible to get into a lot of debt as a newcomer. We usually do 35%+ downpayments and the monthly expenses related to a house are not supposed to be more than 32% of your total income. So most people would be safe unless they fake info.

 

[Deleted member 1083629]

Okay, I think I'm in the market for a house, but I am unsure of how to proceed further. Searched for a few threads and couldn't find anyone with my situation here.

About my situation:
1. Can easily do 35% downpayment.
2. Employed as a contractor with a Canadian company - will move to employment status once I'm in Canada.
3. The mortgage I'd need is between $180k-270k (min to max). The monthly mortgage amount is less than 10% of what I usually make in a month.
4. I haven't landed in Canada yet.

What I'm exploring:
1. Can I open an online bank account without landing in Canada, receive income in it, build 3 months of credit history and get that mortgage? I can additionally get my current Canadian company to show that I was being paid from last 2 years as well. I'm looking at a program like this: https://www.rbcroyalbank.com/mortgages/essential-mortgage-information-for-newcomers.html
2. If #1 is impossible, how long post landing would it take to be able to qualify for that mortgage range? I'll maintain <30% credit card limit usage and pay on time, will get a car on finance to help with credit score.

Am I thinking way too forward in this case? I am planning to talk to a few banks this week/next to get a better idea. But anyone who went through the same if you could share your perspective, it would be helpful.

So, I haven't read the rest of the posts but here is my feedback.

I assume that you are not looking for a place in ON, BC, QC because 270K will get you a shoe box. Your 3 months of credit history don't matter too much. It will be barely noticeable.

Now it's the worst time to buy a house. Like, ever. You are hit with high APR which will be even higher for you as you are not established in CA. Irrespective if you go with variable rate or fixed, you lose. It's impossible to predict how interest rate will act in the short/long run.

 

[Deleted member 1083629]

It is impossible to get into a lot of debt as a newcomer. We usually do 35%+ downpayments and the monthly expenses related to a house are not supposed to be more than 32% of your total income. So most people would be safe unless they fake info.

So, there is no much monetary benefit of putting 35% down. Realistally, for most of us who live in ON, BC that number is unachievable. The best number is 20% because of mortgage insurance. More than that is fighting wind mills; by the time you save 35%, the houses will cost even more.

 

[Deleted member 1083629]

Haha, definitely not over excited. Wanted to rent a place initially, but renting is a bit hard with pets(got large ones). Still open to everything in case if I can rent Will make my life a bit easier.

I mean what kind of pet you got? Unless, you got some sort of alligator, most of the places will be fine with it. For condos, IIRC, the limit is 250 pounds for a dog. You can always look into townhouses with a smaller backyard.

 

[Deleted member 1083629]

Do you share your spouse with a total stranger

I mean that's a real thing, ya know ))

 

[steaky]

So, I haven't read the rest of the posts but here is my feedback.

I assume that you are not looking for a place in ON, BC, QC because 270K will get you a shoe box. Your 3 months of credit history don't matter too much. It will be barely noticeable.

Now it's the worst time to buy a house. Like, ever. You are hit with high APR which will be even higher for you as you are not established in CA. Irrespective if you go with variable rate or fixed, you lose. It's impossible to predict how interest rate will act in the short/long run.

I think you rather enjoy the bidding wars with low APR couple years ago.

 

[Deleted member 1083629]

I think you rather enjoy the bidding wars with low APR couple years ago.

Housing market is out of control and has been out of control since I moved to Canada (since 2017). However, before you could still afford a decent place. Bidding wars happened and they still do happen. Right now, they happen less because no one is buying but if there is a place that is undervalued, regular folks will be outpriced. The major difference is that right now market is more or less stalled. Once APR goes down, we will get back how it was before.

To answer your question; I have never enjoyed anything related to housing market in CA.

 

[iSaidGoodDay]

So, I haven't read the rest of the posts but here is my feedback.

I assume that you are not looking for a place in ON, BC, QC because 270K will get you a shoe box. Your 3 months of credit history don't matter too much. It will be barely noticeable.

Now it's the worst time to buy a house. Like, ever. You are hit with high APR which will be even higher for you as you are not established in CA. Irrespective if you go with variable rate or fixed, you lose. It's impossible to predict how interest rate will act in the short/long run.

I agree about being the worst time to buy the house. But, my math is, I pay 1.5x-2x in rent while it being too hard to rent with large pets. Even if the interest rates go up to 7%, I'll still be comfortable in paying my mortgage. If it becomes 16%, it will annoy me a bit, but still won't be that big of an issue.

I thought a lot about buyer's remorse too. Since I'm only thinking of getting something that I'd want to call a home for a 3-5 years, I don't feel bad about overpaying 10-20% due to the current situation.

 

[Deleted member 1083629]

I agree about being the worst time to buy the house. But, my math is, I pay 1.5x-2x in rent while it being too hard to rent with large pets. Even if the interest rates go up to 7%, I'll still be comfortable in paying my mortgage. If it becomes 16%, it will annoy me a bit, but still won't be that big of an issue.

I thought a lot about buyer's remorse too. Since I'm only thinking of getting something that I'd want to call a home for a 3-5 years, I don't feel bad about overpaying 10-20% due to the current situation.

In that case, it seems like you are in a good financial situation to afford to buy. In your case, I wouldn't be so worried about credit score as it seems like your downpayment and salary is enough to cover the mortgage.

Just FYI, when you talk about rent being 2X it's 1) not correct calculation; 2) you don't account maintenance that is part of your fee when you rent.

 

[canuck78]

It is impossible to get into a lot of debt as a newcomer. We usually do 35%+ downpayments and the monthly expenses related to a house are not supposed to be more than 32% of your total income. So most people would be safe unless they fake info.

Housing is expensive in Canada. The majority of Immigrants don’t have 100-400k to put down on a home. Many home owners are not currently meeting the 30% for household expenses. Many have stretched themselves to unhealthy levels because they were so desperate to get into the market and many just assume that real estate will keep going up so count in equity being added just living in the home. Some of the numbers are very scary. Just look at some of the people who have purchased preconstruction and now are unable to close.

 

[canuck78]

In that case, it seems like you are in a good financial situation to afford to buy. In your case, I wouldn't be so worried about credit score as it seems like your downpayment and salary is enough to cover the mortgage.

Just FYI, when you talk about rent being 2X it's 1) not correct calculation; 2) you don't account maintenance that is part of your fee when you rent.

3-5 years is not a long time in this market and if you factor in all the fees. Also depends on where you are looking to buy. No job will still be an issue for many lenders who are likely be extra cautious lending these days. Private lenders are also not lending as much or have maxed out their lending capacity.