Common Myths About Credit Scores.

How is your credit score calculated? It is a complex answer and, as such, common myths persist. Today, we are going to help you get a better understanding of your credit score and how to make the grade by busting the most common credit score myths!

MYTH #1: Too many credit cards will hurt my credit score

The reality is that cancelling healthy, active cards or accounts hurts more than having too many. When you cancel a card, all your payment history is lost as well as the type of credit granted. While you may think having a couple credit cards is extreme, the average Canadian has TEN credit sources. What many Canadians don’t realize is that lenders want to see a history of credit; they want to see payments made on time. In addition, lenders also want to see balances maintained at no more than 70% of your credit limit in use. So, if you have a $10,000 credit card, you don’t want to owe more than $7,000 on it at a time.

MYTH #2: Avoid Using Credit Cards If You Want to Build Credit

It is easy to think that different forms of credit matter more than others, but that is simply not the case. In fact, all lenders want to see is a history of credit and payments made on time. This is what will build your credit score and, eventually, give you the ability to qualify for financing. A history of on-time payments and manageable balances shows the lender that you are a promising investment and not likely to default.

MYTH #3: Paying Monthly Utilities Builds Credit

Unfortunately, paying utilities does not build credit. In fact, these providers only check your credit score to determine creditworthiness; they don’t report your payment history to the bureau. Unless you are late to pay, that is. The other organizations that only report on default are municipalities and vehicle insurance providers, so make sure you keep these payments up-to-date. Be sure to pay any traffic tickets and bylaw infractions too!

MYTH #4: I Can’t Do Anything Once a Payment is Late

Don’t be discouraged. Lenders understand that you are only human and, in many cases, they are often willing to work with you if there is a late payment. If they are notified within a timely manner, a late payment can be easily reversed. Just be careful not to make a habit of it.

MYTH #5: Checking My Credit Score Will Decrease It

No exactly. There are two types of credit inquiries: soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull this type of inquiry when marketing pre-approval offers. Soft inquiries do not affect your credit score.

A hard inquiry, on the other hand, is triggered by the applicant when submitting a loan or credit card applications. As a result, hard inquiries will affect your credit score slightly as they are included in the calculation done. Recording the number of inquiries a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit; this can be a precursor to someone facing credit difficulty. Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquiries is for preventing identity theft. Hard inquiries that aren’t made by you could possibly be from a fraudster trying to open accounts in your name; therefore only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked.

In addition, hard inquiries remain on all credit reports for two years, after which they are removed. Soft inquiries only appear on the report that you request from the credit bureaus and will not be visible to potential creditors.

Credit score plays a vital role when it comes to potential financing for car loans, mortgages, or even personal loans. It is important to recognize good credit habits now and maintain them for a higher credit score today, and better chance of financial approval in the future.

Steps to Repair and Improve Your Credit

Though credit scores aren’t always an indicator of financial health, they are used in a variety of ways that could have a major impact on your life. Interest rates (including mortgage rates) are almost always determined by your credit score. Some employers & landlords may require a credit check to see if you have past credit issues.
Remember this is your credit report, not your “I’m Fiscally Responsible” report. Lenders want to know how you have historically handled credit in order to determine if you are a good credit risk. Higher risk = higher rates!

The Rule of Two:
• You should always have 2 “tradelines” going. This can be a combination of 2 credit cards OR a credit card and a line of credit/ loan etc.
• Credit lines should have a minimum $2,000 limit
• Minimum of 2 years old

So, if your credit score sucks, it could be costing you.
The good news is, you don’t have to live with bad credit forever. There are plenty of things you can do to improve your credit score. Use the 9½ tips below, to improve your credit score

#1) Know Your Credit Score and Credit History
Request a free copy of your credit report from both of Canada’s credit agencies (TransUnion and Equifax). You are legally entitled to one free credit report yearly from each credit agency. Check out my BLOG How to Get a FREE Copy of Your Credit Bureau

#2) Review both TransUnion & Equifax Reports for Any Errors or Discrepancies.
If you find any errors in your credit report, you should dispute them with Equifax or TransUnion and request to have them correct any errors.

#3) Pay On Time, EVERY time!
This might seem obvious, but you need to make your payments on time, every time! This is crucial to repairing and maintaining your credit rating. The largest percentage of your credit score is based on your payment history!! Even being a couple of days late will have a negative impact on your score. Staying current with your payments has a huge positive impact. If you can’t pay the balance off in full, pay the minimum amount on time!

#4) Don’t Go Over Your Card’s Credit Limit
Going over your credit limit, even once will have a huge negative impact on your credit score. You need to be aware of your credit limit and your current debt levels to avoid this.

#5) Pay Off Any Overdue Accounts ASAP
Paying off a collection account will not remove it from your credit report, so do your best to avoid going to collections. If you have any overdue accounts that have gone to collections, negotiate to pay them off ASAP.

#6) Reduce Your Debt
Easier said than done, but if you want to increase your credit rating, you need to reduce your debt. The closer you are to your credit limit, the lower your score. In a perfect world you only want to use about 30% of your available credit. If you have a lot of credit card debt you might consider a loan (with lower interest rates than the credit cards) to consolidate your debts.

#7) Limit Your Inquiries for New Credit
You lose points from excessive hard inquiries on your credit bureau. Any attempts to take on multiple loans/credit cards will look bad in your report.

#8) Avoid Closing Credit Cards
Account age is a factor that reflects positively on your credit score. Too many new accounts lowers your average account age and negatively impacts your credit score. For the same reason, you may want to keep an old account open, even if you are not actively using it.

#9) Time is your Friend
When rebuilding your credit, time will be your best friend. The impact of past credit problems lessens with time, so that a late payment from a year ago will have much less weight than a late payment today. Get current and stay current.

#9.5) Protect Your Credit from Identity Theft
As more of our personal information gets circulated via the internet, there’s more room for “bad people” to steal your personal details so that they can make fraudulent purchases in your name. This can be extremely damaging to your credit history. You can protect your credit history from this by paying for a service that can alert you to fraud.

If you have any questions, contact a Dominion Lending Centres mortgage broker near you.

by Kelly Hudson

Did you know that 60 per cent of people break their mortgage before their mortgage term matures?

Most homeowners are blissfully unaware that when you break your mortgage with your lender, you will incur penalties and those penalties can be painfully expensive.

Many homeowners are so focused on the rate that they are ignorant about the terms of their mortgage.

Is it sensible to save $15/month on a lower interest rate only to find out that, two years down the road you need to break your mortgage and that “safe” 5-year fixed rate could cost you over $20,000 in penalties?

There are a variety of different mortgage choices available. Knowing my 9 reasons for a possible break in your mortgage might help you avoid them (and those troublesome penalties)!

9 reasons why people break their mortgages:

1. Sale and purchase of a home
• If you are considering moving within the next 5 years you need to consider a portable mortgage.
• Not all of mortgages are portable. Some lenders avoid portable mortgages by giving a slightly lower interest rate.
• Please note: when you port a mortgage, you will need to re-qualify to ensure you can afford the “ported” mortgage based on your current income and any the current mortgage rules.

2. To take equity out
• In the last 3 years many home owners (especially in Vancouver & Toronto) have seen a huge increase in their home values. Some home owners will want to take out the available equity from their homes for investment purposes, such as buying a rental property.

3. To pay off debt
• Life happens, and you may have accumulated some debt. By rolling your debts into your mortgage, you can pay off the debts over a long period of time at a much lower interest rate than credit cards. Now that you are no longer paying the high interest rates on credit cards, it gives you the opportunity to get your finances in order.

4. Cohabitation & marriage & children
• You and your partner decide it’s time to live together… you both have a home and can’t afford to keep both homes, or you both have a no rental clause. The reality is that you have one home too many and may need to sell one of the homes.
• You’re bursting at the seams in your 1-bedroom condo with baby #2 on the way.

5. Relationship/marriage break up
• 43% of Canadian marriages are now expected to end in divorce. When a couple separates, typically the equity in the home will be split between both parties.
• If one partner wants to buy out the other partner, they will need to refinance the home

6. Health challenges & life circumstances
• Major life events such as illness, unemployment, death of a partner (or someone on title), etc. may require the home to be refinanced or even sold.

7. Remove a person from Title
• 20% of parents help their children purchase a home. Once the kids are financially secure and can qualify on their own, many parents want to be removed from Title.
o Some lenders allow parents to be removed from Title with an administration fee & legal fees.
o Other lenders say that changing the people on Title equates to breaking your mortgage – yup… there will be penalties.

8. To save money, with a lower interest rate
• Mortgage interest rates may be lower now than when you originally got your mortgage.
• Work with your mortgage broker to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate.

9. Pay the mortgage off before the maturity date
• YIPEE – you’ve won the lottery, got an inheritance, scored the world’s best job or some other windfall of cash!! Some people will have the funds to pay off their mortgage early.
• With a good mortgage, you should be able to pay off your mortgage in 5 years, there by avoiding penalties.

Some of these 9 reasons are avoidable, others are not…

Mortgages are complicated… Therefore, you need a mortgage expert!

Give a Dominion Lending Centres mortgage specialist a call and let’s discuss the best mortgage for you, not your bank!

By Kelly Hudson

Life can go sideways and that is a fact. Illness, divorce, death, longest recession in 30 years or whatever the cause is, before you know it you can find yourself with an awful credit rating and are unsure of what to do. These are the things we mortgage professionals wished you knew.

1. Even though a company has written off a debt, you still have to clear it up. You will be unable to get a mortgage in place until all outstanding debts show as settled with a balance of $0. That can happen through negotiations and payment directly with the company, through an orderly payment of debts or through bankruptcy. We would advise extreme caution when it comes to anyone promising they can rebuild your credit immediately for a price.

2. You need to re-establish your credit as soon as you can. The magical number in the mortgage universe is 2. You need to get two types of credit for two years with each a minimum balance of $2,000. The clock starts counting on the date of bankruptcy discharge or OPD settlement.

3. If there was a foreclosure in your past, you are going to have a very hard time getting a mortgage. No mainstream or near prime lenders will consider this type of an applicant anymore which would leave your only option a private lender where you will pay higher interest rates. If you think you are heading towards this, then call a mortgage professional ASAP. There are investors out there willing to buy you out and wait to turn a profit when the market turns. Alternately, you could work out a deficiency sale with your mortgage lender and/or mortgage insurer which will allow you to purchase in the future.

4. After a bankruptcy or OPD, you cannot have ANY late payments. Not a single one. The lenders will accept that you were hit with a life event but you have to prove it will not happen again. Even one late payment on your cell phone is reason for a decline. The onus is on you to show them it will never happen again.

5. You can purchase a home with 5% down after you have properly established your credit again. Make sure you have the two credit types reporting as above first of all. The next step is to save. You are going to need the 5% to put down plus be able to show you have 1.5% for the closing costs and then you should also have an additional 3.5% in savings to show you have a fallback position in case you are struck by life again. The lenders and mortgage insurers really like to see that.

So it will not be easy but it is possible and the sooner you start the sooner you can buy a new home. Call your Dominion Lending Centres mortgage professional today to get an action plan in place.

by Pam Pickkert

Every year since October 2008 it’s become more and more difficult to obtain a mortgage. The government claims to be casting a safety net over the Canadian housing industry via stiffer mortgage regulations. What do you need to know to help prepare yourself for a home purchase, refinance, debt consolidation, or even a simple renewal? Well the biggest item I cover on a daily basis is preparation.

It can take a client weeks or months to find the confidence to connect with a Mortgage Professional once they feel confident that they ready to obtain that next mortgage. Any Mortgage Professional worth their salt will be able to guide their clientele to prepare them properly for the mortgage.

Typically most people think they need to prepare themselves most for their first purchase, however preparing for each mortgage these days is more critical today than ever before. When Canadians finally make that call, they want a step by step process to solve their solutions in an easy manner, but are seldom prepared to proceed.

During my regular daily routine, I follow up with my clients with gentle reminders to send me the requested documentation list. Having done this for ten years, the process is quite similar for almost each individual even though the main list of documentation remains the same.

We all want to take short cuts to get to the finished product, but in the end, the banks and lenders have become governed so much so that the short cuts are almost non-existent therefore, preparing the proper document package is essential to an essential mortgage. As Arnold Schwarzenegger said recently in an interview I watched on Facebook, we need to stop taking and thinking about short cuts. There aren’t any to success.

What I’m getting at here is that when your Dominion Lending Centres Mortgage Professional provides you with a mortgage document checklist, please don’t take it for granted, please follow each and every step carefully.

In general, the most common documents required are dependent on what you do for work. So if you are an employee, then the most recent paystub, and an updated employment letter along with the most recent two years of T-Slips (whether they are T4’s from employer’s, T5’s and pension slips), T1 Generals -the entire document (the documents your accountant prepares to submit to Canada Revenue Agency), Notice of Assessments (the form you receive back from CRA after your file is completed). Then there will be the verification of down payment via 90 days of bank statements, any mortgage statements, property tax assessments and the list can go one. The most common mistake is providing a mix and match of the above documents to try and piece together your income story. Depending on how your income is structured, we may be able to provide you with a near pre-qualification but lenders are being more adamant of having the documentation upfront, so that they are using their time, along with the mortgage insurer’s time. As a rule of thumb, the cleaner the file, the easier it is to underwrite and make a proper decision.

Common mistakes include, missing pages from tax documents, poorly written, unsigned, undated, missing info on employment letters (handwritten ones draw huge red flags), cut off pages from documents, out dated items(paystubs and employment letters over 30-60 days is pretty much null and void these days).

You may not know how to prepare yourself, but that’s also what we are for. We are essentially mortgage guidance counsellors to help prepare you for mortgage success, but if we are trying to obtain a mortgage via shortcuts, you’ll be upset with how the process goes.

We all used to have more leeway with mortgage documentation, but it’s clear the government is having banks and lenders scrutinize every mortgage more carefully now than ever before. And the banks and lenders have to oblige as they will be audited, if they don’t pass audits, then they lose out. And if they lose out, we lose competition. Yes this is the new normal, yes it’s tiring, no we don’t like it either, but it’s our new reality. And realistically, is gathering a few extra documents really that bad? Mortgages are not a given right and earned more so than ever before in our recent history.

Our job is to help you prepare for the mortgage, sometimes it will take one meeting, sometimes it’ll take weeks or months, even years depending on your own personal financial situation. But we can provide the recipe to help you prepare, but it’s up to you to do the cooking.

By Jean-Guy Turcotte

FIRST TIME HOMEBUYER PROGRAM

As of January 16, 2017 the provincial government has introduced the B.C. Home Owner Mortgage and Equity Partnership program for First-Time Homebuyers needing help with  their down payment.

Eligibility requirements for the new government first-time homebuyer down-payment loan program are:

• Have saved a down payment amount at least equal to the loan amount for which they are applying from government.

• Have been a Canadian citizen or permanent resident for at least five years.

• Have lived in B.C. for at least one year prior to the sale.

• Be a first-time buyer who has not owned an interest in any residential property anywhere in the world at any time.

• The home must have a purchase price of less than $750,000.

• The buyer must already be able to qualify for an insured high-ratio first mortgage for at least 80 per cent of the purchase price.

• The combined gross household income of all people on title must not be more than $150,000.

Applications are open for 3 years starting January 16, 2017 and ending March 31, 2020.  For more information check out the link below:

https:/housingaction.gov.bc.ca/tile/home-owner-mortgage-and-equity-partnership

Mortgages are like vehicles. A bank is similar to the brand, Ford or Toyota for example. How long you have a mortgage before it’s time to renew is like the model, a Fusion or Camry. The rate is similar to the car’s paint color, and the mortgage benefits such as prepayment privileges and portability are like the car’s benefits; 4-wheel drive, hatchback, four doors instead of two, etc.

A bank is like a sales person at a Ford or Toyota dealership. He or she know everything about every car on their lot; engine size, warranty, all available colors, and their fuel ratings. He or she can match any car to your needs and lifestyle, as long as it’s sold at their lot.

But what if they don’t have the most fuel efficient car? What if you don’t like the design or you need four doors and a trunk and all they have is two doors and a hatchback? Are you still going to buy from that dealership just because you went there first? No, you’re going down the street to check out the Chevrolet, maybe even BMW, Mazda, or the new Chrysler dealership. That sales person doesn’t want you to go buy from another lot down the street, but you are buying to satisfy your needs, not the dealership’s needs of selling their own cars.

Now imagine a dealership that sold every single make and model of vehicle. Imagine you could choose one of their sales people, and have them work only for you. They know just as much or even more about every make and model, they do all the research for you and tell you what you need to look for, they ask you the important questions; they have your best interest. That is a mortgage broker, your own personal expert.

Now, you may not need a personal expert to buy a car. But what about mortgages? Is a 0.10% lower interest rate a lot? Or will a 20% prepayment privilege instead of 10% be more advantageous? Can you switch lenders and move your mortgage? $15,000 or $5,000 penalty? How is it calculated? Fixed or variable? Is a collateral charge good or bad? 2-year term or 5-year? Big bank or monoline lender? How about credit unions? The list goes on.

So, a bank or Dominion Lending Centres mortgage broker? Put it this way; would you buy from the first dealership you visit or hire an expert?

Ryan Oake

Dominion Lending Centres – Accredited Mortgage Professional
Ryan is part of DLC Producers West Financial based in Langley, BC

There are 9 million Millennials in Canada, representing more than 25 percent of the population. Born between 1980 and 1999, the eldest are in the early stages of their careers, forming households and buying their first homes. Buying a home is a daunting process for anyone, but especially so for the first-time home buyer. This is the largest and most important financial decision you will ever make and it should be done with the appropriate investment in time and energy. Making the effort to be financially literate will save you thousands of dollars and assure you make the right decisions for your longer-term financial security.

1.    Don’t rush into the housing market–do your homework: learn the basics of savings, credit and budgeting. 

Lifelong savings is a crucial ingredient to financial prosperity. You must spend less than you earn, ideally saving at least 10 percent of your gross income. Put your savings on automatic pilot, having at least 10 percent of every paycheck automatically deducted. Money you don’t see you won’t spend. Contributing to an RRSP, at least enough to gain any matching funds your employer will provide, is essential. The Tax Free Savings Account (TFSA) is an ideal vehicle for saving for a down payment and now you can contribute as much as $10,000 a year. 

You also need to establish a good credit record. Lenders want to see a record of your ability to pay your bills. As early as possible, get a credit card and put your name on cable, phone or other utility bills. Pay your bills and your rent in full and on time. Do not run up credit card lines of credit. The interest rates are exorbitant and the only one who benefits is your bank. Keep your credit card balances well below their credit limit.

Do a free credit check with Equifax every six months to learn your credit score and to see if there are any problems. Equifax tracks all of your credit history, which includes school loans, car loans, credit cards and computer loans.  Equifax grades you based on your responsible usage and payments.

Budgeting is also essential and it is easier than ever with online apps. You need to know how you spend your money to discover where there is waste and opportunity for savings. The CMHC Household Budget Calculator helps you take a realistic look at your current monthly expenses.

2.    Make a realistic projectory of your future household income and lifestyle and understand its implications for choosing the right property for you.

Millennials are likely relatively new to the working world. Lenders want to see stability in employment and you generally need to show at least two years of steady income before you can be considered for a mortgage.  This also applies if you have been working for a few years in one career and then decide to change careers to something completely different. Lenders want to see continuous employment in the same field. If you are self-employed, it is more challenging, and you need professional advice on taking the proper steps to qualify for a mortgage.

Assess the stability of your job and the likely trajectory of your income. Millennials will not follow in the footsteps of their parents, working for one employer for forty years. In today’s world, no one has guaranteed job security. Take a realistic view of your future. Will your household income be rising? Will there be one income or two? Are there children in your future? Will you remain in the same city? The answers to these questions help to determine how much space you need, the appropriate type of residence, its location and the best mortgage for you.

Financial planning is key and it is dependent on your goals and expectations.

3.    This is not a Do-It-Yourself project: build a team of trusted professionals to guide you along.

You need expert advice. The first person you should talk to is an accredited mortgage professional. There is no out-of-pocket cost for their services. Indeed, they will save you money. 

These people are trained financial planners and understand the ever-changing mortgage market. Take some time with them to understand the process before you jump in and find your head spinning with all the decisions you will ultimately have to make. They will give you a realistic idea of your borrowing potential. Before you fall in love with a house or condo, make sure you understand where you stand on the mortgage front. Mortgages are complex and one size does not fit all. You need an expert who will shop for the right mortgage for you. There are more than 200 mortgage lenders in Canada and they will compete for your business.

It is a very good idea to get a pre-approved mortgage amount before you start shopping. This is a more detailed process than just a rate hold (where a particular mortgage rate is guaranteed for a specified period of time). For a pre-approval, the lender will review all of your documentation except for the actual property.

There is far more to the correct mortgage decision than the interest rate you will pay. While getting the lowest rate is usually the first thing on every buyer’s mind, it shouldn’t be the most important. Six out of ten buyers break a five-year term mortgage by the third year, paying enormous penalties. These penalties vary between lenders. The fine print of your mortgage is key and that’s where an expert can save you money. How the penalty for breaking a mortgage is calculated is key and many monoline lenders have significantly more consumer-friendly calculations than the major banks. A mortgage broker will help you find a mortgage with good prepayment privileges.

The next step is to engage a real estate agent. The seller pays the fee and a qualified realtor with good references will understand the housing market in your location. Make sure the property has lasting value. Once you find the right home, you will need a real estate lawyer, a home inspector, an insurance agent and possibly an appraiser. Make any offer contingent on a home inspection and remediation of significant deficiencies.

4.    Down payments, closing costs, moving expenses and basic upgrades need to be understood to avoid nasty surprises.

The size of your down payment is key and, obviously, the bigger the better. You need a minimum of 5 percent of the purchase price and anything less than 20 percent will require you to pay a hefty CMHC mortgage loan insurance premium, which is frequently added to the mortgage principal and amortized over the life of the mortgage as part of the regular monthly payment. 

Your lender will want to know the source of your down payment. Many Millennials will depend on the largesse of their parents to top up their down payment. 

The down payment, however, is only part of the upfront cost. You can expect to pay from 1.5-to-4 percent of the purchase price of your home in closing costs. These costs include legal fees, appraisals, property transfer tax, HST (where applicable) on new properties, home and title insurance, mortgage life insurance and prepaid property tax and utility adjustments. These amount to thousands of dollars. 

Don’t forget moving costs and essential upgrades to the property such as draperies or blinds in the bedroom.

5.    Test drive your monthly housing payments to learn how much you can truly afford.

Affordability is not about how much credit you can qualify for, but how much you can reasonably tolerate given your current and future income, stability, lifestyle and budget. Most Millennials underestimate what it costs to run a home, be it a condo or single-family residence. 

The formal qualification guidelines used by lenders are two-fold: 1) your housing costs must be no more than 32 percent of your gross (pre-tax) household income; and, 2) your housing costs plus all other debt servicing must be no more than 40 percent of your gross income. 

Lenders define housing costs as mortgage payments, property taxes, condo fees (if any) and heating costs. But homes cost more than that. In your planning, you should also other utilities (such as cable, water and air conditioning), ongoing maintenance, home insurance and unexpected repairs. Taking all of these costs into consideration, the 32 percent and 40 percent guidelines might well put an unacceptable crimp in your lifestyle, keeping in mind that future children also add meaningfully to household expenses and two incomes can unexpectedly turn into one. 

The best way to know what you can afford is to try it out. Say, for example, you qualify for a mortgage payment of $1400 a month and adding property taxes and condo fees might take your monthly housing expense to $1650.  A far cry from the $500 you pay now to split a place with 3 roommates. Start making the full payment before you buy to your savings account and see how it feels. Do you have enough money left over to maintain a tolerable lifestyle without going further into debt?

Keep in mind that this is not a normal interest rate environment. Don’t over-extend because there is a good chance interest rates will be higher when your term is up. Do the math (or better yet have your broker do it for you) on what a doubling of interest rates five years from now would do to your monthly payment. A doubling of rates may be unlikely, but it makes sense to know the implication.
 

Do Your Calculations Look Discouraging?

If so, here are some things you can do to improve your situation:

• Pay off some loans before you buy real estate.
• Save for a larger down payment.
• Take another look at your current household budget to see where you can spend less. The money you save can go towards a larger down payment.
• Lower your home price — remember that your first home is not necessarily your dream home.