Who do you think would be the ideal candidate for a mortgage? Would it be the small business entrepreneur with a flourishing business, the single income family, or the dual income family with multiple rental properties? The answer is none of them. Dealing with banks to get mortgages is probably the most frustrating and difficult part of buying rental properties.
It’s not even qualifying for a loan with their tight little box of requirements that really drives you mad, it is trying to actually get the process done quickly. Just having the bank tell you exactly what documents you need to pull together to prove you are worthy is a whole obstacle course in itself.
So, what do you do? You probably can’t buy real estate without a mortgage from someone…
Conventional Mortgage vs. High Ratio Mortgage
by Julie Broad
Before we dive too far into the financing talk, let’s clear up a few definitions. In Canada, banks consider a conventional mortgage to be anything where the mortgagee is putting 25% or more down. If it less than 25% it is considered a high ratio mortgage.
Financing is generally much easier to find if you are getting a conventional mortgage. It is also cheaper. If you are not putting at least 25% down, then you will be put in a situation where you have to get insurance for your high ratio mortgage. Canada Mortgage and Housing Corporation (CMHC) is probably the most common insurance company for mortgages, but there are others such as GE that will also offer insurance.
Avoiding the Stress of It All: Using a Mortgage Broker
By Dave Peniuk
Banks, our wonderful billion dollar Canadian financial institutions. Ever wonder how they get rich? It’s not from lending their money to “risky” property investors. Banks, in particular the big five in Canada (Bank of Montreal, Royal Bank of Canada, Bank of Nova Scotia, CIBC and TD Canada Trust) have a very strict and specific set of criteria that one must meet to qualify for a mortgage. Then, you really have to be “perfect” to get their best rate.
Many of the real estate guru’s out there recommend building a good relationship with one bank. They tell you to sit down with the banker, explain what you are doing with your investments, and sell yourself and your plan. Well, in our experience, the banker who is going to take time to talk to you, has no authority to lend to you outside of the same criteria as if you went online and applied. Even if it does work once or twice, bankers get promoted, relocated, or just leave the bank and your efforts to build that relationship are gone. Relying on one person within a bank to determine your financial future doesn’t give me comfort. And, it just hasn’t worked for us.
We’ve bought 12 properties in five years, so you know we have had to get financing. We didn’t do it through a bank very often. Instead, we have relied on a mortgage broker.
Benefits of a mortgage broker:
* Banks pay the fees, so their service is no cost to you
* Neutral opinions on your financing options
* Find the best rate for you from a long list of lenders
* Will perform one credit check, and this one credit check will be submitted to any lenders they seek financing from on your behalf (this prevents multiple checks, which can decrease your credit rating)
* Typically can obtain financing for you no matter where you live (so if you move or your broker moves, you can maintain that relationship)
* Will prepare your portfolio for you (this is especially helpful and time saving for you if you own many properties as the banks require a package of property summaries and analysis)
* High volume brokers will get even lower mortgage rates from certain institutions, providing the opportunity for you to benefit from their volumes.
Our last few purchases and refinances have been challenging. Without the hard work of our mortgage broker, we don’t believe we would have been able to obtain financing in time to remove conditions (and thus, keep the property).
Finding a mortgage broker
Ask potential brokers questions to find a good fit with your personality and your objectives. Some questions to ask your potential mortgage broker include:
- Do you typically work with property investors?
- Have you done many deals with investors?
- Do you have preferred rates with particular lenders?
- How long have you been working as a mortgage broker?
- How many deals do you typically do a month?
- Do you have any investment properties yourself?
In our opinion you should work with a mortgage broker who has their own investment properties and has substantial experience working with real estate investors.
Published September 25, 2006