Our blog

Whether as an investment or as a new home for your business, buying commercial real estate takes knowledge and a strategic approach to navigate through all the ins and outs of closing these deals.

While bearing some similarities to buying residential real estate, commercial properties carry additional layers and can even require more legal and financial experts. It is an expensive undertaking, one where due diligence plays an extremely important role.  

Location, location, location

The oldest adage in real estate does apply to commercial real estate and not solely because of resale value. In this case, location can determine a business’s foot traffic or tax implications. There could also be by-laws associated with certain areas and environmental issues can be regionalized.

A new set of metrics

Buying a home is engrossing and comes with its own lexicon and metrics in which to measure the worth of a home and all the associated costs. Commercial property not only uses many of the same metrics but it also has additional ones to assess value.

If you intend to buy commercial real estate, you should be comfortable with Net Operating Income (NOI) and cap rate.

A strong, thorough strategy

Part of successfully investing in commercial real estate is implementing a strategy that will minimize risks and surprises. It should reflect market trends and anticipate any potential dips. It should also contain a projection for how the investment could grow or shrink in value based on external factors.

Ask yourself the right questions

Once you’ve decided to pursue the purchase of commercial real estate, you should ask yourself the following before even visiting the first property:

• Do you want to buy or lease the property?
• Is this a business venture you want to pursue alone or as part of a group of investors?
• How much money are you willing to invest upfront?
• Can you commit the time needed to effectively run the property?
• Are you more comfortable working with a property manager or a property management company?

Buying commercial real estate comes with inherent risks but it can be very profitable and rewarding. Do your homework and partner with trusted experts who can guide you through the process.

What Are the Three New Mortgage Rules Coming in January 2018?

It’s going to get a lot harder for some home buyers to get a mortgage in 2018. That’s because the Office of the Superintendent of Financial Institutions (Canada’s banking regulator) introduced three new rules on mortgage lending that takes effect in 2018—and the new rules will hit first-time home buyers and those thinking of refinancing their homes hardest.1

Stress Test

Starting on January 1, 2018, the Office of the Superintendent of Financial Institutions (OSFI) has set a new minimum qualifying rate, or “stress test” for all prospective home buyers, even those with a down payment of over 20%.

Before the new, tougher rule, only buyers that had a down payment of less than 20% had to make sure they could pass a stress test. Regardless of how much money you save for a down payment, if you don’t pass the new stress test, the bank won’t give you a mortgage.

Under the new mortgage stress test, potential home buyers need to qualify for a mortgage at a rate that is the greater of two indicators: either 200 basis points (2%) higher than the mortgage rate they qualified for, or the Bank of Canada’s five-year benchmark rate.

Before the new stress test, home buyers or owners qualified at the rate offered by the lender. The actual mortgage payment will still be paid at the negotiated rate, but a higher calculation is used for qualifying purposes.

Enhanced Loan-To-Value Measurements

Traditional mortgage lenders (Canada’s big banks) need to ensure the Loan-To-Value (LTV) ratio remains “dynamic.” That means, it needs to be adjusted to local market conditions.

The OSFI insists that lenders (excluding private lenders) have internal risk management protocols in higher priced markets, like Toronto and Vancouver. A LTV ratio is a number that describes the size of a loan compared to the value of the property.

Canada’s big banks use the LTV ratio to determine how risky a loan is; the higher the LTV ratio the greater the risk.

For example, if property values decrease following a housing bubble, the LTV ratio could actually rise and be higher than the total value of the property. In which case, it’s quite possible that you have negative equity in the house.

Restrictions Placed on Certain Arrangements to Avoid LTV Limits

Mortgage lenders (again, this does not include private lenders) are not allowed to arrange a mortgage or other financial product with another lender that gets around the maximum LTV ratio or other limits placed on residential mortgages.

If you apply for a mortgage with a LTV ratio of 80% and the lender can only approve you for 60%, in the past, the lender could partner with a second lender for the additional 20%, bundle it together to get a complete LTV loan of 80%.

Traditional lenders cannot do this anymore.

What Does This Mean for Homebuyers and Sellers?

The three new mortgage rules that kick in as of January 1, 2018 will hurt the fastest growing segment of Canada’s mortgage market—uninsured mortgages. That’s one out of every six prospective homebuyers in the country.

The strict stress test, which is meant to ensure borrowers can afford to pay their mortgage at a higher rate, is now being applied to all home buyers, even those with a down payment of 20% or more. Once the tests are in place, it is estimated that it could lower a family’s purchasing power by up to 21%.

Economists say the stricter mortgage rules will also negatively impact softening housing markets across the country. It is expected the tougher mortgage rules, once fully implemented, will depress housing demand by up to 10%.

If you’re a homebuyer and want to refinance a mortgage, the new mortgage lending rules will be a lot more difficult to negotiate.

Should You Be Worried?

If you’re a first-time home buyer, the stricter mortgage lending rules mean you might need to rent for a little longer or wait until your income increases before you can buy a home.

Because the purchasing power does not go as far as it once did, first-time home buyers might need to consider something besides a detached house—a townhouse house or a condo. Or, first-time homebuyers may need to get a co-signer to qualify under the strict new rules.

There are other options though. Keep in mind, the stricter mortgage lending rules only apply to those homebuyers looking to secure a mortgage with one of Canada’s federally regulated mortgage lenders.

That’s what makes Canadalend.com different. Canadalend.com works with private lenders who are not bound by the same lending rules. Because of this flexibility and freedom, they can find you the mortgage or other financial products you need.

Apply online in 60 seconds & get approved now!
Call us for more information 905.881.0242

Canadalend.com, Securing You the Mortgage You Deserve

Canada’s new mortgage rules are going to make it a lot more difficult for potential homebuyers to secure a mortgage. But you shouldn’t let the new mortgage rules prevent you from getting the mortgage you deserve. Let the mortgage professionals at Canadalend.com help.

The licensed agents at Canadalend.com are independent; that means they’re able to help you find a mortgage with the best rates and terms. How can we do that? The mortgage experts at Canadalend.com have access to hundreds of different private lenders. We’ll evaluate your current financial situation and help you find a lender that can provide you with a mortgage that best suits both your financial and lifestyle needs.

To find out what kind of mortgage you qualify for, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1. “OSFI is reinforcing a strong and prudent regulatory regime for residential mortgage underwriting,” Office of the Superintendent of Financial Institutions, October 17, 2017; http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/emp/Pages/default.aspx.

Photo credit : iStock.com/KittisakJirasittichai

Can I Get a Mortgage if I’m Self Employed?

It’s not easy to get a self-employed mortgage in Ontario. If you’re self-employed and have tried to secure one with a traditional lender, you already know that.

Over the last few years, Canada’s big banks and trust companies have implemented a large number of strict lending rules. On top of that, in 2014, the Canadian Mortgage and Housing Corporation discontinued mortgages for self-employed Canadians without third-party validation. Before that, if you were self-employed, you only had to state your income. A paper trail wasn’t necessary to back up your claims.

That’s not good enough now. Banks need to know with certainty how much you make. It’s the only way you can prove to the big banks that you’re not at risk of defaulting and worthy of getting a mortgage.

Granted, it is possible to get a mortgage from a traditional lender if you’re self-employed, but any mortgage will be based on the reasonability of income at the time you apply, as well as a strong credit score. This sounds easy enough, but it can put home ownership out of reach for those who are self-employed.

For example, if you have less than a 20% down payment, you need to prove two years of income. Unfortunately, many self-employed people claim a smaller income for tax purposes. If this is you, the big banks will see you as a risk.

Or, the banks might give you a mortgage but only if you have a down payment of 30% or more. But with the strong housing market in Ontario, most self-employed people have not saved up that much for a down payment. As a result, they are unable to qualify for a mortgage.

Mortgage Options for Self-Employed Ontarians

There are two ways for those who are self-employed to qualify for a mortgage: with income validation and without income validation.

Validated income means you’ve been in business for two full years, the business is registered as a self-employed proprietorship, you have good credit, and you’ve declared income on your tax returns.

That doesn’t mean you’ll necessarily qualify for a mortgage with a traditional lender; it just means you have proof of income. You still need to earn enough and have enough money saved for the down payment when applying for stated income mortgages.

What if you have no reportable income? The only real option for those who are self-employed and have no reportable income is to use a private lender. A private lender will still want to know that you have an income, but they won’t ask to see the kind of paperwork the banks would.

What’s most important for lenders if you’re self-employed and have no reportable income is your credit score, the quality of the property you’re looking at, the location, and marketability.

Because private lenders are not regulated in the same way the big banks and trust companies are, they have more flexibility and can get you the best mortgage with the best rates for your particular situation. You may end up paying more interest, but you will also end up with a mortgage.

Self-Employed Mortgage Scenarios

Self-Employed with Bad Credit

Having bad credit can make it very difficult to secure a loan from a traditional lender. In addition to being self-employed, which the banks view as risky, bad credit suggests there is an even greater chance you’ll default on a mortgage.

A private lender, on the other hand, is much more concerned with your current and future earnings than past mistakes. Your credit score may be bruised, but private lenders will still help you secure a mortgage if your business is profitable and you have steady income.

Self-Employed with Low Income

If you’re self-employed and report low income, you can still qualify for a mortgage. There are a large number of private lenders that will help you secure a low-income or even no-income mortgage.

Again, private lenders understand that most self-employed Canadians try to minimize their taxable income. Private lenders know the difference between reported income and gross income. In fact, some private lenders will add 10% or 15% onto the reported income if you can show business deductions that are equal to or greater than that. This can significantly increase your mortgage eligibility.

Self-Employed and Over 55

One of the largest growing demographics among the self-employed in Ontario are those 55 years of age and older. You might be an entrepreneur but when you hit 55, banks only see that your long-term earnings potential is smaller than it was when you were 45 or 50. At the same time, chances are you’re looking for the same kind of mortgage as someone who is 25 and just getting on the property ladder.

According to the big banks, this means you’re less likely to be able to pay the mortgage off. Fortunately, there are private lenders that specialize in helping those who are 55 and older secure a mortgage.

Canadalend.com, Securing You the Mortgage You Deserve

If you’re self-employed, it’s going to be difficult to get a mortgage with a traditional lender. If a bank has turned you down, the mortgage experts at Canadalend.com can help.

Because the licensed mortgage professionals at Canadalend.com are independent, they have access to hundreds of different private lenders; many specialize in helping those who are self-employed get the mortgage they deserve.

To find out what kind of self-employed mortgage you qualify for, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Photo credit : iStock.com/Jacob Ammentorp Lund

Mortgage lending is a business where the lender gets the opportunity to help people get into their dream home, secure their financial future or relieve themselves of the stress of debt. It’s an enormous responsibility and one that shouldn’t be taken lightly.

Applying a common sense approach to lending ensures that our clients are protected and that the relationship is mutually beneficial for the long-term. While lending is a complicated business, a simple and logical approach can result in successful lending and borrowing.

Who is Canadalend?

Canadalend is an experienced, friendly and full-service lender that is committed to helping their clients with all their mortgage needs, debt issues and situations involving financing and refinancing.

Canadalend is not a bank or a traditional lender but we have the experience and knowledge to manage just about any financial situation that falls under our expansive service offering. We offer a personalized service in the areas of:

• Home equity loans
• First, second and third mortgages
• Debt reduction and consolidation
• Renewals and refinancing
• Working with self-employed individuals

Our Approach

Lending should always be a business built and operated on a foundation of common-sense. We work with our clients to help them financially, both in the present and with an eye towards the future, through a process of honesty, integrity and by leveraging our expertise for their benefit.

Our common sense approach includes:

• Offering competitive rates
• Providing counsel for qualifications
• Providing flexible options
• Create strategies to help clients lower their mortgage and debt
• Provide useful cash flow options
• Offer variable rate mortgages, capped variable rates and cash back mortgages

Above all else, we will work with clients who traditional lenders typically refer to as weak investments.

Meeting your Needs

A common sense approach allows us to view applications differently and work towards finding appropriate solutions, designed to meet your needs. We view every application independently and with a unique perspective.

We often hear from our clients that dealing with Canadalend’s brokers and financial experts is a refreshing experience that produces desirable results.

Contact us today to learn more about our common-sense approach and the services we offer.