Some of the main challenges that I come across when working on a mortgage that is part of separation is, there not enough equity in the property to pay out the other party, income is not high enough to qualify or the borrower has credit issues.  Clients will typically put the cart before the horse in that they agree on possible terms in the separation regarding the house etc. before receiving a mortgage approval.  So been prepared upfront or as close to been prepared as possible can save a lot of pain later in the process.

In today’s mortgage financing world mortgage lenders such as banks, credit unions, trust companies, etc. all have their own guidelines especially when it comes to borrowers going through a separation.   If the client is dealing directly with their bank or another mortgage lender directly and that lender cannot approve the loan based on their guidelines the process needs to start all over again with another lender.

As a mortgage broker, I have access to all the mortgage lenders so once I review the application and review the documents, I know exactly the mortgage will fit and the terms right away, so no time is wasted in the process going from one lender to the next. This makes the process run so much smoother for all parties involved and if there are issues to be dealt with (and there are a lot of the time), then we know that upfront and therefore can deal with it and most importantly find a solution.

One of the niche mortgage products available where a separation is involved is called a Spousal Buy-Out Mortgage.  The lender will allow the borrower to refinance up to 95% of their property value rather than the 80% which is traditionally the maximum limit allowed.  It is technically a purchase from one spouse to the other.  The product must be insured with one of the three insurers in Canada, CMHC, Genworth, or Canada Guaranty, and therefore apply to the mortgage insured rules.   For insured mortgages, the property value cannot be valued at more than $999,000.00 and the maximum amortization is 25 years.  So, anything outside of this box will need to be a conventional uninsured mortgage up to a maximum loan amount of 80% of the property value.

Each insurer has its own guidelines.  CMHC will not allow any debts to be paid out with the spousal buy-out, Genworth will only allow Joint debts to be paid out, Canada Guaranty will allow both joint and non-joint debts. This is especially important to know because if your clients need to consolidate or payout debts as part of the spousal buy out and their bank or current lender only work with CMHC as an insurer, which is the case with a lot of lenders, then the client will not get approved and the process begins again.  Again, by having access to all the lenders both A and B we can avoid a lot of these unnecessary issues.

To summarize, I have helped a lot of clients going through a separation obtain a mortgage.  A lot of them were referred to me by lawyers or banks mainly because the clients have been turned down by their original lender.  It would have saved a lot of pain for all the parties involved if the client had worked with me directly from the beginning.

Purchase Plus Improvements Mortgage

This mortgage product allows the purchaser of a primary or investment property to add some immediate renovation costs onto the new mortgage.  The renovations must improve the value of the property such as new flooring, roof, windows, kitchen, or bathrooms.

Part of this process includes obtaining a quote/estimation of the cost of the renovation. This can be obtained from a professional contractor or home department store such as Home Depot. This quote/estimation must be submitted with your application to the lender at the same time as the mortgage approval

Upon closing, the mortgage and renovation funds are sent to your lawyer.  The lawyer is instructed to hold back the renovation funds until the work is completed.  An inspector from the lender will come out to the property to make sure the work is completed.  Typically, the client has 90 days to complete the work after the closing of the mortgage.  If the renovations take longer that is not a problem however the work must be completed in adequate time.  Once the inspector signs off on the work the funds are released to the client to cover the cost of the renovations and added to the mortgage by the lender.  Please note the borrower must have access to funds to complete the renovations first or have a contractor who will do the work upfront and then get paid once the lawyer releases the funds.  Most contractors will work this way especially when you can show them the funds are ben held with the lawyer.

Critical points to note:

• Improvement loan is kept to within $40,000.00 for insured mortgages and $60,000.00 for non-insured mortgages (20% down or more).
• Available on owner-occupied and investment properties
• Available on high ratios and conventional mortgages
• The client receives the same interest rate as with a regular mortgage and if insured the premium is the same.  No extra costs.
• A detailed quote/cost sheet for renovations must be submitted with the mortgage approval application.