Make no mistake about it — the Vancouver real estate market is hot and getting hotter. In February 2015, both prices and total sales continued to increase. The Real Estate Board of Greater Vancouver reported that the benchmark price on a home was $649,700. This represents a 6.4 percent increase over February 2014. For a single detached home in Vancouver, the average price jumped to $1,026,300. This didn’t keep buyers away, though. February 2015 saw 3,061 sales in residential properties. This represented a 60 percent increase over January 2015 and a 21 percent increase from February 2014.
If you’re a realtor, you’re loving the rush — and the commissions. Many listings end up in bidding wars that push the eventual transaction price well above the asking price. Analysts are looking at two trends to explain the increase. First, the Canadian dollar is still relatively low, bringing foreign investors into the real estate market. Also, those workers who would migrate to Alberta for jobs in oil production are staying home, because the low price of oil is causing some doubts in that industry. More workers staying home mean that there is more need for housing in Vancouver.
While luxury real estate may be more of a buyer’s market in Calgary, that’s not the way things are in Vancouver right now — and prices are just going to keep going up, at least in the short term. This means that if you have been preparing to purchase that luxury home in Vancouver, it’s time to start thinking about your financing options, if you haven’t already.
One term that you need to know if you’re looking to finance a seven-figure home is the “jumbo mortgage.” Different lenders in Canada have different thresholds between a typical mortgage and a jumbo loan. Some banks consider any note larger than $600,000 to be a jumbo mortgage, but others don’t apply the “jumbo” tag until the note is more than $1 million. With jumbo loans, lenders sometimes apply rules that don’t apply with smaller loans. Some lenders might set an absolute maximum at a number such as $1.5 million. Others might have a softer cap but apply a sliding loan-to-value ratio guideline. So a lender like this might allow a borrower to take out 95 percent of the first $750,000, 85 percent of the next $250,000 and 70 percent of the rest. Lenders in Canada have some latitude as to how they set their rules. Given the fact that the larger loan represents a larger financial risk to the bank, these additional rules do make some sense.
However, jumbo mortgages still have the same three questions as the smaller ones. Do you have enough of a down payment? Is your credit score high enough? Do you have a verifiable income history that shows you can make the payments? Verification of the income history and an asset analysis are generally going to involve more scrutiny with a jumbo mortgage because of the increased amount of money at stake.
While many jumbo borrowers make it through all of the obstacles that the bank puts between them and financing, some of them don’t. Because of the income verification requirement, a lot of people who have plenty of money to pay for the loan still can’t get approval. Consider the example of an author who finally breaks through and sells that first novel, and it hits the best-seller lists. He might have $2 million in the bank now, and he wants to buy a $1.3 million house. However, he just made that $2 million (after taxes) last year. Before that, he was making five figures as a teacher, so his income verification is a little on the iffy side, at least if he wants to put $400,000 down and get a $900,000 loan on the house.
Clients like this are where Amansad Financial comes in. We specialize in helping clients who have the means to pay for their mortgages but do not have the perfect profiles that banks insist on. We have relationships with jumbo mortgage lenders in the “Alt-A” and private lending markets. The “Alt-A” lenders charge interest rates that are slightly higher than the premium banks, but if you take out a mortgage of two or three years and use that time to build more verifiable income and (if necessary) spruce up the credit report. Private lenders charge more in interest than the “Alt-A” lenders, and they base their lending decision on the property rather than the credit profile of the borrower. You’ll need a down payment of at least 15 percent with a private lender, but as with the “Alt-A” lenders, the key is signing a short term and building income history and positive credit.
If you are looking at luxury real estate in Vancouver, BC, but you’re not sure if you can get the financing you need, talk to Amansad Financial today. Let us put our relationships to work for you.
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