Lender Approval Made Easy With 3 Simple Steps

There are more loan financing options than ever before. Between hard money, private money and personal capital it is easy to forget about traditional lender financing.  Even though banks have gotten a bad rap over the years they are still a very attractive financing option.  The near record low interest rates alone make them a worth a look.  The biggest knocks on bank loans have been the massive amount of paperwork required and the length of time to close.  Banks have recently taken measures to cure these problems.  The application and submission processes have been much more streamlined which has led to quicker closings.  The loan process may have been tweaked but the same basic guidelines are in place.  Here are a few items needed for approval on every bank loan.

1. Strong Credit Scores. Investment loans have some of the most stringent guidelines of any loan program. Due to the fact they are not a primary residence they are considered a much greater risk factor. Because of this they require many items that a primary residence loan does not. One of the first items required is a strong credit score. The floor on investment loans is much higher than any other loan type. Most banks require a minimum 720 score. In terms of credit score rating a 720 is considered excellent. You can pay everything on time and very easily have a score below 720. Not only do you need timely payments but low balances on almost every account. Your 720 score has to be the middle of the three reporting credit bureaus (Experian, Equifax & Transunion). Simply having one of these three over 720 may not be enough to move forward. You can have significant down payment and low debt but if your credit scores are excellent you may have trouble getting approved.

2. High Down Payment. There has been an increase in the amount of loan programs for buyers with limited down payment. FHA and certain conventional loans offer programs as low as 3% down. Unfortunately these are for primary residence borrowers only. With an investment property the down payment is much higher. Depending on the exact credit score you will need anywhere from 20-30% down. Unlike with other loans these funds are required to come from only the borrower’s accounts. No gift funds or non-borrower contributions are allowed. Another potential problem is that the down payment needs to be in an existing account for at least 60 days. This “seasoning” of the funds is done so that no outside money can be used to contribute to the transaction. Any transfers to accounts need to be supported with full statements showing funds going to and from accounts. Documenting of funds can be a tricky process often times filled with multiple statements of paperwork. On these statements if there are any large deposits or withdrawals they will be questioned. Simply having the down payment funds is not enough to move forward. With an investment loan they have to be seasoned and every dollar explained and documented.

3. Low Debt To Income. The third hurdle for loan approval is the debt to income ratio. You may think that having strong income alone is enough to grant loan approval. Strong income is just a part of the process. To calculate the debt to income ratio lenders add up all of the minimum monthly payments listed on the credit score. They will add this number to the proposed monthly housing payment. This is the total debt number. From there they will take the annual gross income and divide that number by twelve. With this they divide your debt by your income. With an investment loan this number typically needs to be around 40%. Calculating income comes with a few hurdles. The first is that you may not document all of the income you receive. Secondly the lender will only use 75% of your total rental income. Even if you have sufficient income to support the loan your debt to income needs to fall under this number. Long gone are the stated income and low documentation loan programs. There may be a lender or two that still does them but the interest rates are nowhere near traditional bank levels. Before you start your loan application you should get a copy of your credit report and see where your monthly liabilities are.

If you have received a pre-qualification letter and loan approval is not an issue you need to consider the benefits. The first is that banks offer by far the lowest monthly interest rates.  If you are considering a hard money loan you can expect interest rates two or even three times as high.  You also need to think about how long you plan on holding the property for.  If the purchase is a quick rehab interest rates may not be as big of a factor.  If it is a rental property that you want to keep in your portfolio for years a 30 year fixed mortgage is the perfect option.  Think about how quickly you need to close and what hurdles you may have to deal with.  If you are looking to close in a short timeframe a bank loan may not make the most sense.  The first step is to talk to your local lender or mortgage broker to see if you are qualified.  From there take each deal on a case by case basis to determine the best financing option.  You never know when you will need, or want, a bank loan.


5 Ways To Improve Your Finances

As a real estate investor you often are forced to wear many different hats. Perhaps the most important hat that you wear is that of CFO (chief financial officer) of your business. Without a good grasp of all funds coming in and going out you won’t get very far.  In this day and age of advanced technology it is easier than ever to find an app or a program that will help you stay on top of your finances.  A couple of dollars here and there quickly adds up. If you don’t know where your money is going you will end up frustrated with your bottom line.  Here are five tips to help improve your business and personal finances.

  • Understand Expenses. When is that last time you took a hard look at your expenses? Almost everyone who runs a business or a household has at least some idea of what their monthly expenses are. Having some idea is not enough. To truly understand your finances you need to really dig into them. Start by obtaining a copy of your credit report or referencing last month’s bank statement. Write down every payment you made. In addition to the payment write down the current balance owed and the proposed payoff date. You also need to make note of monthly items that may not fixed such as gas, food and other periodic payments. Take a look at every expense you made over the last 30 days and note exactly what it was for. Doing this may open your eyes to how quickly money can go and how it is often spent on unnecessary items.
  • Look For Ways To Save. After you are done with your expense report look for ways to cut some items out. If you eat lunch out four times a week you can consider either home or taking a lunch a few days. If one of your utility bills is high you can look for ways to lower it or possibly switch companies. The same should be done with any credit cards. There are always balance transfer promotions available. Some of these can make sense for certain cards. If you look hard enough you can probably cut your expenses by at least 10%, if not more. The problem is that very few people have the time or desire to make calls and put the work in to get good deals. 10% a month may not seem like much but prorated over the course of the year could equal hundreds of dollars to your bottom line. This is certainly worth whatever time it takes to lower your expenses.
  • Make Financial Goals. Where do you want to be financially in six months? How about in two years? Have you thought about ten years from now? You make goals for your business and personal lives so why not make goals for your finances. The beauty about making goals is that they can be anything you like. You can try to eliminate one credit card in the next twelve months. Maybe you want to have a certain amount in savings by the start of the next year. Perhaps you want to purchase a property using exclusively your own capital on a future deal. Whatever your goals are you need to be patient. Your financial problems did not happen overnight and they will not be solved in that timeframe either. By taking small steps eventually you will get there. It is important that you make goals to give you something to strive for. Without goals in place it is easy to fall into the same traps over and over again.
  • Develop A Routine. Having goals is a great start but you need to accompany this with a plan of attack. It is not enough to declare that you want to tackle your debts you need to map out a plan. Start by writing down all of your bills, the monthly payment and the due dates. If you need to put a giant poster where you work or plug something into your phone. From there you need to estimate when you have capital coming in and how much you are going to allocate to your bills. Knocking down debt often takes discipline and sacrifice. There will be times after you close a deal and pay off debt that there won’t be too much left over for yourself. Think of this as a small price to pay to achieve your goals. Ten years from now you won’t regret not going to dinner or skipping out on a vacation if you are set up financially.
  • Start A Rainy Day Fund. One of the things that can quickly derail your business and cause stress to your life is unexpected emergencies. You never know when your furnace is going to go in a rental property. Your basement could flood or a tree could fall on your house at any time. While you can’t predict these issues you can prepare for them. On every deal you close you should put some money away in your rainy day fund. This should be used for emergencies only. These emergencies have a way of happening more than you may think. By preparing for them you can avoid the stress that comes with it. This will also prevent you from having to borrow funds to take care of the issue and plunging further into debt.

Dealing with finances and cleaning up issues is not an easy battle to face. However, it is an essential part of being a successful real estate investor.  The more comfortable you are in your finances the easier your career, and life, will be.


5 Tips To Help You Deal With Business Debt

There is nothing that can bring your business down quicker than excessive debt. You may be able to manage it for a while but the slightest reduction of income will cause the air to come out of the balloon.  If you are like most business owners, and Americans in general, you deal with debt.  If used properly debt can be a vehicle that helps your business grow.  Unfortunately most investors use it on items that do nothing but increase liabilities.  Managing debt requires education and discipline that can be difficult to obtain.  It is easy to real estate investors fall into the debt trap.  Here are a few tips to help avoid and deal with business debts.

  • Understand Debt. The most basic step in dealing with debt is to try to understand it. In the simplest form you are paying interest for the access to quick capital. The most common form of debt comes from credit cards. You can also accumulate debt through home loans, auto payments and personal loans. It is important read the fine print every time you fill out an application. You need to know everything about the terms you are getting into. Not only do you need to know the interest rates and fees but any potential changes that will affect your monthly payment. It is also a good idea to take note of what happens if you miss a payment. Most credit card rates will escalate after the first missed payment. Even though personal finance can be a difficult topic to learn you need to have a basic level of knowledge.
  • Good vs. Bad Debt. One of the biggest misconceptions in business is that all debt is bad. There are many successful investors who utilize leverage to grow their business. There is a big difference in good verses bad debt. Good debt is anything that is used to add value. This could be using credit to fund a direct mailing campaign. Your debt is used with the hope that it can produce additional revenue. An example of bad debt could be using credit to furnish a rental property or pay for unexpected repairs. You continue to pay for these items months after the fact. With them at least you keep your rental property afloat. It is when you truly abuse debt that you run into trouble. Using credit for personal items like weekend trips, meals and lavish expenses will leave your business on a treadmill. You will end up working twice as hard just to remain in the same spot. The money you bring in is quickly going out the door to manage your debt. Not only is this frustrating but it causes you to cut corners in other areas just to see a small profit. Once you get caught in this bad debt cycle it is difficult to pull yourself out.
  • Budget/Schedule. If you truly want to pull yourself out of debt you need to do something about it. You need to acknowledge the hole you are in and tackle it head on. Start by making a list of all your monthly liabilities. Write down your current monthly payment, balance owed and payment due dates. This may seem very overwhelming but you have to start somewhere. From there make a schedule of when you are going to make the payments. Hold yourself accountable to these dates. There are going to be some months where there is not a lot of excess cash flow. You need to grit your teeth and make sacrifices during this time. Surprisingly enough one of the reasons that people spend is because they don’t have enough money. Credit allows them to spend without having the money available in the bank. Instead of making the problem worse on months when cash is tight fight the urge to spend. The more detailed you in with what you owe and how you will repay it the easier it will be to deal with.
  • Monitor. It is important to monitor where your debt has been used best. Like anything else you do in business you want the greatest return on your investment. When you use credit you are really making an investment. Most people that get into debt trouble will start off strong then quickly fade after just a few months. You need to constantly look at every statement you receive and offer you get in the mail. There are instances when transferring balances from one account to another could save you hundreds of dollars every month. You may also find a monthly fee that catches your eye that could be eliminated elsewhere. Listing all your debt is a good start but you need to stay on top of it every month.
  • Long Term Plan. With any plan it always helps to have a vision of your end goal. Take the time and go through all of your accounts. Write down your plan for how you are going to pay them off. This could be making an extra payment with cash flow received from a rental property or paying it off completely after you close your next big deal. Along the way remember to reward yourself with every three consecutive payments. Give yourself a small indulgence that you may have wanted for a while. Don’t pile on new debt but do something as a reward. If you do this every three months you will be motivated to stick with your plan.

As a real estate investor you can quickly pull yourself out of any financial hole you may be in. There is no cap on your income and no ceiling for what you can earn.  Dealing with debt is often very frustrating but can be conquered with a plan and the discipline to stick to  it.


Big Changes in Canada Mortgage Rules Oct 2016

Well its that time of the year again, no I’m not talking about the start of the NHL season or all the hit new TV’s shows-it’s Mortgage Rule Changing time, except this is not as fun as the other two things and this one does effect the possibility of you purchasing a home or not……So what changed well a few things but the one that will effect you the most is:

As of October 17th, 2016 all insured mortgages, regardless of term or type, will be required to qualify at the bank of Canada posted rate.

To put that in perspective.

Family Income $80,000

Monthly Debts $500

Property Taxes $3,500

25 year term

(Qualification rate today is 2.39% and after will be 4.64%)

Today that family can buy a home worth approx. $393,000 but after the 17th that drops to $310,000. That is a large decrease to say the least.

The rate you pay will not change, just the interest rate we have to use to qualify you for the loan.

Safer Lending

Mortgages with a loan to value of less than 80% were not subject to the same stringent rules as those with less than 20% equity. As of November 30th, 2016 that will change and mortgages will all be subject to the same lending criteria.

I cannot stress enough the necessity of making sure you speak to a well-qualified mortgage professional before you make any decisions about buying or selling in case you are one of the folks affected by these changes. I will keep you up to date on any changes that come down the road. As always any questions as always feel free to contact me anytime (403) 831-7869 alim@aclendinggroup.com


Alim Charania

Mortgage Expert

Buying a home in #Calgary for immediate family with less than 20% downpayment #yycre

Genworth Canada’s Family Plan Program enables people to help buy a home for immediate family members with as little as a 5% down payment.
Know your options and ask your mortgage professional how Genworth Canada can help you realize the dream of homeownership sooner.

HomeOpeners®: Family Plan Program
Sending a child off to university can be tough both emotionally and financially. In addition to the rising cost of tuition, students and parents often face the high costs of renting. Today I’d like to share a story of how one family was able secure housing for their daughter while building equity at the same time.

Content provided by our partners at http://genworth.ca/

Mortgage Renewal Tips

It’s a common misconception that you are unable to change your mortgage agreement until the specified term is over. A recent study found that 70% of people automatically renew their mortgage without considering the options that are open to them. Lots can change through the duration of your mortgage term (3, 4, or 5 years for example). In the real estate market and with interest rates. Often, homeowners can save a lot of money by refinancing when their mortgage is up for renewal.

Keep the following tips in mind to save money on your next mortgage renewal. Continue reading “Mortgage Renewal Tips”

Total Purchase Cost For A New Home

Don’t be surprised with hidden costs! There are many costs associated with purchasing a new home, and it’s important to be aware of everything, to avoid being blind sided. Many people are recognizing now as a great time to purchase their first home. Even if you have purchased a home in the past, this will serve as a good reminder of the extra, often forgotten and overseen, expenditures associated with purchasing a new home. Continue reading “Total Purchase Cost For A New Home”

Divorcing Your Mortgage

In our day and age, divorce and separation is an inevitable occurrence that affects us all. We have all known someone directly, or have been that someone, who has experienced a divorce. It can be a very stressful and messy time, but it doesn’t have to be overwhelming. Knowing your options when it comes to dealing with your home, and it’s existing mortgage, will alleviate large concerns. Continue reading “Divorcing Your Mortgage”