Today we will further explore creative financing and equity financing.  With American type lenders coming
into Canada, some Canadian lenders are finally waking up to realizing a potential loss of market share.
These American type lenders do not want to compete for the “A” business.  These lenders want to “take a
chance” knowing most people are good for the money.  The “B” business is defined as an exception to the
normal rules.  The majority of these deals have to do with debt service qualifications being out of whack.
Some examples follow:

Ben is a self-employed roofing contractor.  His own taxable income averaged over the last 3 years has only
been $28,000.  Part of his non-taxable income though is depreciation on vehicles and equipment, which has
averaged another $20,000 per year.  When he goes for normal mortgaging, he will be qualified on is taxable
$28,000, not his true earnings of $48,000.  The American type lenders will look at his business bank
account and realize he makes more than $28,000.  He wants to purchase a bungalow for $140,000 and put
$25,000 as a down payment.  His Banker tells his that his Gross Debt Service Ratio or GDS for short is
48%.  That’s the calculation of the house payments inclusive of taxes and heat, divided into his taxable
income. The maximum allowable is 32%.  He gets rejected.  We process the deal through one of these other
types of lenders, and he gets approved.  He is real happy regarding the approval, but is very upset at the rate
of interest (9%).  He says his Bank had promised him 6.4%, why should he pay 9%.  The short answer was
that it’s easy to quote a low rate when you can’t do the deal.  The long answer is that even at 9%, he gets
the house without having to insure the loan against default.  That would have cost his $2300, added on to
the bank’s mortgage, had the bank done the deal.  Once into the house, he can ameliorate it, and sell for a
profit, which would have been impossible had he not purchased it in the first place.

Henri is a civil servant with 12 years tenure.  His GDS fits the guidelines but his down payment is non-
existent.  He pays $1200 per month in rent and just can’t seem to get his act together to save the elusive
down payment.  He can buy the unit he resides in right now for $98000.  He makes a deal with the Vendor
of the property to lend him $25,000 due in 5 years, to be registered as a second mortgage.  In the meantime,
he will pay interest to the Vendor at 6%, amortized over 25 years.  He needs $73,000 (that’s the selling
price less the Vendor-Take-Back second mortgage).  He approaches his credit union who says he must have
at least 5% of his own cash into the deal, plus closing costs.  He just does not have the $5,000 or $6000 in
cash.  We processed the deal through one of these fringe lenders and get him approved at 7.5% for a five
year term.  Inclusive of taxes, heat, condo fees, and both mortgages, his monthly payments are going to be
$1100.  In 5 years time, without prepaying the mortgages, the balance will be down to $89000.  So over the
next 5 years, his payments will be $100 per month less than what he is paying in rent, and he will have paid
down $9,000 (that’s the difference between the selling price and the balance outstanding) on the principal
of the mortgages.

Jane is recently divorced.  Her lawyer had asked her not to make payments on her credit cards so she would
get a better settlement.  He ex-husband fought the system for a number of years, but finally relented.  She
will get $2300 per month alimony, plus her own income of $18,000.  She offers to buy a semi-bungalow
for $178,000 in a good neighbourhood.  Part of her settlement was $50,000 in cash which she is willing to
put down.  Even if the loan-to-value ratio is low (72% of the purchase price), her credit history is terrible so
she gets rejected by the mortgage lender.  She pleads her case with a beautiful letter from her lawyer, who
takes all the blame for her credit ratings, to no avail.  The lender says it’s not only the credit history over
the last two years, but is also the recent awarding of alimony.  There is no guarantee the ex-husband will
pay the alimony, and she certainly would not qualify on her $18,000 annual income.  We process the deal
through an equity lender.  For a fee of $1280 and a rate of 7.95% over 5 years, she gets approved.  This
equity lender really is an interim lender for the next five years so she can fix her credit, and still buy the
house she wants today.  She feels it is well worth the extra cost.

If you feel your circumstance is deserving, and you would like to buy a home soon, why not call your
neighbourhood mortgage broker who can introduce you to these new type lenders.  Home ownership may
not be for everyone, but the playing field is certainly expanding.