Many buyers require financial help when pruchasing a home.  Money is not allowed to just appear in an account – thats called “matress money” or “mystery money”.  So, banks have developed a gift letter system to allow family to contribute to the downpayment.  The gift letter provides the confirmable link between the buyer and the source of the money. 

A poorly written gift letter will waste time, energy and lead to frustrations for everyone.  Don’t let this happen to you.  Below are EASY tips on proper use of a gift letter, a link to your own copy of a working gift letter and to find out what a gift letter is NOT to be used for…

 The Gift Letter

A gift letter identifies

• the giver 
• the receiver
• relationship between giver and receiver
• the amount
• the property being purchased

1) The giver is to be an immediate relative – parent, sibling, grandparent, aunt etc.  Gifts from friends, bosses, common-laws, or family friends are not allowed in high ratio mortgages.

2) The gift must not be a loan, be subject to repayment terms, or trade for an ownership percentage in the future.  The terms of a gift letter are serious.  The giver is agreeing by signing that the money is a true gift.

3) The money must be provable either through deposit into the receivers account.  The money deposited is to match exactly what is written on the gift letter…DO NOT deposit multiple items for this deposit.

This is not particularly helpful advice and often leads to refusal again in 6 months.  There are many factors involved in a person’s credit score and paying your bills on time is just 1 part.  Thats why working with the right professional is so important.

Errors and false information –  Bad reporting, fraud and lazy banks can wreck havoc on your score.  The first step is to get a copy of your credit bureau so you can determine if the information stored there is true or false.  The second step is to gather documents that support your side of the story, if false information is found.  The third step is to contact a member of the credit bureau like our team to dispute the false information.  The lender will have 30 days to provide evidence the information is correct.  Don’t let bad information stop you from getting into your own home!

Collections – There is no easy way to deal with collections except to pay them.  The reason they are there is because the lender lost touch with you or you disagreed with a bill.  No matter HOW righteous your cause, unless you pay, only time will remove them.  BUT, here is something you can do.  You can negotiate with the collections agency for “paid in full”.  The collection agency wants to be paid, so sometimes they are willing to accept less than the full amount owing, for money now.  Make sure they are willing to put “paid in full” on the account.

Late or missed Payments – Late or missed payments represent times that you did not have the funds to make a payment or you neglected the date the minimum payment was due.  This represents PAST habits right?  Before you borrow, ensure you have the funds to make the payments and preferably… pay the balance in full.  Get acquainted with when the debt is due and make that payment early!!!  Some cards allow a minimum payment to be debited automatically from your bank account so use that to make sure you are never late again. 

Action Plan – Lets increase that score

Tradelines –  A person needs at least 2 active trade lines to accelerate the increase of your credit score.  Trade lines can be credit cards, lines of credit, loans, car leases etc.  Most mortgages do not show up on your credit bureau and thus mortgage payments do not increase your score!  Secured cards are a great way to start if your credit is “0” or you have a “reject beacon”. 

Use the cards – You must borrow to create a history of your habits of repaying debt.  A computer marks the card used or unused, paid or unpaid… so a $1 gum purchase is the same as a $1000 computer, except the $1 debt is easy to payoff.  Use your cards every 2 months to show your good habits of repaying debt.

Credit Checks -  While rebuilding credit, it is not a good idea to allow multiple credit checks. Think twice about allowing someone to credit check you because it will lower your score.

Obtain at least 2 credit cards with a total $2500 max limit sum between them. - Under $2500, the lender may not take the credit card activity seriously.  Consider credit cards at a store you don’t shop at, or a gas card if you are worried about over spending.

Don’t max out your credit cards …stay below 30% of card limit for the best score and below 50% for next best score.  High balances lower your score.

For specific help and more, contact me at steve.bucher@migroup.ca

Best Regards

Steve

Tough topic today…one of the most difficult times for a couple is in in the separating of assets and in the search for new homes.  When looking at mortgages after divorce, the starting place will always be your separation agreement.  The separation agreement will spell out the division of assets, debt and describe any payments one spouse may make to another.  The bank will want to see this settled as it will affect how much you can afford to spend on a new home.

A couple scenerios:

1) the buyout

Rather than sell the home, one partner may try to buy out the other.  This requires a new mortgage with the ex-spouse removed from title.  In order to achieve this, the buying spouse will need to refinance the current mortgage plus get enough extra to payout the ex-spouse.  That means qualifying for a bigger mortgage than they started with.

2) keep the home together

Again, rather than selling the home, the partners stay on title and agree to pay the mortgage together until a later time when one spouse can buy out the other.  This can lead to problems since the spouse living in the home will be responsible for upkeep, payments etc… but the spouse outside the home will be liable if they dont do a good job.  Poor management will mean lower sale price or appraisal when it is time to finally address ownership.

3) sell and start again 

This is probably the easiest route to home ownership after divorce.  Each partner can pick a home that matches their needs and price range, and leave the past behind.  The proceeds of the sale of the family home are split and usable to buy a new home.  Sometimes, realtor fees, legal fees and other can erode the proceeds to the point that renting will be the wise route in the short term. 

Tips

• Pay all bills on time!  It won’t matter who should be paying the bill if your credit tanks from late bill payments. 
• Collect your mail regularly and update any address changes!  1 missed bill can mean “no mortgage”
• Consider separate credit cards and bank accounts to avoid misuse or even the appearance of misuse 

For specifics on your situation, email me at steve.bucher@migroup.ca.