|
|
Financing a
Canadians Florida Vacation Home:
-What
should you expect - 2011?
Jack Sandelman
|
| |
|
1.
The
US
arm of a Canadian bank, is still a
U.S. bank! The superior
caliber of customer service up north, compared to here in the
US
: -it’s like day and night! So be
prepared for a different level of service quality than you are accustomed to in
Canada
.
2.
It’s going to be a rough
transaction. How could it be that
bad, you might ask? Well, start with
the fact that since the market collapse of 2008,
U.S.
banks are subject to greater capital retention regulations than ever before.
The banks in the
US
are being ordered to increase capital reserves for 2 primary reasons:
a.
Increase
basic capital assets on hand; and,
b.
Increase
capital to be applied to their loan loss reserves.
Simply put,
US
banks are disinclined to lend to anyone!
As an example, I would cite the 2009 C$1 billion
write-down RBC made in response to its US banking units losses.
3.
Pricing of Mortgage Rates has also
become very different in the
US
! Risk factors now control
US
loan pricing and will thus dictate what your rate may be. Risk factors now
include, but are not limited to:
a.
buying
in
Florida
, that’s a risk;
b.
in
a ‘declining value county’,
that’s a risk too;
c.
Want
to buy a condominium (Property type), there’s a risk;
d.
-with
a high concentration of Investor Owners,
that’s a lot of risk;
e.
and now, Investor
Owners in default or an excess of condos in the complex which are now in
foreclosure or already owned by banks, there’s proof of the risk inherent in
that complex; and
f.
Self
employed borrower, that’s a lot of risk too!
Six factors
for increasing the loan interest rate; -each one of which could have raised the
rate ranging from .125% to 2%!
4.
In the
US
, the market controls all: -and the market
here for Canadians to turn to is shrinking.
US Banks don’t want to lend, especially to foreign nationals.
The sheer number of banking institutions here in the
US
has decreased dramatically over the past 4 years.
a.
The remaining options available to Canadians and
other foreign nationals will center on what we call ‘pocket’ or portfolio
lenders, who originate and hold the loans they originate within their own
portfolios. TD Commerce Bank and BMO
M&I are 2 remaining examples; they have very limited portfolios of loans
they will hold for Canadians buying here.
R.B.C.
incurred such losses as a result of its foray into the US Retail banking market
that they have recently sold their entire US retail banking division.
Thus in ignominy, RBC retreats back to the north.
b.
But an
interesting side effect of the
US
credit collapse is the banding together of some foreign national citizens to
form their own
US
lending groups. Canadians lending to Canadians. Your best chance for financing
may yet come from your own citizens! These
lender pools will be bringing to the
Florida
market loans that the Canadian consumer really wants: shorter terms (5-7 YR)
with longer amortizations (15, 20, 25 YR). –A
Canadian loan product, underwritten to the same guidelines and standards as any
2nd home loan you’d get in
Canada
. But the property just happens to be located in
Florida
!
5.
Time Frames for completion of the
transaction. In
Canada
, you are accustom to 7
- 15 business days as the norm for a home purchase transaction.
From contract to the signing of waivers, etc. . . In the
US
right now; unless you are paying with cash (-and even then…?), it can take
the
US
arm of a Canadian bank up to 15 weeks to underwrite your loan.
So be prepared to wait, because the US TD’s and M&I/BMO’s have no
problem letting you wait! In fact,
waiting and procrastination works for their benefit!
6.
Contraction in lending risk has
also been reflected in the down payment amounts required.
Generally the Canadian consumer should expect a down payment of 30% in
most cases; however, with some of the smaller FL community banks it can be as
high as 45%!
7.
There have been dramatic changes
in the documentation required by lenders in support of a Canadians’ loan
application. loans must be fully
supported in their claims of income, statements for assets and liabilities
documented and verified. For example: that means 2 years of full t-1’s plus
t-4’s for a Canadian’s income; 6 months of bank/institution statements
for a Canadians assets including RSPs and a 12 month history for all major
liabilities (Secured mortgages & lines of credit). Self employed consumers
will be heavily affected by this change!
8.
Costs of a Mortgage or home
purchase have risen considerably in the
US
as US Banks squeeze revenue from every source they can.
Like the Airlines charging for a pillow, so too have the retail banks
needed to increase their revenues! The fees associated with a foreign national
loan is one area they do squeeze well! I’ve
received client reports of US divisions of TD and M&I/BMO charging from 1%
to 2% of the loan amount as a lender fee just to make the loan
