Financing

No one likes to talk about money but being pretty solidly middle class we always wondered how people could do big jobs like this and if it was an option for us.  I wasn’t originally planning on talking about the money side because it isn’t polite but it was a really interesting journey.

As a bit of background, i was self-employed for 25 years.  I made a living and it kept a roof over our head but money always seemed to be tight.  We had up years and down years but uncertainty made it hard to budget. As a result, my father had to co-sign our mortgage and has remained there ever since. Sarah was a field biologist before the Offspring arrived and lived in bush camp for large portions of the year.  After the Offspring she was a stay at home mum for a decade when we lived in a smaller city and had a productive garden, volunteered at the Offspring’s school, and picked up short term work during school hours from time to time.  When we moved back to Vancouver she worked at a children’s bookstore for 13 years until deciding to go back to grad school to become a librarian.  Shortly after she went back to school i left my company to work for a social enterprise a friend of mine had started.  All of this makes it challenging to talk to banks.

Sarah graduated at the end of 2019 and got on with a local library system almost right away and despite not being permanent had managed to work a series of full time positions for almost the entire year.  For the first time in our adult lives we had steady income and paid off the debt we had racked up through all of our changes over the previous few years of transition. Everything was on track for 2020 to be the year we finally got dad off the mortgage and could think about the new kitchen!  We filed taxes early so that we had proof of income and were ready to start when COVID hit and shut down everything.  Sarah ended up getting laid off and suddenly things looked a lot less rosy. 

We went to the bank who held our mortgage and talked to them about refinancing.  Despite a solid income the previous year, with Sarah laid off, there was nothing we could do.  They needed a pay stub from her dated within 2 weeks from the date of application. They were happy to give me a mortgage without my father signing off on it, but there was no chance of more money for our renovation without Sarah’s income.  We decided to wait.

Sarah was called back to work in September so we got back in touch with our bank.  Sarah now had proof of income so we were ready to go.  We had checked the mortgage affordability calculators and it looked like we would qualify for everything we needed.  So we called up our banker and went in to sign more papers.

Now I had had misgivings before but they got worse on our second visit. When we first discussed the financing  the banker had repeatedly called me Rod (including in emails) and talked about “getting my daddy off the mortgage”.  First off, you should know your clients names.  My name is on the file and is part of my email address so it really rubbed me the wrong way that she got my name wrong.  It didn’t happen once.  Several times.  Second, i am a 50 year old man.  I haven’t called my father “daddy” for decades and definitely not in any of our meetings with the banker.  I realized that this might be cultural or a language barrier so i tried to ignore that turn of phrase despite it seeming like she was trying to make me feel like a little boy (my baggage, not hers).  When we returned things didn’t get better.  After getting us to sign more papers she submitted our application and we waited.  She called us in to discuss the need to provide more paperwork.  She also asked why we needed so much money despite our earlier conversations about the lift, the 2 br suite and the income it would give us, and the new kitchen.  She asked if we were building a laneway house…   I get it, people are busy and we are one of hundreds of borrowers she looks after, so i went over the plan again and the amount we needed but really got the feeling that she wasn’t paying a lot of attention.  We walked home shaking our heads.  After providing even more proof of income for Sarah (another CRA Notice of Assessment and all t4’s from her last year of school) as requested our banker called happy to tell us we had qualified for about $190,000 less than what we asked for which was about $100K less than what we had decided was the minimum amount we needed to make the project viable.  I told her there was no point in proceeding with that amount and told her i would think about the mortgage.

Luckily we had already contacted a mortgage broker on the recommendation of a friend when we realized that the banker had put in our application without knowing what we wanted it for and who likely didn’t even know who we were.  It had just felt like she wasn’t working for us.  We had a solid plan to increase our income with a rental property in a market with a close to zero vacancy rate.  This is not just a REALLY expensive kitchen.

Anyway, the broker was awesome. She gets paid by the bank that takes the financing so there is really no reason not to work with one.  She listened, took notes, got our names right every time, and called my dad my father much to my relief. She also got us not quite our stretch goal, but significantly more than our floor.  All in all, $150,000 more than our original bank offered us.  This came with decent terms and  additional and accelerated payment options.  It also came with an education in how things work and she explained things clearly.  The rate was %0.08 more than our original bank offered ($80 per year on $100,000) but the most important thing was that we got what we needed! 

I plan on sharing more of the financial details and budget once the project is complete because this is one of the biggest gaps we had in our knowledge, “what do these things cost?”.  Our budget at this point is a shot in the dark but appears from our first two builder interviews to be sufficient given we are planning on doing a bunch of work ourselves.  I based it mostly on making sure that rent from the suite would cover the payments on the loan and the increase in property taxes from the loss of our home owner grant and the increased value of the house.  If it all works out, our mortgage payments and our portion of taxes will remain about the same after factoring in the rent. I am not an accountant.  I am an optimist.