Real Estate Underwriting

It is the Lender’s responsibility to ensure documentation is on file supporting details of a property’s description, such as, but not limited to: municipal address, legal description, square footage, lot size, property type, property tenure, occupancy, number of units, construction type, and age. Through the course of reviewing this documentation, if any negative characteristics of the property become evident that may influence the property’s marketability, it is the Lender’s responsibility to disclose this information to Sagen prior to funding. The lending value of the real estate that will be used to calculate the LTV is the lesser of either the market value as determined by an appraisal or the purchase price.

The Lender should also ensure the subject property meets all requirements as outlined in its own internal policy prior to submitting the application to Sagen. The following are examples of documents the Lender can review to gain more insight on the real estate and whether it is acceptable to their own guidelines prior to submitting the application for mortgage insurance.

Document Description
 

 

Property Listing

  • Provides a general description of the property and indicates if any material maintenance / repairs may be required (including photographs where available).
  • Provides details regarding the type of utilities being used (i.e., forced air or electrical heat, municipal services or well and septic).
 

Purchase and Sale Agreement

  • Indicates if any chattels are included in the purchase price as well as indicates the current and future use of the property.
All Schedules and Amendments to the Purchase and Sale Agreement
  • Schedules may indicate deferred maintenance or any existing issues with the property.
 

 

Property Title

  • Outlines the existence of any defects that may affect clear title.
  • Confirms the subject property conforms to current by laws.
  • Indicates the presence of any restrictive covenants.

In the absence of any Sagen policy related to evaluating real estate, the Lender is expected to defer to their own internal policy to ensure they support the quality of real estate.

Property Requirements

To be eligible for Sagen mortgage insurance, all properties must be:

  • Located in Canada;
  • Zoned for residential use only, and;
  • Comply with all municipal zoning and by-laws. *

    *Properties containing unauthorized suite may be reviewed on a case-by-case basis.

In addition, properties must meet the following criteria:

Number of Units
  • Owner occupied properties (1-4 units)
  • Investment properties (2-4 units)
 

Property Type

  • Detached
  • Semi-detached
  • Row townhouse
  • Apartment
 

Property Tenure

  • Freehold
  • Condominium / strata
  • Leasehold
 

Acreage Properties

  • The lending value will be the lesser of the purchase price or the appraised value of the dwelling and 15 acres.
  • Properties greater than 15 acres are to be referred to a Sagen underwriter for review.
 

 

 

 

 

 

Outbuildings

  • The value attributed to the outbuilding cannot exceed 20% of the appraised value of the property;
  • The outbuilding must be for personal use only, with no signs of deferred maintenance
    • Examples include personal vehicle storage, hobby space, guest suites.
    • Commercial components are not permitted (e.g., farming/machine storage or outbuildings generating income)
  • Application should be referred to Sagen underwriter for review
  • Sagen will complete a full appraisal to determine the value of the outbuilding and whether the use of the outbuilding is acceptable
  • Eligible for Purchase Plus Improvements program
Properties with Existing or Previous Environmental Concerns

(i.e., Soil or Groundwater contamination)

  • Applications should be referred to a Sagen underwriter for additional review.
  • The Lender may be required to obtain an Environmental Site Assessment (ESA)* to confirm the environmental concern has been fully remediated.
 

Properties Previously Used for Illicit Purposes

  • Unless remediated in line with municipal requirements, properties are ineligible for mortgage insurance.
  • If evidence of remediation is available, the application must be referred to a Sagen underwriter for additional review.
Water Potability and Source
  • The property must have potable water.
  • Properties without potable water are only eligible for mortgage insurance only under the Vacation Program (Type B Property).
If water is received from a well located outside the property boundaries (i.e., shared well), evidence must be registered on title stating that the well:

  • May be used, and that all elements may be maintained, at all times or until a public utility source has replaced the well as the water supply for the property.
  • Must be available for both the purchaser of the property and any subsequent owners of the property.
  • Title insurance may be obtained in place of documentation addressing potability of water, water flow of the well, any septic tank related issues or other related matters, provided that the insurance provides reasonable coverage to address any related potential losses.
Age-Restricted Condominiums
  • May be eligible for mortgage insurance subject to overall marketability.
  • Applications should be referred to a Sagen Underwriter for further review.
Leasehold Properties
  • Government, private, and on-reserve leases are acceptable under the following conditions:
  • The lease term must be at least 5 years longer than the mortgage amortization.
  • The lease must contain the buy-out price to convert to freehold
  • The lease payment must be fixed for the term.
  • Leasehold interest must be assignable to mortgagee / insurer in the event of default.
  • Lease must be convertible to freehold, in the event of default and legal action.
 

Properties Ineligible for Mortgage Insurance

  • Commercial or industrial properties
  • Raw land
  • Time-share units
  • Chattel homes
  • Earth dome homes
  • Straw bale
  • Rooming houses
  • Condominium properties with post-tension cable construction

*Environmental Site Assessments (ESA) – When required, at a minimum a Phase 1 ESA should be ordered. As a result of Sagen’s review of the Phase 1, additional environmental assessments may also be required. The assessments must be completed by a qualified professional who is insured in line with existing Canadian Standards Association (CSA) requirements.

Private Sales

A private sale is an unadvertised sale of a property which is not open to the general public. Typically, the transaction is negotiated between a buyer and seller directly without the assistance of real estate agents or public notices. Private sales are further characterized as either an arm’s length or non-arm’s length transaction. Each are permitted by Sagen subject to the following definitions:

Arm’s Length Transactions

An arm’s length transaction is one in which both the buyer and seller of a property are acting in their own self-interest and are not subject to any influence from the other party. These applications are not required to be referred to a Sagen underwriter for additional review.

Non-Arm’s Length Transactions

A non-arm’s length transaction occurs when the buyer and seller of a property have an existing relationship with each other. An example of a non-arm’s length transaction would be parents selling their home to their child. These applications should be referred to a Sagen underwriter for further review and the value of the property will be confirmed via a full appraisal.

Equity Buy-Out

In the event where the borrower(s) wish to buy out another borrower(s) interest in the property, the following requirements will apply:

  • Available on purchase transactions up to 95% LTV
  • Both parties must be currently on title to the property
  • Documentation validating the remaining borrower is purchasing the departing borrower’s interest in the property and the sale price of the transaction must be retained on file. Acceptable documentation confirming this information can include any of the following items:
    • An agreement of purchase and sale
    • A finalized separation agreement
    • A court order
  • A full interior appraisal is required and will be completed by Sagen

Power of Sale Properties

A power of sale allows the Lender, and not the homeowner, to sell the property and use the sale proceeds to pay the remainder of the mortgage and any costs associated with the default. Additional due diligence is required when a property sold under power of sale is being purchased given there may be elevated marketability and/or quality related issues.

New Construction Properties

New construction must conform to the National Building Code and the latest edition of Residential Standards Canada or the applicable municipal or provincial building codes.

New homes are defined as:

  • Any properties sold within one year from the date of the final occupancy permit being issued.
  • Any properties that the developers/builders have as inventory even when the final occupancy permit has been issued for more than 1 year.

New Home Warranty Coverage

All new construction that is not “owner built” must be enrolled in a Lender approved New Home Warranty program.

In the provinces of British Columbia and Alberta, all new home and condominium applications must be covered by a 3rd party warranty provider recognized by the Homeowner Protection Office (HPO).

For new construction properties in the territories (Yukon, Northwest and Nunavut Territories) where New Home Warranty is not an option, Lenders must obtain either the occupancy permit or a third-party report from a qualified professional such as: an inspector, architect or engineer. The qualified professional must carry the appropriate liability insurance and confirm construction is completed in compliance with applicable bylaws and regulations.

Harmonized Sales Tax (HST) / Goods and Services Tax (GST)

The borrower may assign the rebates to the builder, and in such instances, the purchase price on the offer will represent purchase price minus HST/GST and should be submitted as the purchase price on the application. Where the borrower has not assigned the rebate to the builder, the Lender may submit the total purchase price (exclusive of any rebates).

Vendor / Developer Cashback Program

Any cash given to the borrower(s) that comes either directly or indirectly from the builder/developer must be deducted from the purchase price.

In all instances, no portion of any cashback programs may be considered as part of the borrower’s equity. Borrowers must have sufficient funds for the down payment and closing costs, as outlined in Sagen’s Product Specific Underwriting Guidelines. Any funds deposited to the borrower’s account after closing must be in excess of the amount the borrower has on deposit for the down payment and closing costs.

Final Completion Inspections

Mortgage insurance becomes effective when the premium has been paid, the property has been completed, and the full proceeds of the mortgage have been advanced subject to minor and seasonal deficiencies (maximum 5% of the value of the improvements), not including land value.

It is the Lender’s responsibility to ensure the property has been completed in accordance with originally submitted plans and specifications provided at the time of the initial underwriting.

Prior to the loan closing, the Lender must notify Sagen of any changes, along with a re-certification of value for approval, if necessary. Mortgage insurance will be in force when the premium is tendered, signifying that all conditions have been satisfied.

Incentives

An incentive is an offer from the vendor or builder intended to encourage a homebuyer to proceed in completing a specific real estate transaction. Common household items (i.e. built in appliances) negotiated as inclusions between the vendor and purchaser are not considered purchase incentives.

Sagen will permit incentives that do not exceed 0.5% of the purchase price. For incentives greater than this amount, the amount must be deducted from the purchase price.