5 Mortgage Approval Roadblocks

General Deepak Bansal 10 Jun

When in the process of buying a home, there is nothing worse than having your mortgage broker or lawyer call and say “there is a problem”.

If you have found your dream home and negotiated a fair price, which was accepted, and you have supplied all the documentation to your broker, you probably assume everything is fine. The reality is that your financing approval is based on the information the lender was provided at the time of the application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval.

To ensure that you don’t encounter any last-minute issues on your home buying journey, there are five major approval roadblocks to be aware of and avoid for a smooth transaction:

EMPLOYMENT

When submitting a request for financing, whether a mortgage or car loan or to handle personal debt, one of the most important aspects the lender looks at is employment. If you were working at Company X for five years at $50,000 a year and – just before your deal is finalized – you change jobs, the lender will now require proof from the new job. This can include proof that probation for this new job is waived, or new job letters and pay stubs at the very least. If you change industries, they will want to see more proof that you are capable of keeping this job. For any employment involving overtime or bonuses, the lender often requests a two-year average, which you would not be able to provide at a new position. Another employment change that could hurt your financing approval would be if you decide to change from an employee to a self-employed contractor.

When it comes to financing, it is best to wait to make any major employment or life changes until after the deal has gone through.

DOWN PAYMENT SOURCE
As mortgage financing is based on the initial information provided, you will most likely need to do a final verification of the down payment source. If it is different than what the lender has approved, it could spell trouble for your financing approval. Even if you said that your down payment was coming from savings and, at the last minute, mom and dad offer you the funds as a gift, it could affect your approval. This is an acceptable source of down payment, but only if the lender knows about it in advance and has included this in their risk assessment, but it can end a deal.

DEBT
A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Since mortgage approval is based on how much you owed on that particular date, it is important not to increase your debt before the deal is finalized. Buying a new car or items for the new home must be postponed until after possession; even if they are “do not pay for 12 months” campaigns because you will need to fulfil those payments, regardless of when they start.

BAD CREDIT
One of the biggest roadblocks to mortgage approvals is credit card payments. When you enter the financing process, it is important that your credit score remains positive. If your credit score falls due to late payments, this can cause major issues with your financing. Even if you have a high-ratio mortgage in place which requires CMHC insurance, a lower credit score could mean a withdrawal of the insurance and removal of any financing approval.

MISSING IDENTITY DOCUMENTS
Before a deal is finalized, the lawyer must verify your identity documents and see that they match the mortgage documents. You may not think it needs to be said, but it is important to use your legal name when you apply for a mortgage. Even if you go by your middle name or a nickname, all legal documents should match.

Keep in touch with your Dominion Lending Centres Mortgage Broker right up to possession day. Make this a happy experience rather than a heartbreaking one.

Collateral Charge Mortgage VS Conventional Charge Mortagge

General Deepak Bansal 3 Nov

We hear that collateral charge mortgages can provide a cost effective way to refinance, as well as offer future flexibility. It is important to understand the pros and cons of a collateral charge mortgage. To do this we’ll start by describing the difference between a collateral charge and a conventional mortgage.
A collateral charge mortgage is type of mortgage that allows your home to be used as security for a loan (home, line of credit, or car).

Lenders offering this type of mortgage may register the charge for up to 125% of the property value, which is more than the approved mortgage amount. For example, if your home purchase was for 300,000.00, with a 20% down payment (60,000). the collateral charge mortgage registered could be as high as 375,000 (300,000 x 125%), but you would only receive 240,000.

On the other hand, with a conventional mortgage if you were to make the same purchase (300,000 with a 20% down payment – $60,000) the mortgage registered on the property title would be the remaining 240,000.00, which is the actual mortgage amount.

PROS / CONS OF A CONVENTIONAL MORTGAGE

Pros:

  • At the time of renewal a conventional mortgage may be ‘switched’ to another lender to take advantage of a better product (prepayment options, rates overall flexibility).
  • It is possible to have a second mortgage (a home equity line of credit) registered behind the lenders first mortgage.

Cons:

  • Not all lenders have standardized early discharge penalties

PROS / CONS OF A COLLATERAL CHARGE MORTGAGE

Pros:

  • If you qualify (and the lender approves) you could borrow more money (up to the registered amount) without having to register another mortgage (saving legal fees).

Cons:

  • A collateral charge mortgage cannot be ‘switched’. To take advantage of a better product you would likely have to pay a fee to discharge your mortgage and pay off any car loan or line of credit associated with the collateral charge mortgage.
  • The lender may utilize the collateral mortgage to pay any unpaid debts you may have with them. For example if you defaulted on a credit card the lender could increase your collateral mortgage amount to payout the debt.
  • If you wanted to refinance to use the equity built in your home and the lender declines your application you couldn’t approach another lender because the home is secured against the collateral mortgage (375,000 from the example above) so it looks like there is no equity available to secure the application.

Clear as mud, right? The bottom line is to ask questions and make sure your mortgage is working for you now, and will continue to in the future.

This is what we do best so please call today and together we’ll do our best to ensure you are receiving the best mortgage product available for both today and your future needs.