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The-Mortgage-Gal

Importance of getting all the paperwork in order when seeking a mortgage

Mortgage puzzles

I’ve written about mortgage documentation in several columns over the years.

Last week, I had an interesting call with several of my colleagues about trends we are seeing in the mortgage world around paperwork right now.

There are people who think mortgage brokers are able to cut corners and have an easier time getting a mortgage approved. Ironically, I believe we are held to a higher standard which sometimes translates to frustration for clients as we are doing our due diligence with document collection.

When starting with new clients, part of my conversation includes an overview of the documents we will need as well as an explanation of why. This conversation also includes a bit of an apology because I know how challenging this process can sometimes be.

“My bank has never asked for that” is something I hear often. What clients don’t consider is that their bank has a full historical view of their day-to-day banking as opposed to new lenders who are just being introduced to these clients.

If you were asked to lend someone $500,000, would you do it on a handshake? Would you assume they will repay you in a timely manner (as agreed) because they seem like good people? The answer is likely no to both questions.

That’s one part of the puzzle. The other part is the increasing trend of fraud in the mortgage world.

From my perspective, my reputation and livelihood are too important to entertain clients who I suspect are not quite as they appear. I explain I am very particular about gathering documents upfront to make sure we are not going to run into any unexpected or unpleasant surprises.

From time to time we come across documents that are glaringly obvious attempts at fraud. With today’s technology, fictitious documents are becoming easier to create and harder to detect. As brokers we represent both our clients and the lenders we are placing their mortgage with. I discovered fraudulent documents on one of my files recently and cancelled the application and notified the lender.

My now former client was very very angry. He didn’t see what the big deal was. He went to a local branch and his mortgage was approved.

Where is the harm? If part of the fraud includes income documents, will this client actually be able to make his mortgage payments down the road? Because he did have a substantial down payment relative to his income, does he have a sideline that isn’t declared or legal?

I absolutely agree that collecting the required documents for your mortgage can seem frustrating, and you may question why your mortgage person is asking for the weird and wonderful collection of paperwork they are asking for. Or you may question why they are asking for more and more paperwork.

Please understand, these requests are coming from the lender and we are doing our best as the middleman to help ease the process for you.

Lenders want to be confident that they are making solid decisions with their approvals and are doing their best to prevent mortgage fraud.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



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Different approaches to property purchase pre-approvals

Pre-approval documentation

As a mortgage broker, I am able to work with clients all over B.C.

I grew up in Mackenzie, a small community in northern B.C., and still have ties to the area. I worked with the realtors there before I moved to the Okanagan, and we continue to work together more than 15 years later.

Last week, we saw a surge in home sales in Mackenzie and I’ve had interesting conversations with both of the realtors I work with.

They had questions about how I figure out price points for clients when I am working on a pre-approval. More specifically, they asked whether or not I collect documents from my clients before they have an accepted offer to purchase.

My answer was I absolutely gather the bulk of the documents we will need ahead of sending my clients out shopping. I also pull credit reports about 95 per cent of the time before I send people out looking for a home.

Why? Even with clients I know are squeaky clean and solid financially, over the years I’ve had to deal with surprises that might have affected their approvals.

Recently, I was working with a client who has been with the same employer for 25 years, has more than $300,000 in his account and whose credit score was 821 (900 is a perfect score). A slam dunk, right?

As it turned out, he has a fairly common name. At the very bottom of his credit report was an outstanding collection to an insurance provider. I was surprised to see it as I know he is meticulous with his finances.

He had never had any dealings with that particular company,and it took him almost three weeks to get confirmation from the company that it was not his debt, and another few days to have his credit bureau report corrected.

Another client I worked with had everything in order and looked like she was ready to write an offer at the $650,000 price point. I pulled her credit report and found a vehicle loan with a payment of $785 per month. When I asked her about it she said she hadn’t mentioned it because she didn’t make the payments. She had co-signed a loan for her daughter.

When you co-sign a loan, you are jointly and severally responsible for the amount outstanding. That means that should the other person ever default on a payment, you are responsible for making the payment.

It means we have to factor that payment in when calculating what you qualify to borrow. In her case, this dropped her purchase price considerably.

I’ve also run into situations where clients tell me how much they earn, and when they send their documents, the T4s and paystubs don’t support what they told me. In one case, the gentleman said he told me what he figured he would make this year. As a general rule lenders won’t use predicted income (other than a few specialty products). They work with historical information and what can be confirmed via employment letters and contracts.

So why is all of this important? If I send you out shopping for a home, I want to be certain I am able to arrange a suitable option for you. You get excited about the possibilities and write an offer. Now the sellers of that home are also excited and are out looking for their next property. We’ve tied up two, or potentially more, homes and realtors have spent hours working to show homes and make magic happen to bring offers together.

If I haven’t done my due diligence and missed something that will affect your approval, we have wasted a lot of time and energy for everyone involved.

Sometimes clients just want to know generally the price point they are looking at and want to know if there is anything they need to deal with before heading out shopping. If they are looking at buying a home six months or a year down the road, it is a different conversation and I don’t ask for documents upfront.

When you are working on a pre-approval and your mortgage person asks for a full document package upfront, don’t roll your eyes. Fully disclose your financial situation. That helps us put you in the best position to be successful once you’ve found a home you love.

Also, as an aside, if you haven’t already dealt with the speculation tax declaration for you home, take a minute and do it today.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



Creative ways to finance the purchase of a new home

Home purchase financing

One of the things I love about my work is I am able to connect with all types of homebuyers.

I am able to support first-time homebuyers as they make the leap into the housing market, clients looking to upsize from their first homes, clients who want to refinance for renovations or to consolidate consumer debt and more established clients looking to downsize.

Lately it feels clients who want to downsize are having a tough time.

They want to confidently write a subject-free offer on their next home but are concerned about listing their current home for sale in the event it doesn’t sell in time. They don’t want to list their current home for sale and potentially find themselves without a suitable property to buy.

What is the answer?

If the current home is mortgage-free, there are several mortgage options available. There are also private lenders that will register a mortgage for both the current home and the home being purchased (provided the numbers work). Provided the current home is mortgage-free, we can look at registering a credit line against that home in preparation for finding the next home to buy. When the clients find their next home, we can use a combination of the funds from that credit line plus a mortgage on the new property to move forward with the next home.

This strategy is not for everyone. In the Okanagan, people who are making this move may be downsizing, but downsizing to what in terms of purchase price? Often the next home is still priced near or over $1 million. To carry financing on a purchase at that price can cost upwards of $7,000 per month plus significant fees if using a private mortgage option.

One creative option clients used recently was listing and selling their current home knowing that they were prepared to wait for the right home to pop up. As they neared their sale date, they had not found their next home yet, so they rented a storage container and packed everything up temporarily.

They were fortunate they were able to stay with family for several months until the right home popped up. That put them in a brilliant position to buy with no financing subject in their offer.

Another option clients have used recently was truly downsizing in both price and space. Their home in Kelowna was appraised at $1.75 million. Based on their financial picture, we were able to secure a credit line for $800,000.

It took just over a year but they fell in love with a beautiful patio home in West Kelowna. Their new home was priced at just under $700,000, so they knew they had the funds available if they listed their home and it did not sell in time.

Over the last few months, I have spent time at several open houses in West Kelowna with realtors I know. It was interesting to chat with people about the specific things they are looking for in their retirement home.

Part of what we have talked about are future life plans. Many people have talked about wanting to do more travelling and/or spend winters in warmer places. As people ease into retirement, their needs change. Homes in age-restricted gated communities with amenities like pools and recreation centres are becoming more popular.

This coming weekend (Saturday, March 16, from noon to 2 p.m.) I will be at 3407 Ironwood Drive in West Kelowna, which is listed by Sharon Walton with Royal LePage Kelowna (MLS ®10302186). If you are looking to right-size for retirement, a home like that might be exactly what you are looking for.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



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Helpful changes coming for first time home buyers

Property purchase tax break

There were several announcements made recently that I am very excited about – changes that will help make it easier for people to afford to buy homes.

Effective April 1, the B.C. government will increase the purchase price for first time home buyers (FTHB) and buyers purchasing newly built homes to qualify for the Property Transfer Tax (PPT) exemption.

Up until then, FTHB who buy a home with a fair market value of $500,000 or less (assuming they meet all the program qualifications) were exempt from paying PPT. The tax on a home priced at $500,000 would normally be $8,000, so this is a considerable help.

After April 1, the exemption will be granted for FTHB purchasing homes up to a fair market value of $835,000. There will be a partial exemption up to $860,000. On a home with a purchase price of $800,000, that means a savings of $14,000.

This is particularly significant because it is a closing cost that cannot be added to the mortgage, it must be paid up front. Using this same example, the minimum down payment on an $800,000 home is $55,000.

One of the biggest challenges people face is trying to save their down payment, so this increase in the exemption will be a huge help for many clients.

There are other exemptions to the PPT that have also changed. People buying newly built homes, regardless of whether they are a FTHB or not, can be exempt from paying the tax too. Now, the purchase price for this exemption is $750,000. Effective April 1, this exemption will increase to $1.1 million, with a partial exemption up to $1.15 million.

The second program to be introduced April 1 is the Secondary Suite Incentive Program.

In a nutshell, the provincial government will provide a forgivable loan of up to 50% of the cost of renovations to add a secondary suite to an existing home, to a maximum of $40,000.

Applications for this program will be accepted starting April 17.

For the loan to be fully forgiven, there are conditions that must be met:

• The unit must be built in the same location where the homeowner lives.

• The unit must be rented out below market rates for five years.

I attended a learning session about the program with one of my favourite lenders this week and they are still trying to sort out how we will be able to combine this with a purchase or a refinancing to help clients get the funds they need to participate in the program.

There are many details we do not have yet, but you can find the initial information at Secondary Suite Incentive Program | BC Housing .

There are many listings my clients look at that can be easily renovated to facilitate a secondary suite, so it will be interesting to see how we can use the program to help them generate income to help cover their mortgages, while at the same time creating more affordable housing options for renters.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



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About the Author

Tracy Head helps busy families get a head start on home ownership.

With today’s increasingly complicated mortgage rules, Tracy spends time getting to know her clients and helps them to better understand the mortgage process. She supports her clients before, during, and after their mortgage is in place.

Tracy works closely with her clients, offering advice and options. With access to more than 40 different lenders. She is able to assist with residential, commercial, and reverse mortgages in order to match the needs of her clients with the right mortgage package.

Tracy works hard to find the right fit for her clients and provide support for years down the road.

Call Tracy at 250-826-5857 or reach out by email [email protected]

Visit her website at www.headstartmortgages.com

Download her app: Headstart Mortgage Architects

 

 



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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