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Mortgage-Matters

4 things that can go wrong

Here are four things that can derail your mortgage financing even if you’ve been pre-approved by your bank or a mortgage broker.

If you can avoid these types of issues, you’ll be more likely to receive a “final approval” green light from the mortgage lender.

You have insufficient documentation.

Mortgage lenders request a variety of financial documents when approving borrowers for mortgages. You can reduce the chance of document-related problems by rounding up your documents in advance.

This is why, as your mortgage broker, I always try to anticipate the documents that a mortgage lender is going to request and work with you to gather them before you have found your dream home.

You don’t have enough funds for your closing costs.

These days, many mortgage lenders and all mortgage insurers are requiring borrowers to have additional “cash reserves” in the bank, prior to closing to cover the closing costs. 

Borrowers can be denied a mortgage after being pre-approved if they can’t provide documentation confirming you have these funds available.

You made a large purchase, or purchases and taken on additional debt since pre-approval.

Being pre-approved for a mortgage, or even approved if you are at that stage, doesn’t mean you can go out and make large purchases.

Debt-to-income ratios are very important during the mortgage process.

This ratio is basically a comparison between the amount of money you earn and the amount you spend to cover your monthly debts. Having too much debt can hurt your chances of getting mortgage financing.

To prevent these types of problems after pre-approval, avoid making major purchases or opening new lines of credit. Keep those credit cards in your wallet until you receive a final approval and until after you have moved into your new home.

Your income or employment situation has changed.

The mortgage lender will pre-approve you based on your current income and employment situation. However, if your status changes sometime during the underwriting process, it could cause you to be denied the mortgage.

Just do everything within your power to keep your income and employment situation static until after you have found a home and moved in.

Here’s what you need to take away from this:

  • A pre-approval can be a helpful step in the mortgage process. It allows you to narrow your search to homes that fit your budget and secure an interest rate. But it’s not a guarantee of financing.
  • A pre-approval is not a mortgage commitment. It is the lender’s way of saying they will likely give you a mortgage for a certain amount, as long as your financial situation doesn’t change prior to closing and they like the property you are purchasing.
  • Even having a pre-approval letter does not mean you are home free. Things can still go wrong before the final closing causing the mortgage to be denied.

My role as your mortgage broker is to reduce the possibility of any of the above happening to you during the mortgage process and endeavor to make the process go as smoothly as possible.

A mortgage pre-approval is the first step to home ownership.





Buying In a seller's market

The most recent stats from OMREB (Okanagan Mainline Real Estate Board) confirm that there is low inventory to choose from for those hoping to buy a home.

This will create more competition for the available properties and potentially multiple-offer situations with homes selling for higher than the asking price.

If you are in the market for a home or are considering a purchase this spring, here is my tip to increase the odds of you being the successful bidder in a possible multiple offer situation. Take these steps you might avoid some of the craziness that could happen this spring market.

This is my best tip and easiest tip:

  • Get pre-approved for your mortgage financing. Not pre-qualified but a full pre-approval.

Prior to looking for a home or placing an offer, work with your mortgage broker to complete a full mortgage pre-approval. This will include the collecting of all supporting documentation that a lender will require to provide a final approval for your financing.

We will advise you of your purchasing budget, review any potential challenges and ensure you are set to go other than finding a suitable property.

We can also review the types of properties you are interested in and advise whether there might be any potential financing challenges because of property issues.

If you do all the work upfront, it could prevent your offer from falling apart because you were not able to secure financing for your purchase or possibly losing the property by needing to request an extension to finalize your financing, which the seller may not be prepared to offer because there are backup offers on the property.

Being a pre-approved buyer could also place you in a more favourable position in a multiple offer situation.

But a word of caution: do not be tempted to place a subject-free offer. Subject to satisfactory financing is a key clause that needs to be included in every offer.

You could be the most well qualified purchaser in history. Stellar credit, great income and job stability with a significant down payment but in the end a lender could still decline your request for financing.

Here’s why: mortgage financing approval not only includes the lender being happy with your qualifications, but they must also approve the property. Essentially, it’s a two-step process.

My best advice to you would be to:

  • never place a subject-free offer regardless of what others are recommending and to think long and hard about it unless you have the cash in the bank to cover your purchase in the event that you can’t secure satisfactory financing.
  • Or have a detailed conversation with your mortgage broker well in advance to place a subject-free offer. There are some strategies to minimize your risk, but an individual conversation would be required.

In a seller’s market, you need to be prepared to successful, so please give me a call to review your options at 888-561-2679 or email [email protected].



Mortgage renewal checklist

Here are nine things to consider before your mortgage renews:

Have you explored all your options?

Once you receive your mortgage renewal statement, there’s nothing easier than simply signing on for another term.

While this may make sense in many cases, your family or financial situation may have changed over time. We can look for opportunities that could better meet your needs right now. 

Are you comfortable with your payments?

If you’ve been feeling financially strapped each month making your mortgage payments, this could be the time to reduce them to a more easily managed level. On the other hand, if you’re earning more, why not pay down your mortgage faster and save thousands of dollars in interest over time? 

Do you need cash flow for other things?

Your priorities may have shifted since you first bought your home, and your cash flow needs can shift, too. Things like paying for a child’s education, changing careers or a major purchase such as a vacation property may call for spending money on things other than your home. You may be able to refinance your mortgage to consider this. 

Can you handle fluctuating rates?

Some homeowners are nervous about any hikes in interest rates, while others are comfortable to go with the flow. Rates are tough to predict. It’s best to base your decision on your personal situation, not what you read in the news, and tailor your mortgage renewal around your needs. We can help you decide whether to opt for fixed or variable rates — and we don’t want you to lose any sleep over your decision.

Will you sell soon?

If you are likely to sell soon, consider a shorter-term mortgage or one that has flexible terms so you’re not penalized if you sell your house before the mortgage comes due. 

Are you thinking about a major renovation?

You know that projects such as a new kitchen or an addition can make your home more valuable. But the cost of having the work done can tie up a lot of money. Before you renew, look at all your financing options, which may include getting an additional line of credit or keeping your monthly mortgage payments low so you have money on hand to finance the renos.

When do you want to be “mortgage-free?”

If you’re planning extended time away from work—or perhaps an early retirement—it may make sense to pay down your mortgage sooner rather than later. While increasing your payments will raise your monthly costs now, you’ll ultimately save on interest in the long term and can prepare for that fabulous, mortgage-free lifestyle. 

Could you use your home equity to fulfill other goals?

Refinancing a mortgage can be one way to free up cash you need for other things, which could even include buying another property. Mortgage renewal time is an ideal occasion to review all your options. 

Are you getting the best rates and terms?

In a competitive mortgage environment, your good credit history can make refinancing work to your advantage. We analyze mortgage markets daily to ensure you don’t miss any money-saving opportunities.



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Home buyers' plan

Are you considering purchasing your first home this year?

If so, before March 1 could be the best time to implement this strategy, if you are thinking about buying this spring.

If you need a source for your down payment, the Home Buyers’ Plan (HBP) will allow you to withdraw up to $25,000 from your RRSP to use in assisting with the purchase of your first home, tax-free. 

If you are purchasing with someone who is also a first-time home buyer, then that amount can be increased to $50,000. You can use any amount up to $25,000 to add to any down payment amount you may have saved or use towards other expenses for purchasing a home.

The amount that you have withdrawn from your RRSP must be paid back into your RRSP account in annual payments and you have 15 years to repay them, but if you don’t make your annual payment, then it will be added to your annual income and you will be taxed accordingly. 

If you make a withdrawal from your RRSP, but do not meet the first-time homebuyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax return as taxable income.

What if you don’t have any RRSP savings?

You can get your savings working for you in a tax free and efficient way.

This strategy might be right for you. If you have room under your RRSP contribution limit you could secure a RRSP loan and contribute those funds and then later use them towards your down payment.

If you aren’t sure whether you have room to contribute, check your Notice of Assessment (NOA) for last year.

Each year, you are allowed a percentage of your income to contribute to a RRSP and the amount is carried forward and added to the next year’s total either partially or in full if you haven’t contributed.

It’s important to note that the funds you plan to withdraw for the purchase of your home, must be in your account for 90 days prior to your withdrawal.

You do not need to use the withdrawn funds for only your down payment as they may be used for any purpose that assists with the purchase of your first home:

  • closing costs
  • paying off outstanding debt
  • renovations, etc.

You must have a written contract in place agreeing to purchase a home and the home must be owner-occupied within one year.

If you have used the Home Buyers’ Plan in the past, but have not owned a home for four years, you may qualify to withdraw from your RRSP again as long as you or your common-law partner or spouse did not occupy a home that either of you owned in that four-year period. 

If you think that this makes sense for you and your financial situation, take the necessary steps before the end of this month and the RRSP deadline date for 2016 contributions.

If you would like more information on the RRSP Home Buyers’ Plan, please give me a call at 888-561-2679 or email [email protected] and I can give you some guidance and help you decide what is right for your situation.



More Mortgage Matters articles

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com



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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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