Kill your mortgage approval

We have worked hard together to get your mortgage approved and have been successful in securing great rates and terms for your mortgage financing.

There is going to be a period of time between receiving the final approval for your mortgage and the date that it will actually fund with the lender.

Things can go wrong within this timeframe, so here is a brief list of things to NEVER do between the approval and the final closing of your mortgage as most lenders are going to re-verify information before they fund your mortgage.

If anything has changed, it could kill your mortgage approval.

Change your job – Quit your job – Become self-employed

Do not change your employment status even if you are moving to a job that pays you more than you are currently making.

Most employers have a probationary period that you must complete and the lender may no longer feel comfortable with granting you a mortgage because you are making a change in your employment status.

Quitting your job might seem like an obvious thing not to do, but losing the income might also disqualify you for the financing even if you are not the primary borrower.

Make a change to self-employment – wait until after your mortgage closes. The mortgage rules for the self-employed are different than if you are an employee.

Buy a new car. truck, van, motorhome or new furniture

Most lenders are going to pull a new credit report right before they fund your mortgage.

If they discover credit inquiries from car dealerships or a new car loan or any new debt now reporting on your credit report, the new payment could put your qualifying budget ratios out of line making it so you no longer qualify for the mortgage.

It might also be tempting to go shopping for furniture and dishes for your new home, but you should wait until after you move into your new home.

By increasing the amount that you owe to your creditors you are jeopardizing your mortgage approval because you didn’t owe those funds when your mortgage request was reviewed by the lender.

Another side effect of applying for new credit – it could pull down your credit score to a lower number that means you no longer qualify for your mortgage as there are minimum credit score requirements.

Don’t use those credit cards or close any accounts

As above, lenders are going to update your credit report before they fund your mortgage. Significantly increasing the balances outstanding on your credit cards could disqualify you for your mortgage financing.

The lender has also approved your mortgage based on your current financial situation. There are minimum requirements for open accounts by both lenders and mortgage insurers so conversely by closing accounts you may no longer meet those minimum requirements for open credit accounts.

Do not co-sign for someone else’s mortgage or loan

If a family member asks you to assist them by co-signing or being a guarantor on a mortgage or a loan please don’t.

You may have the best intentions to assist a family member but this could also jeopardize your approval. Adding any extra debt could throw your borrowing ratios out of line as the new payments must be included in your debts even if you aren’t the one who is making the payments.

Don’t stop paying your bills

We may have approved you for a refinance of your mortgage to payout your debts but you need to continue making your payments until the mortgage has funded and the balances owing have been paid off.

Your credit score may be affected by not paying those bills and that could result in you no longer qualifying for the refinance.

The best course of action is to check with whomever approved your mortgage financing before making any changes to your financial situation. Making changes without the proper advice could actually cause your mortgage financing to be declined.

Unfortunately these examples are from real-life situations. Give me a call at 888-561-2679 or email [email protected] and I will be happy to ensure that you don’t do anything to jeopardize your mortgage approval.

Consolidate your debt

If you're carrying high interest credit card debt, car loans or other personal loans, you know it can be challenging to pay off everything that you owe.

If you are a homeowner and there is sufficient equity in your property, consolidating all your debt and including it in your mortgage payment might be the right solution for you.

There are many benefits to debt consolidation including the following:

  • A much lower monthly interest rate for all of your debts
  • Lower monthly payments
  • The comfort and convenience of making only one monthly payment instead of making multiple payments on your credit cards and other loans
  • Improving your credit score by reducing the amount you owe and now being able to make all of your payments on time

A debt-consolidation mortgage is not a quick fix and a full financial review should be completed with your mortgage broker. There could be costs to break your current mortgage to include those higher interest debts with your mortgage payment.

You may be lowering your current monthly payments, but now the debt is going to be repaid over a longer period of time. Is that really going to be financially beneficial?

It all comes down to the math, as the overall cost of borrowing could be higher or lower than what you are currently paying. Crunching all the numbers is the only way to know for sure.

There is also another real danger to consider. Are you disciplined enough to stick to a budget and live within your current income or will you be tempted to use those credit cards again and end up in exactly the same situation in the near future?

It can become a vicious circle unless you learn to live within your budget. You don’t want to end up in the same place a year from now.

On the other hand, if you are disciplined and can live within a budget, the benefits of the increased monthly cash flow could significantly improve your financial situation. These extra funds might be used for investing in your retirement with RRSP contributions and having an emergency financial fund in place for life’s surprises.

There are several possible options to consider for a debt-consolidation mortgage, including breaking your current mortgage to include the debt owed, a second mortgage for the consolidation or a home equity line of credit.

Now, all that’s left is to figure out precisely which solution is best for you to wipe out all those high interest payments.

If you would like a review, please give me a call.

Private mortgage options

Do you think of private mortgages as a last resort; the very last option to consider should you be unable to obtain mortgage financing through a traditional lender?

That is the popular opinion, but private lenders have been filling the void left by our tighter lending rules and with the new mortgage stress test now in play, the role of private lenders will become more important.

There are several opportunities where you might consider private financing and funds are available for first, second or even third mortgages.

Private lenders are different from banks or other mortgage lenders with the primary difference being the source of funding.

Private lenders get their funds through individual investors or groups of investors and they are considered a short-term investment for the investors. That is why private financing is usually only available for one- to two-year terms with the expectation that the borrower will be able to pay off the mortgage at the end of the term.

Unlike traditional financing, a private mortgage lender is more concerned with the property as this is the security they have should there be a default in payments by the borrower.

The primary concerns are the condition of the property, location, the borrower’s equity in the property and how easy would it be to sell if the borrower gets in trouble. That is why it is difficult to find private mortgage options for rural or unusual properties.

Another reason that private lending is becoming more popular is the tightening of mortgage rules for self-employed and commission income borrowers.

Self-employed borrowers with more than three years in business and those who have commission based earnings are now required to provide traditional proof of income to qualify for a mortgage. If you aren’t showing a reasonable income for your profession, then there could be a challenge in obtaining financing from institutional lenders.

One sector of the market where we are seeing an increase in this type of mortgage is with real estate investors. Some property investors are getting tired of dealing with the bank’s restrictive lending policies and are opting to go to private lenders regardless of the higher costs.

Real estate investors now know that there is a requirement for a minimum 20 per cent down payment on non-owner occupied investment property purchases.

Underwriting policies for qualifying have tightened and a reduced the amount of rental income is now allowed for qualifying. The demand for private financing has increased for smaller investment properties used to generate rental income as they may no longer fit within the banks standard guidelines.

You may need to consolidate debt to improve your credit score so you can qualify for a mortgage at a prime lender in the future.

A private second mortgage can also be a good way to consolidate debt and although the rates are higher than a first mortgage, the rates are still often lower than high interest credit cards, car loan payments or even unsecured lines of credit.

The higher your credit score most likely the rate will be lower. Also the more equity you have in your property then the higher chance of getting approved for a second private mortgage.

Have you been turned down by your bank? Then you might also consider a private mortgage option as a temporary solution until you repair your credit or fix the reason you were declined at a prime lender.

Just know that there are options available beyond traditional lenders and this is a growing segment of the mortgage market providing alternate solutions for mortgage financing.

If you would like more information on private or alternative mortgage lender options, please call me at 888-561-2679 or email [email protected].

Home buyers' Plan

Are you considering buying your first home in 2018?

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 help buy your first home, tax-free.

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

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 buy a home and the home must be owner-occupied within one year.

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, but if you don’t make your annual payment, 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 and put toward the purchase of your home, must be in your account for 90 days prior to your withdrawal.

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, you may want to take the necessary steps no or before the RRSP deadline date for 2017 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.

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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

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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