How to avoid derailing your mortgage approval

Mortgage approval tips

Even if you’ve been pre-approved by your bank or a mortgage broker, you could unwittingly derail your mortgage financing.

Here are four items that could go wrong. If you can avoid these types of issues, you’ll be more likely to receive a final approval and the 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 a 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

All mortgage lenders and the mortgage insurers require 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 they have these funds available.

Generally the rule is you must be able to prove you have 1.5% of the purchase price available for closing costs over and above your down payment funds.

You made a large purchase, or purchases, and took 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

As your mortgage broker, I 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.

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

Many lenders will re-confirm your current employment status prior to funding your mortgage particularly right now as we are in the midst of the pandemic.

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. Most lenders will not even review your application until a property has been found and you have an accepted offer. As your mortgage broker, I will confirm that a lender will likely give you a mortgage for a certain amount, as long as your financial situation doesn’t change prior to closing and the lender also likes 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 I will endeavour to make the process go as smoothly as possible.

It may seem like I’m asking many questions and requesting too many documents but that is what is required to ensure you are in the very best position to start your house hunting with confidence.

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

If you would like to start your journey to home ownership, please visit here to get started or give me a call at 1-888-561-2679.

It a good idea to review your mortgage annually

Mortgage check-up time

I get it, mortgages are boring! Why would you want to revisit your mortgage every year?

Your mortgage is likely the largest investment you will ever make but most Canadians don’t even think about it after first signing off until renewal time is approaching or they are considering a refinance to access equity.

About 80% of Canadians visit their doctor at least once a year to help ensure they remain physically fit, but far fewer are checking their financial fitness annually.

It’s time for a mortgage check-up. Thankfully, this check-up doesn’t require you to face your weight on that maddeningly accurate doctor’s scale—or sit in a cold and drafty little room with an open hospital gown.

Actually, it’s a mortgage check-up that’s in order and making time for a quick review may yield some amazing results.

Life changes, families grow, job’s move and retirement objectives shift. There are any number of reasons why your mortgage, and possibly your entire financial picture, should be evaluated from year to year. Maybe there are no changes needed. But if there are, it’s better to identify them early.

The mortgage you signed up for a few years ago may no longer be the best fit for you. Doing a financial check-up is a very smart thing to do annually. Many often just wait for the renewal letter before they look at their mortgage and then go back to their current lender without considering whether that mortgage meets their current needs.

There are so many things that a mortgage can do for you. It can help you become more tax efficient, build wealth for retirement, renovate your home, consolidate high interest credit card debt or perhaps invest in a business, purchase a vacation or rental property and so much more.

When you obtain a mortgage it is most likely the largest financial transaction of your life. Here’s a thought for you—instead of focusing solely on the interest rate perhaps it might be important to consider various strategies you can use within your mortgage that will assist you with your goal of “mortgage freedom” and “financial freedom” when you are ready to retire.

Having the same mortgage strategy your entire life is not always the best financial decision.

If you are applying different mortgage strategies at different stages of your life, just like your other investments, they can lead to the financial wealth and the independence you are hoping for in retirement.

Don’t wait for your mortgage to come up for renewal and don’t wait until after you have made a major change in your personal situation.

By reviewing annually, you will ensure you stay financially fit.

Give me a call today for a review. I promise it won’t hurt.

Home owner savings programs

Money for home owners

This is a busy time of year but it is also a good time to review your finances by knowing what resources, grants and rebates are available for new and current home owners.

Here’s a list of 10 of these programs but there are probably close to 30 currently available.

1. BC Property Transfer Tax (PPT) First-Time Home Buyer’s Program: Qualifying first-time home buyers may be exempt from paying the PTT of 1% on the first $200,000 and 2% on the remainder of the purchase price of a resale home priced up to $500,000.

2. Home Buyers’ Plan: Qualifying home buyers can withdraw up to $35,000 (couples can withdraw up to $70,000) from their RRSP’s to assist with the purchase of a home. The funds are not required to be used only for the down payment but for other purposes to assist in the purchase of a home such as paying off debts or to pay closing costs.

3. First-Time Home Buyers’ Tax Credit (HBTC): Eligible individuals who bought a qualifying home in 2020 can claim the home buyers’ amount of $5,000 when filing their 2021 income tax return. For 2021 the maximum tax credit is $750.

4. BC Seniors’ Home Renovation Tax Credit: Assists eligible seniors 65+ with the cost of some permanent home renovations to a principal residence to improve accessibility. The maximum refundable credit is $1000 per tax year.

5. CMHC Green Home: If you buy, build, or renovate for energy efficiency using CMHC-insured financing, you could receive a 15% rebate for building a home to ENERGY STAR® standards or up to 25% for building a home to R-2000 building standards.

6. BC Property Transfer Tax Newly Built Home Exemption: Qualifying buyers of new homes may be exempt from paying the PTT on a newly built home or newly subdivided unit priced up to $750,000.

7. BC Rebate for Accessible Home Adaptations: Provides financial assistance to eligible low- and moderate-income households to complete home adaptations for accessibility. The program provides up to $17,500 in rebates towards adaptations that directly address an individual's permanent disability or loss of ability and improve their ability to perform the basic activities of daily living. Home adaptations could include exterior and interior ramps and door widening to accommodate a wheelchair, and bathroom modifications, such as grab bars, shower seats and handheld showerheads.

8. BC Home Owner Grant: Reduces property taxes for home owners with an assessed value up to $1,625,000. The basic grant is $570 and an additional grant of $200 to rural home owners. There is also an additional grant of $275 to seniors aged 65+ and veterans of certain wars.

9. BC Property Tax Deferment Programs: Qualifying home owners aged 55+ can defer some or all of your property taxes. Qualifying low-income home owners can defer property taxes and qualifying home owners who financially support children under the age of 18 can defer property taxes or a person with disabilities.

10. Heritage Grants Program: Maintaining older homes can be costly, but preserving our heritage is important, so Kelowna provides grants to owners of buildings with a Heritage Designation a maximum of $12,500 per 3-year period and buildings listed on the Kelowna Heritage Register a maximum of $7,500 per 3-year period to help with the costs incurred in exterior conservation work.

There are also other cost savings program available such as the Home Renovation Rebate Program through Fortis BC and BC Hydro with rebates available for insulation and energy-efficiency improvements.

If you would like further information on any of these programs or other programs that might be available in your area, please let me know.

Consolidating debt can be helpful but it's not a quick fix

Debt consolidation options

If you are 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.

You may still have those post-holiday debts hanging over your head.

If you are a homeowner and there is sufficient equity in your property, consolidating all of 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 going forward 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.

A small unsecured personal loan may be sufficient. In an extreme situation, it may be necessary to sell your home to clear off all debts.

You may have heard about ‘interest free’ debt consolidation programs where a company will negotiate on your behalf to reduce the debt and arrange a single monthly payment. With very careful consideration this may be a last resort option but be aware that this type of solution will ruin your credit rating for a long time.

Get all of the facts before entering into this type of arrangement.

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 complete confidential assessment and discussion of all the possible options, please give me a call at 1-888-561-2679 or email [email protected]

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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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