Mortgage request declined

Applying for a mortgage can be extremely stressful and if you aren’t familiar with the requirements to qualify for a mortgage then even more so.

It can be very disheartening if your bank denies your mortgage request and there can be consequences if you placed an offer on a home without including a condition for financing.

Even if your bank said no, there still may be options to get you into a home.

Here are some of the common reasons why you may have been declined.

• Today’s mortgage stress test rate is 5.25%. That means even though the contract rate on the mortgage may only be 1.89% you must qualify to make higher payments at the stress test rate. All federally regulated lenders (banks) have this requirement as do most credit unions and other prime mortgage lenders.

• Poor credit history. Most mortgage lenders want to see a good credit score of 680 or over in order to qualify for best rates.

• Your income is too low to qualify for the amount of mortgage that you are requesting. You must have sufficient declared income to not only afford to pay your mortgage payment but also property taxes, heating costs and all the other monthly expenses such food, transportation, etc.

• Your down payment is too low. For properties under $500,000, the required down payment is 5% of the purchase price. For properties over $1 million, the required down payment is 20% of the purchase price. The minimum down payment required for homes between $500,000 and $1 million the required down payment is 5% of the first $500,000, and 10% of the value over $500,000.

• Employment history – Salaried employees with guaranteed income will have a much better chance of being approved than someone who is self-employed particularly if the business has been recently established. If you aren’t currently working then an approval will be close to impossible.

• Issues with the property – Lenders are not only approving you but also the property. If issues such as structural damage, mold, etc. exist the repairs could be costly. This type of property will not meet the requirements of many lenders.

• The property value appraised too low and does not support your mortgage request. This could require a higher down payment to complete a purchase or in the case of a mortgage refinance there may not be sufficient equity in the property as the maximum amount available is 80% of the appraised value.

As a mortgage broker I may be able to guide you so you are in a position to have a stronger mortgage application. We can look at credit repair to improve your credit score or a plan to get some debts paid off. Assess the type of property you are considering and establish a realistic budget so you can house hunt with confidence. Come up with a savings plan to increase your down payment. There are also alternate lender options available for those who are newly self-employed.

A mortgage pre-approval in advance of house hunting can also prevent disappointment.

Please give me a call discuss possible options if your mortgage request has been declined and we can sort out a plan.

Mortgage rules tighter for self-employed workers

Solutions for self-employed

It is no longer as easy as it once was for the self-employed to obtain mortgage financing. If you have tried to secure a mortgage recently with an institutional lender, you may have already found that out for yourself.

In the past all you had to do was state your income to your lender without any third party verification. As long as you had a great credit rating, that was good enough then, but not any longer. Now you have to provide documentation to prove that you have the ability to make your mortgage payments.

There are still good options available with traditional lenders such as banks or credit unions but you will have to prove that you are declaring a ‘reasonable income’ for your profession on your tax returns and also have a great credit rating. These two factors combined could be a challenge for many who are self-employed as their accountants may be minimizing their income declared for tax purposes which is great unless you are planning to secure new mortgage financing.

With these standard mortgage programs you will either require a minimum 35% equity or if you have less than a 20% down payment, a lender will require a minimum of two years proof of income as self-employed.

The good news, there are many alternative lender options for self-employed clients who no longer qualify with a traditional lender. These lenders are the market’s response to consumer demand spurred on by the tighter mortgage regulations.

These are reputable companies who offer alternative mortgage products to consumers who can no longer qualify with conventional lenders. They fill an important role in fulfilling the dreams of home ownership for Canadians or have assisted with financing needs in other ways such as accessing equity or refinancing to pay off high interest debt.

Many of these lenders, who currently offer prime mortgages, are now expanding their offerings beyond traditional mortgages to fill this gap in the market and are generally only accessible through mortgage brokers.

My best piece of advice for someone who is self-employed and looking to obtain a mortgage whether it is to purchase a property for the first time or moving up, refinancing a mortgage or looking to purchase an investment property – be prepared! Meet with your mortgage broker well in advance to discuss what is required to obtain a pre-approval for your financing.

You may have to work a little harder and provide more documentation but there are still many options available to the self-employed so please give me a call 1-888-561-2679 to ensure that you are in the very best position when it comes time to arrange your mortgage financing.

Co-signing a mortgage

With the new tighter mortgage qualifying rate at 5.25% and today’s high-priced real estate, it can be very difficult to qualify for a mortgage.

Even with good income and some funds saved for a down payment you may not qualify for the mortgage amount you require to get into the type of property you want to own.

As a result you may require a co-signer, but here’s what you and your co-signer need to know about them signing onto your mortgage.

  • If you are unable to make the payments for any reason, your co-signer will be expected to make them on your behalf. By signing the mortgage documents, they have assumed full responsibility for the payments.
  • Whether someone is the principal borrower, co-borrower, guarantor or co-signor, if you’re on the mortgage, you’re 100% responsible for the debt of the mortgage and everything that goes along with that. A co-signer has all the same legal obligations as everyone else on the mortgage.
  • If payments aren’t being made, there is a chance the lender will take legal action against the co-signer. This includes all available collection methods, such as obtaining a judgment in court or garnisheeing wages or bank accounts. They could even go after the co-signer’s property or assets in order to cover the losses.
  • When you co-sign for a mortgage, all of the debt of the co-signed mortgage is counted against you. This means that if you’re looking to buy another property in the future, you will have to include the payments of the co-signed mortgage in your debt service ratios, even though you aren’t the one making the payments. This could significantly impact the amount you can borrow in the future.
  • Once the initial term has been completed, the co-signer will not automatically be removed from the mortgage. The person who was co-signed for will have to make a new application for the mortgage in their own name and qualify on their own merit. If they don’t qualify at this time, the co-signer will be kept on the mortgage for the next term.

There are also other potential issues to take into consideration before signing on to someone’s mortgage, and it’s prudent to seek both tax and legal advice from professionals.

  • There can be implications with respect to your personal income taxes. You may accumulate an obligation to pay capital gains taxes down the road. This should be discussed this with your tax accountant.
  • Co-signing may impact Land Transfer Tax Rebates for first-time homebuyers.
  • You are entrusting your credit history to another party.

Before co-signing for any debt, please ensure you fully understand all of the potential implications and how it could affect you personally.

I am happy to have a conversation if you are considering co-signing on a mortgage so please give me a call at 1-888-561-2679.

The best mortgage rates

Even though the frenzy of activity we saw with our spring real estate market seems to have settled down some for the time being, there is a big competition of low rate offerings in the mortgage market that has both mortgage brokers and banks competing with each other and advertising very low rates.

So the most frequent question that I hear from clients is: “What is your best rate?” And why wouldn’t you ask that question? The media is flooded with articles about how to shop for the best mortgage rate and rate sites are popping up all over the internet. That must be the most important question to ask when you are shopping for a mortgage. Right?

The worst kept secret? It’s really easy to get a low interest rate on your mortgage. All you have to do is make a couple of calls for rate quotes then pit your mortgage broker against your bank or vice versa and one of them is going to beat the other on rate. Excellent!

So back to your question – “What is your best rate?” Now you may think that this is an easy question for a mortgage broker to answer, but it’s really very complicated. You want me to just tell you what my best rate is for a certain term of mortgage. But I’m conflicted and I don’t really want to answer that question directly because I want you to understand that you aren’t asking the right question.

Understanding that the interest rate is only one small part of your mortgage’s terms and conditions is important. If you take a look at your mortgage documents, the interest rate is only mentioned once on the very first page. Have you ever wondered what’s in those other 25 pages?

There are dozens of mortgage lenders in Canada – mortgage companies, banks, credit unions, trust companies, etc., and there are many differences within their mortgage documents that lay out the terms and conditions of your mortgage, such as prepayment options and the penalties for breaking your mortgage early, portability and assumption options, and even renewal terms. But you know what? There is very little difference in their rates.

What could be in the fine print? Perhaps the mortgage is closed for the five-ear term. 100% closed. That’s the trade-off for an extremely low rate.

Some of these low rate mortgages are “no-frills” mortgages which means they are packed with many restrictive conditions and potential landmines. If you commit to one of these products without reading all of the fine print, which most often happens, you could find yourself in a situation that you may find difficult in the near future, meaning sometime in the next three years given that six out of 10 Canadian mortgage holders break their mortgage at about the 38-month mark.

There is no denying that rate is important but what is the right question that you should really be asking? “What is the best mortgage available that is going to meet both my short-term and long-term goals?” And yes it should have a competitive interest rate. Ensure that you read and understand ALL of the fine print in your mortgage’s terms and conditions.

Give me a call at 1-888-561-2679 and we will discuss rate at some point in our conversation but ensuring that you understand all of the terms and conditions of your mortgage contract is really more important to me as your mortgage broker.

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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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