Mortgage homework

Most first-time home buyers I work with are better prepared then they think.

There is a wealth of information available at their fingertips, so by the time they call for a mortgage pre-approval they’ve already started researching the home buying process.

There is so much information available that for some it becomes overwhelming.

As a mortgage broker, I want my clients to understand the process and be confident with the decisions they make. I want them to feel comfortable asking me any questions that come up.

I also want to be confident that I am providing the best advice based on their situation, so I pre-screen my clients and ask for certain information upfront

I get calls daily that start with “What’s your best rate?”

Three years ago, that was an easy question to answer. We had one rate sheet and (with a few exceptions) providing a rate quote was pretty simple.

After the mortgage rule changes in October 2016 and January 2018, providing the best rate is a more involved conversation. I have six pages of rates to go through and want to make sure I have the right fit.

Rate is only one piece of the mortgage puzzle, and I don’t want to misquote a rate that I can’t get for a client when they have an accepted offer on a home.

It is as important for your mortgage professional to do their homework as it is for you (as the client) to do yours.

For instance, if you are considering buying a home and using a Purchase Plus Improvements product, there are certain lenders who have low rates but don’t offer this program.

If you are writing an offer on a home on leasehold property in West Kelowna, there are a select few lenders that will provide mortgages.

If you are needing to use your Child Tax Benefits to qualify for the mortgage, there are only a few lenders that will use that income.

If you have student loans outstanding, lenders factor payments differently which can make or break an application.

If you are self-employed and have done some creative accounting, we are likely looking at a different mortgage product.

Buying a home is the largest investment and financial commitment many people make. It is easy to get caught up in the excitement and make a rushed decision based solely on interest rate.

Sometimes, the best rate or advertised specials may cost you dearly in the long run.

Many lenders offer two similar rates. As a generalization, the ones I see are .05 per cent apart. On a $400,000 mortgage, the interest savings is $943.22 over the five-year term.

If the lower rate mortgage comes with restrictive clauses such as a higher pre-payment penalty or the requirement to sell their home to get out of the mortgage I make sure clients understand the consequences of choosing that lower rate.

Statistics show that two out of three mortgages are broken before the five-year mark. By broken, I mean that the clients have either sold or refinanced, so have had to pay out the original mortgage.

If they have chosen one of the low rate mortgage products this can mean a significant penalty.

Last summer, I worked with a young couple who had chosen the lower rate as they were convinced they would be in their home for the long term.

They found themselves in financial distress when her position was eliminated and it took almost six months for her to find a similar job at the same rate of pay.

Their lender did refinance their mortgage to consolidate their credit cards and loan, but because they had chosen the low rate mortgage, they had to pay a penalty of $3,400.

Had they chosen the rate that was .05 per cent higher, there would have been no penalty involved.

With rates dropping over the last two months, another consideration for people purchasing a home is what the lender’s policy is for dropping your rate after your initial approval but before your mortgage closes.

A physician friend groans about patients who use Dr. Google to self-diagnose before they book an appointment.

The internet is a great tool for research, but it is also important that you work with a professional who takes their time to get to know you and does their homework to find the right mortgage for you.


Courage to choose

Choose courage over comfort.

This phrase has been running through my head since I heard it. And this story does circle back to mortgages, I promise.

On Saturday morning, I attended Habitat for Humanity’s Key Ceremony in Peachland. A deserving  family received the keys to their new home.

Over the years, I had heard of Habitat for Humanity but had only a vague idea of what they do as an organization. I heard of projects overseas where people go to volunteer their time to help build homes for people in impoverished countries.

I knew about ReStore, as I frequented the store in Prince George before I moved to the Okanagan.

I started volunteering with Habitat for Humanity last fall. I was looking for an opportunity to give back as I feel I have been tremendously blessed and wanted to find a way to help others in our community.

What I have seen over the last few months is what a dramatic impact Habitat has on the lives of so many people in our area.

At the ceremony on Saturday, there were tears of happiness and whoops of joy. This family’s journey to home ownership was shared. For them, it was a 12-year plan to have a home to call their own.

When it came time for the new homeowner (a single mom) to say a few words, there were not too many dry eyes in the crowd.

She shared a little more about her journey, including how she had to put her dreams of pursuing her art as a career on the back burner, in order to take the steps necessary to qualify for a Habitat home.

She talked about having to make some tough decisions. She talked about prioritizing having a safe, stable home for her son over her desire to focus on her passion.

She talked about choosing courage over comfort.

Then, she snipped the ribbon and opened the door to her new home.

There are many of us who can learn from this amazing lady, me included. Sometimes, making the tough decisions and sacrifices now will pay off in amazing ways down the road.

One couple I worked with about four years ago shared a strategy with me. They desperately wanted to buy a home, but were having a tough time saving for their down payment.

They had done some reading and started by tracking where their money was going.

They diligently wrote down every penny they spent for a month. At the end of the month, they totalled up a few different categories, and were a bit stunned to realize what they were spending on coffees and meals out.

They went into the bank and opened what they called their Impulse Account. From then on, every time they were out and about and had the urge to spend $11.50 on coffee, they would transfer the $11.50 to their Impulse Account and skip the coffee.

At the end of the first month, they had just shy of $400 in their account. Once they realized they could save money, they knuckled down and made a few other changes.

Over the 1 1/2 years, they saved what they needed for their down payment.

The following year, I worked with another young couple looking to buy their first home. This couple took things to the extreme and made some dramatic life changes as they were determined to buy a home.

For them, this meant selling one of their vehicles and their travel trailer. The young lady walked to work for almost a year to help save for their down payment.

They moved to a cheaper rental and shared the space with a roommate. They cut back on all frills, including meals out and cable.

As she put it, they ate a lot of Mac and cheese.

I couldn’t have done this, and I doubt I will see anyone else work so hard to accomplish what they did.

We all have different priorities. Home ownership is not for everyone. Home ownership may seem like a pretty big goal.

It may not happen today, tomorrow, or even over the next few months, but with a clear goal, a plan, and a strong desire to succeed there may be options out there for you that you haven’t considered.

Having the right people in your corner can make all the difference.

Congratulations to this family on their new home – you’ve worked so hard to get there and are truly an inspiration.

Honesty best policy

Finding the right mortgage broker is important.

Whether you choose to work with a mortgage broker, a branch employee, or a mortgage specialist tied to one  bank, working with someone who helps you to feel comfortable with the process and knows what they’re doing is key.

Being honest and upfront with your mortgage person is equally as important.

Last week, I had a series of back and forth emails with a couple.

They wanted very specific answers, but would only provide the barest of information for me to work with. They told me they are looking to purchase a home in the $900,000 range.

I replied several times, always qualifying my answers that I needed to understand the whole picture before I was comfortable going into more detail.

Inside voice: I was fully aware that the clients were either shopping or researching before committing to working with me.

We set up a time to chat that confirmed they were having similar conversations with other mortgage providers.

Essentially, they were looking for someone who would tell them what they wanted to hear.

Taking their application over the phone and running quick calculations showed that they did not qualify to borrow anywhere near what they needed to buy the home.

They had apparently been talking to various people over the course of a few months, but never sitting down to provide all of their information. Their branch had pre-approved them to buy the $900,000 home.

When the rubber hit the road and they had an offer on a home, the bank declined their application.

When I dug a little deeper, it turned out that they hadn’t disclosed a child-support payment she had to make to her ex-husband, or a vehicle loan he had co-signed for his daughter.

The loan payment showed up on his credit report, and the child-support payment came to light the same way (arrears where Family Maintenance Enforcement Program has put a comment on her report).

The clients had been adamant that they didn’t want anyone to touch their credit report until they had an offer in play because they were confident it was squeaky clean.

Their bank offers a free app that shows them their credit score all the time. Their scores were 734 and 756 respectively.

When their bank person pulled their credit reports and the additional debts came to light, it was game over for their approval.

So now the clients have an accepted offer on a home, and the people they are buying from have written an offer on another home.

There are a minimum of four realtors, three families, two home inspectors, and multiple other professionals who are investing time into making these purchases come together.

The clients are madly scrambling to find financing as they have fallen in love with this home and have given their landlord notice that they are moving (that’s for another conversation).

I am very particular about getting a complete picture before I give clients the all-clear to go write an offer.

If clients prefer, I wait to pull their credit history. I understand as it can sometimes take over a month to find a suitable property. When we submit applications for approval the credit bureaus need to be less than thirty days old.

I clearly and carefully explain that any mortgage pre-approval I do (if I don’t review their credit) is subject to a satisfactory credit bureau.

I will ask the clients to pull their credit reports and send me a copy so I can have a quick look. Over the years I’ve had several unpleasant surprises and don’t like having to navigate issues after the fact.

I’d rather know what we are working with up front so we plan accordingly.

I am hoping we will be able to find a solution for these clients but can not say with certainty that we can.

Buying a home can be an interesting ride. Regardless of how much homework you’ve done and how prepared you are, there will be moments of stress and anxiety along the way.

Knowing what you can afford, and working with a professional who does their due diligence from the beginning , can help make the process smoother – and most importantly successful.

Hope you enjoyed the gorgeous weekend. Perfect weather for house hunting!

Mortgage-fee red flags

Twice over the last week I’ve fielded questions about mortgage fees, so I thought this might be information worth sharing.

It is important to note that this information applies to residential mortgages only; commercial mortgages are structured differently.

For the majority of residential home purchases, clients that work with mortgage brokers pay no fees. Brokers are paid by whichever lender provides your mortgage financing.

It is also important to know that most brokers work hard to find solutions and have their clients’ best interests at heart.

There are always two sides to every story. Most brokers work hard to treat their clients with respect and to do right by them, so it pains me to hear stories about clients who have been taken advantage of.

First conversation was with a client I worked with last year. He was looking to refinance his home. Due to the unique nature of the home and the way the property is registered with Land Titles, there was only one lender (when he first bought it) that would provide mortgage financing.

The second call I took was from a buyer that was put into a last-minute panic situation to find financing as the bank she had been working with assured her she had financing in place.  After subject removal (and less than two weeks until closing), they told her that they actually could not arrange financing.

The first client wanted to find different financing as the lender he was with was charging rates about two per cent higher than what was available with other lenders.

I wasn’t able to find a solution for him and referred him to one of the chartered banks as they promoted themselves as specialists in this particular area. They in turn referred him to another broker.

The client came back to me this week and asked if I would mind reviewing the documents they had from the new broker.

The first thing that popped out at me was they were being asked to sign a fee agreement which included wording that the fee was payable even if the mortgage did not finalize.

The second thing that concerned me was that the compliance documents referred to a specific mortgage approval, but the commitment document from the lender was not included in the package.

Third, and most concerning, was that the fee referred to above was not included or disclosed on the compliance forms.

There are a few red flags here.

As I said above, most times clients pay no fee when working with a broker. The benefit of working with a broker is that you have someone with access to multiple options working on your behalf to find the right fit for you.

That being said, for residential mortgages, brokers can absolutely charge fees. This is the norm when we work with private lenders. There are also situations where we need to work with a lender that does not compensate brokers for introducing new clients.

In both these situations, conversations should happen up front so that there are no surprises and to ensure that clients are aware of what to expect in terms of fees or costs.

From time to time, we may find out part way through the process that we have to charge a fee as we can’t find a lender through our regular channels.

A conversation should happen at that time to make sure the client is aware of the fee. Ideally this is confirmed in writing by having the client sign a service agreement which references the specific fee.

What brokers cannot do is ask that fees be paid directly to them or paid prior to a new mortgage being advanced, or charge fees for a mortgage that never finalizes (exceptions are out of pocket third party expenses like appraisals that the broker covered).

Broker fees must be paid from mortgage funds at the time the mortgage is finalized with the lawyer.

At the time your mortgage closes your lawyer will ask you to bring in a draft to cover closing costs. If the fees have not been added in to the mortgage amount, your draft will include those fees even though the fees are technically paid from the mortgage funds.

At the time your mortgage closes, your lawyer will ask you to bring in a draft to cover closing costs. If the fees have not been added in to the mortgage amount, your draft will include those fees even though the fees are technically paid from the mortgage funds.

With private mortgages broker fees are usually built in to the mortgage amount. In a situation where we take you to a lender that doesn’t compensate brokers, it will not generally be built in to the new mortgage.

As of July 1, 2017 mortgage brokers in B.C. are required to disclose our compensation on a compliance form (Form 10 – Conflict of Interest Disclosure Statement) that must be signed by our clients.

This form must show any fees are paid to the broker, either by the lender or by the client. The compliance form this client was being asked to sign did not include the broker fee. This may have been an oversight on the part of the broker, but the client was concerned about the wording of the fee agreement, so I encouraged him to discuss this with his broker.

The second client had purchased a leasehold property so there are fewer options available, especially with a tight turnaround time. Her realtor referred her to a mortgage broker.

The broker scrambled to get an approval in place for the client. She has signed documents with the lawyer and her purchase will complete on time.

Her concern was that the broker informed her after everything was signed with the lawyer that she was being charged a one per cent fee, even though the broker would be paid by the lender.

The broker told her that he was charging an additional fee due to the rushed nature of the approval.

Because of how her situation unfolded, she would have happily paid a fee so that she didn’t lose her deposit or risk being sued if her purchase did not complete. She was upset that this had not been discussed at any point during the process.

I’ve been under the gun many times where we have to arrange financing as quickly as possible. It is a high-pressure situation – we are dealing with peoples’ lives and not finding suitable financing can have dramatic consequences.

I only heard the client’s version of how this situation was handled, so again encouraged her to go back to her broker to confirm what she is responsible for in terms of fees or costs.

Mortgage brokers in BC are governed by the Financial Institutions Commission (FICOM) and the Registrar of Mortgage Brokers. There are very specific guidelines about fees that can be charged, and how they can be collected.

What it boils down to is working with an individual that you trust and asking the question up front about any fees that may be charged. On the residential side, brokers are prohibited from charging:

  • Application fees
  • Commitment fees
  • Cancellation fees

Brokers are also prohibited from threatening legal action to collect fees if clients decide not to move forward with the financing they’ve arranged.

Miscommunication can happen at so many points during a mortgage application.

If you are concerned about how things are going, the best bet is to ask your mortgage professional about what’s on your mind. A very simple misunderstanding might be causing you to lose sleep, and this can often be solved by a conversation.

This felt a little heavy, but the point I was trying to make is that it is important to know who you are working with. Ideally you are not in a rush situation and have the time to discuss and learn about your options, particularly if your situation is out of the norm.

For information about different types of lenders, check out one of my previous blog posts Know Your ABCs of Lenders.

A solid relationship with your mortgage professional, and open honest communication, goes a long way toward minimizing the stress of the mortgage process.

More The Mortgage Gal articles

About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

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

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog


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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