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The-Mortgage-Gal

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!



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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.



Timing your mortgage

After a bit of a slow start to the year, the spring market is in full swing. For many clients, it’s a bit of a
chicken-and-egg game:

  • Do I list my current home for sale first?
  • Do I write an offer on a home I want to buy, then list my home?
  • When is the best time to move? And how do I move out of one home and into the new one, all in one day?

It all depends.

Working with a knowledgeable realtor and mortgage broker is key to maintaining your sanity.

In a previous column, I talked about porting your mortgage from one home to another. Did you know that in many cases, you can complete the purchase of your new home a few days before the sale completes on your current home?

This is known as bridging your mortgage.

I will talk about bridging a little later.

With respect to the timing question, the answer will vary based on the reason that you are moving. If you have transferred for work in another community and are relocating, you will likely list your current home before you venture out house hunting in your new community.

There are considerations that may affect this. If you have children in school and they are close to the end of the school year, you may want to hold off on selling your home for a short time if the whole family is not moving together.

If you are close to the beginning of a new school year, you will more likely want to find a home and relocate your family as quickly as possible.

If an offer does come in on your home, you can try to negotiate with the buyers to find a date that works for your family.

Maybe your dream home came up for sale unexpectedly. Maybe you have decided to upsize or downsize your home. Maybe you have found yourself in the position of needing something more accessible because of changes in your health.

In an ideal world, the stars align and your current home sells quickly. Reality doesn’t always play out that way.

Sometimes, your home takes a while to sell. Sometimes your home sells a lot quicker than you anticipate.

So what if you’ve found a new home you love? Sellers are generally more interested in offers that are not subject to the sale of another house.

If you write an offer on a home and it is subject to the sale of your current home, most realtors will include a time clause (generally a 48-hour time frame).

A time clause means that if another suitable offer comes in on the home, the sellers will give you notice that you have 48 hours to make your offer firm and binding, or the second offer bumps yours.

On the flip side, what if you are looking to make a change, but have not found a new home yet and you get an offer on your home?

I have seen some offers where the sellers include a clause that gives them a time frame to find a new home. Generally this lines up with the time frame allowed for the purchasers to remove their subjects.

So where does bridge financing (bridging) enter into the conversation?

Once you have a firm sale on your home, many lenders have programs that allow you to arrange bridge financing so that you can purchase your new home before your original home sells.

Different lenders have different programs and criteria. As an example, let’s say you’ve accepted an offer on your home that closes on June 30. The purchasers have removed all their conditions, so you have a firm and binding sale.

You found an amazing home, but would really like a couple of weeks in the new house to do some painting and renovate the bathroom before you actually move in.

Based on the firm sale of your house, your lender will likely be able to offer bridge financing so you can complete the sale on the new property a couple of weeks before your sale is finalized.

The lender essentially advances the money you need for your down payment and finalizes your new mortgage. Your lawyer will draw up all of the documentation.

Most lenders offer bridge financing for a nominal administration fee ($250-$350) and charge daily interest on the money you need for your down payment.

In some cases you need to pay out additional bills (credit cards or loans) for the new mortgage to work. Some lenders will also arrange for this as part of the bridge financing.

Bridge financing can also be a great option if you have a lot to move and a small moving crew. Bridging to own the new house a few days ahead of time will allow you time to move and thoroughly clean the house you’ve just sold without dropping from exhaustion because you’ve packed this all into a day.

We’ve bounced around a bit here, but the key takeaway is that every client is unique. If you are trying to sort out the timing of your move. working with experienced professionals can help you identify ways to accomplish a smooth move.



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Interest rate war

If you are thinking of buying a home this spring, great news.

Over the last two weeks, many lenders have dropped their rates multiple times.

One family I have been working with made an offer on a home at the beginning of March and closed on Friday. When we submitted their application for approval, the best rate (for their situation) I could find was 3.49 per cent.

By the time their mortgage closed, their rate was down to 3.19 per cent.

While this may not sound like a big deal, on a mortgage of $650,000 the interest savings for this family over the five-year term will be approximately $9,200.

Rate is only one piece of the mortgage puzzle, and I tell my clients upfront that I don’t choose lenders based on rate alone. Client experience is a very important factor in my decision to place a client with specific lenders.

In February, a young lady I’m working with wrote an offer on a home with a closing date that is a few months away. The house was a rental and the tenants had to be given notice.

The house needs some updates so we have a Purchase Plus Improvements mortgage lined up so she can renovate the bathrooms and replace the roof and furnace.

After we had her approval in place, she called and asked about an interest rate she had seen online.

The rate was slightly lower than the approval I had in place for her. I did some investigation (called the company advertising the rate) and learned a bit more about their offer.

The mortgage was a no-frills product and did not offer a Purchase Plus Improvements option, so was definitely not the right fit for her.

I generally try to steer clients away from the no-frills mortgages as initial cost savings may mean major stress down the road.

As an example, some lenders offer both a regular mortgage and a low interest option. The low interest option tends to be .05 per cent lower.

The differences between lenders’ regular pricing and low interest option can include higher prepayment penalties or restrictive exit terms.

By exit terms, I mean that some lenders will not allow you to break your mortgage before the term is up unless there is a bona fide sale of the property.

When buying a home, most people feel that they will be there for the five-year term and have no plans to move.

Life happens. You might be offered an amazing job in another community. You may come in to money unexpectedly. More unfortunate reasons like marital separation or job loss might put you in the position of having to sell your home.

You may run into financial difficulties and need to refinance to pull equity from your home.

Statistics show that almost two-thirds of Canadians break their mortgage term before the five years are up.

In a no-frills mortgage, with the unexpected situations that arise you could find yourself in the position of having to pay a significantly higher penalty, unable to port your mortgage to your new home, or be unable to refinance.

There are other important considerations when I choose a lender for my clients. Each mortgage lender has slight differences in their policies and calculations.

There are only a few companies left that include Child Tax Credit income in their calculations. For some families this income means the difference between qualifying for their mortgage or not.

Some lenders will use 100 per cent of suite income when evaluating a mortgage application, while others will only use 80 or 50 per cent. This subtle difference can also mean the difference between clients affording a home or not.

Finally, some lenders will not drop their interest rate (or will only do it once) after a mortgage has been approved.

Everything else being equal, I have a few lenders I love to work with as they have exceptional turnaround time and do their best to make applications work.

In my last column, I talked about how the most stressful time of the home-buying process is the wait between submitting your application and finding out you are approved and condition-free.

This last few weeks of crazy rate drops have driven home the importance of choosing a lender that is truly client-focussed.

My young lady doing the Purchase Plus Improvements mortgage has also had her rate reduced by .30 per cent. In her case, this will mean a savings of approximately $6,000 over her five-year term.

Working with an experienced mortgage professional can save you a great deal of stress down the road.

Someone who knows the intricacies of different mortgage products, and has access to different types of lenders, can mean the difference between successfully qualifying for a mortgage or not …. and can help avoid needless expense down the road.



More The Mortgage Gal articles

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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

 



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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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