Improving your credit score

As we move into the holiday season, mortgages are not top of mind for most of us.

However, over the last few weeks, I’ve noticed that our housing market seems to be picking up. I’ve also noticed an increase in the number of mortgage qualification conversations I’ve been having as clients are getting ready to buy in the spring.

If you are considering buying then, my suggestion is to reach out to your mortgage professional soon to make sure you are organized and ready to go in case there are any issues you need to deal with while you are getting ready to make an offer.

Over the last few months, I’ve worked with clients who discovered surprises on their credit reports. Finding these surprises once you have an accepted offer in play can add extra stress that you don’t want (and shouldn’t need) to deal with.

Three issues we’ve had to deal with were related to debts that were over five years old. All of the debts had been paid in full.

None of the three had been updated on the credit reports to show as having been paid. They do now, as our office sent the corrections into Equifax while we had the documents on hand.

In one of the cases our client was able to get a printout from his bank the first trip in. The printout clearly showed the account number and a zero balance.

For the other two clients, confirming they had indeed paid the accounts in full proved a little frustrating.

In the first case, the outstanding balance related to a credit card. It took the client several phone calls to the credit centre and two trips into the branch to get a printout confirming the account had been paid in full.

The credit centre directed them to the branch and the branch sent them back to the toll-free line for the credit centre.

This was really frustrating for the client. She was trying to resolve this while organizing a home inspection and insurance and still dealing with day-to-day life as a single parent.

The third situation was the most challenging. Because of a nasty separation, one of this client’s phone accounts ended up in collections. The account was in her name, but was the phone her ex husband used. He stopped paying it and she refused to pay it because it was his bill.

They did eventually sort it out and the account got paid. However, the phone company still showed it as an outstanding balance.

This, too, was a case of the client being directed back and forth between the phone company and the collection company.

It was a $600 bill and was showing as written off on her credit bureau. It took almost two weeks to get written confirmation that it had been resolved.  

In this case the client was fortunate as her closing date was almost two months away, so she had the time to get it cleared up.

I encourage clients to do an annual financial check-up, which includes taking a few minutes to review their credit bureau. If you find inaccurate information on your credit report you are able to correct it.

Equifax is the credit report most lenders use to evaluate your credit history. Directions for correcting your credit report are on their website.

There is a process that we use as brokers to have credit reports corrected. When we submit we generally have a call back within three days confirming that it has been corrected and I’ve seen scores jump dramatically within a month.

If you’ve had any credit issues in the past, its especially important to review your report before moving forward with an offer. We’ve shared some thoughts about improving your credit score on our website. 

Life tends to get pretty hectic for most of us through the holidays. Dealing with a renewal, refinance, or purchase can be stressful at the best of times. Set yourself up for success well ahead of time.


Not all lenders are equal

Last week, a client asked why I chose a particular lender for them.

It was a great question, so I spent some time breaking down why we went the route we did.

When I work with clients, I look at their overall picture before deciding which lender to place their mortgage with.

Rate, although an important consideration, is not always the deciding factor. Each lender has slightly different guidelines, policies, and processes.

Each client’s situation is slightly different.

The type of property you are looking to purchase can rule out certain lenders. As an example, if you are looking to purchase an acreage or rural property, some lenders are more receptive to those applications.

Your financial situation may affect which route we go.

During the last few months, we’ve seen a few more lenders willing to consider Child Tax Credit income for qualifying purposes.

Among these lenders, there are some that will use 100% of the income, while others have caveats about this income being used, but only to a maximum percentage of overall family income.

Your time frame may direct us to one lender over another. There are a few we work with who can process an application from start to finish really quickly.

If you own one or more rental properties, the way that lenders calculate the rental income and expenses can make a significant difference in the amount you qualify to borrow.

Some lenders have a cap on the number of properties that their clients own, whereas others do not.

If you are writing an offer with a closing date way down the road, some lenders will only issue an approval if you are within ninety days of the closing date, while others will issue an approval up to 120 days out.

One of the most important things I look at is how the lender calculates any prepayment penalties. Some will use what they call their posted rate as opposed to their best rate, which can make a huge difference in the penalty levied if you pay your mortgage out early.

Finally, if clients are in the middle of a term with one lender and are looking to make a move, it's best to explore options with the current lender first.

I would far rather we try to save any penalty by porting their current mortgage, or if the closing dates don’t quite line up going back to the same lender for a replacement mortgage.

Just because one lender has said no does not necessarily mean you don’t have any options.

Sometimes trying to find the right product for clients feels a bit like working on a Rubik’s cube.

Getting all of the pieces to line up can be a bit of a puzzle, but mortgage clients today are fortunate to have access to many different lenders and many different options.

Get mortgage insurance

I’ve touched on mortgage insurance before, but after a few conversations the last two weeks, I feel it is worth revisiting.

When you are working on your mortgage, there are two types of insurance that your mortgage professional will talk about.

The first is mortgage default insurance, which is often referred to as CMHC insurance. There are actually three organizations in Canada that provide this insurance:

  • CMHC
  • Genworth
  • Canada Guaranty.

Mortgage default insurance protects the lender in the event that the borrower defaults on their mortgage payments. This insurance is mandatory if you put down less than twenty per cent when you buy your home.

It is a one-time premium, which is added to your mortgage up front. It is calculated on a sliding scale, so the more of a down payment you have the lower your premium will be.

This premium can be ported from one property to another, which can save you thousands of dollars.

The premium protects the lender, so if your home goes into foreclosure they do not have to absorb any loss.

The second insurance that will be discussed with your mortgage professional is mortgage protection insurance. This is commonly life and disability insurance which protects you as the borrower.

Banks and brokerages offer different coverages, so it is important to understand a few key differences.

This optional insurance is generally paid monthly as you go along, and in most cases can be cancelled at any time.

In my early days, I didn’t spend much time discussing the insurance coverage we offer. At the time, we had a different product that (in my opinion) was very expensive and didn’t offer great coverage.

Over the years, I’ve heard many stories about how clients’ lives have been impacted by either having or not having insurance coverage in place.

Within two months of each other, two of my clients had very close calls — about the same time our firm changed the insurance product we were offering.

This product is far more reasonably priced, is portable, and flexible to meet client needs.

As a broker, I must offer my clients optional life and disability insurance coverage. The product our firm offers is Manulife Protection Plan (MPP). Clients have the option of waiving all together or taking life and-or disability coverage.

Most lenders offer coverage a second time when clients are either signing documents in the branch or at the lawyers at time of closing. A key difference between what we offer up front and what is offered by the lender is the portability option.

MPP can be ported from one lender to another in the event that you choose to switch lenders down the road. It can also be ported from one home to the next when you sell.

Most lender products only cover this particular home and their own mortgage. If you switch or sell down the road, you will need to requalify based on your age at the time, which means your premiums will likely go up.

I am a firm believer in having insurance to protect yourself and your family in case something unfortunate happens.

I am not a licensed insurance professional, so when I discuss insurance with my clients I always ask if they have coverage in place.

Part of our discussion includes my recommendation to discuss coverage with a life insurance professional as there may be products out there that are a better fit for their particular situation.

MPP insurance is free for the first sixty days, so if I have clients that plan to look into more detailed options I suggest they opt in and cancel down the road after they’ve made the time to meet with an insurance professional.

This product kicks in the from the time the application is submitted and is fully underwritten up front.

Some people have strong opinions one way or the other about the value of insurance.

Based on my experience I feel strongly that it is important to review your options with a professional to ensure you are adequately protected.


Creative financing

Part of what we do as mortgage brokers is explore options for clients.

This past week, I worked with two families whose financing had been declined by their banks.

In both cases, the families had already sold their existing homes and written offers to purchase new homes. Both had done well on their sales and had significant equity to work with.

They were shocked to learn they didn’t qualify for similar sized mortgages.

Sometimes a fresh perspective makes all the difference.

When I reviewed the first application, I took a look at what the outstanding debt. Since they bought their previous home they had purchased two vehicles and were carrying about $12,000 on an unsecured line of credit.

The vehicle payments were $457 and $692 respectively.

For context here, your mortgage borrowing power decreases by about $100,000 for every $500 you have in payments for consumer credit (loans, credit lines, credit cards, etc).

Looking at this family’s situation, I suggested using some of the equity from the sale to pay off their truck loan and line of credit.

This reduced their monthly payments by $1,052 ($360 toward the credit line plus $692 for the truck) and meant that the numbers work for them to move forward with their purchase.

This was a small tweak, but made all the difference.

My preference is that people put their equity back into a new purchase as opposed to paying off consumer debt. However, this decision needs to be made carefully by the clients as they are the ones ultimately responsible for paying the bills each month.

In some cases this is the only way to qualify for a new mortgage.

The second family’s application involved a slightly different tweak.

When I calculated the funds they had available for their down payment and closing costs, it looked like they had $100,000 available for their down payment.

The purchase price on their new home was $549,000.

We discussed increasing their down payment to $109,800, which is 20% of the purchase price. They spoke to her parents, and the parents agreed to give them $10,000 to make up the difference.

What this meant for the clients was that we were able to get an approval with a 30-year amortization. We found a lender that accepts their Child Tax Benefits from the federal government as income. Between the extra income and the slight increase in amortization, they did qualified for the new mortgage they needed.

Again, my preference is to see clients stick with shorter amortizations whenever possible.

This family has chosen to have one parent stay at home while the children are young, so the smaller mortgage payments are a good solution for the short term.

We talked about options for increasing their payments once the children are in school and the dad is back to work.

Each family and situation is different, and often we are able to look for creative options to help find the right mortgage. Sometimes a second set of eyes is all it takes.

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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