I’ve talked about this in previous columns and I’m going to circle back to it today.
When I jumped into mortgage brokering full time, a veteran broker shared a handout with me. She gave it to all of her clients. At the time I remember reading through the handout and thinking that it seemed really obvious, and almost a bit condescending.
As I’ve matured as a mortgage broker I have come to realize that everyone comes to the table with different levels of understanding of how mortgage financing works, and different practices for managing their money.
The handout essentially explains that once your mortgage financing is approved but not yet finalized (meaning your purchase has not completed yet) there are several things you must not do. The list includes things like:
• Buy and finance a new car
• Buy and finance new furniture for your home
• Miss any payments
• Co-sign a loan or mortgage for anyone else
• Spend part of your down payment
• Change or quit your job
In some cases making these changes may be ok and not affect your mortgage financing. If you are at the top of your debt servicing, some of these changes might result in your financing be cancelled by the lender. This could leave you in a bit of a bind.
Each lender works slightly differently. Some require all documents up front for review before they will issue an approval; others will provide a conditional approval subject to confirmation of what has been stated in the application.
Some lenders do a final audit of the file within a day or two of closing. They may pull your credit report again, and some will re-confirm your employment.
When you hear from your mortgage broker or mortgage person at the bank that all of your conditions have been signed off that means you are off to the races. Clients sometimes don’t understand that there is always fine print in the agreement that specifies any material change in your circumstances may negatively affect your mortgage approval.
So why am I circling back to this now?
Over the last month, I have worked with three different sets of clients that bought pre-builds in the Lower Mainland in 2019 and 2020. They are now on the homestretch and their new homes are almost complete.
One of the clients had an opportunity to buy a beautiful vacation home on a lake about two hours from home. She and her sister both contributed towards the down payment and signed on the mortgage together.
She assumed that she would only be responsible for half of the payment being as there were two of them on the mortgage.
What she didn’t realize is that mortgages are considered a joint and several liability which means that she is 100 per cent responsible for this payment. On any credit application we have to include the entire mortgage payment, the entire amount of property taxes, and an expense for heating.
This additional payment put her debt servicing at almost twice what it needs to be in order to qualify for a mortgage in the traditional lending world for her new condo.
Although the chance to buy the vacation property was an amazing opportunity it has now left her scrambling to find suitable financing to close on her pre-build. She doesn’t want to walk away or sell the new condo as it has almost doubled in value since she signed the original contract.
She doesn’t have anyone available to co-sign on the mortgage. She was able to come up with significantly more towards her down payment so we have found an option for her in the alternative mortgage market.
This is a temporary solution. The interest rate is almost 2% higher than what she would be paying if she were with a bank or a monoline mortgage lender. There is also a one per cent fee, which adds $4,500 to her closing costs.
This has been an expensive lesson for her, but fortunately there is a solution.
If you are under contract for a purchase, whether of a pre-build or an existing home, please reach out to your mortgage person before making any significant changes to your financial situation. There may be ways to navigate the changes without impacting your mortgage approval.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.