To err is human, to have your mortgage funded divine 🙌
The mortgage landscape has changed dramatically over the last 15 years, in particular, more rules, more policies, more guidelines, more programs to counteract the bad policies, a rate for every type of application, property restrictions, more property defects, the list goes on. It is easier than ever for your mortgage professional to make an error that could cost you your mortgage approval. Every week we get either a panicked call from a borrower or their REALTOR with the same theme, “The lender (Bank, Credit Union, Mortgage Agent) just told us they weren’t honoring the pre-approval they gave”
Here are the top 5 errors made:
1. The credit bureau is not checked or verified. One of the most important parts of the mortgage application and especially the pre-approval is the credit bureau. Credit Score, credit history, payment history, types of credit, and amounts owed are crucial. It is important that your mortgage professional pull the credit bureau from (Equifax and if possible Transunion) and verify its contents. Things to look for are the credit score, name match, address history match, if there are any AKAs (also known as), length of credit history, and how many Mortgages, revolving credits, and installment credits there are. We also check for any missed or late payments, any undisclosed mortgages or loans where the borrower may be a co-signer, and we look for any outstanding collections, consumer proposals, and bankruptcy. If the credit bureau isn’t checked thoroughly, it is very easy to miss a mortgage, a credit score that is satisfactory but other credit challenges could jeopardize a mortgage approval. Knowing the score just isn’t good enough and results in our #1 error.
2. Income is not verified. Incorrect income is the next major error made by loan officers. Especially in the case of insured mortgages (less than 20% down payment). Income must be verified for a 2-year period, preferably at the same employer, or 2 years self-employed. If this isn’t possible, we are looking to verify “guaranteed hours” from an employer, we are confirming YTD (year-to-date) pay is on pace, and we will be checking T4s and notices of assessment. For certain types of income, we will verify T1 General Personal Tax Returns, Business Financial Statements, Business T2 Corporate Tax Returns, the ages of your children and amounts received for CCB Canada Child Benefit, and more. Incorrect income is our #2 reason. It is also quite common for borrowers not to understand how much money they actually make which makes verification a must! Incorrect income is our top error #2.
3. The down payment is not verified. There are some pretty strict guidelines around AML – Anti Money Laundering. It is very important that your mortgage professional review a 90-day history of all money being used for the down payment and closing costs. This means getting 3 months of Account Statements, Investment Statements, RRSP Statements, TFSA Statements, etc. The mortgage professional should analyze the statement for any deposit made within the 90-day period and look for and explain any deposits that are atypical over $2,500.00. Large deposits must be explained and verified. Large e-transfers, ABM deposits, and cash deposits all have to be verified and may not meet the standard. Inadmissible income is our #3 top error.
4. Incorrect debt payments. When qualifying for a mortgage, a mathematical ratio is used which takes into consideration the borrower’s gross annual income and divides it by the monthly payment obligations. If the wrong payments are being used on the application then the mortgage approval may be null & void. For example, a borrower owes $15,000.00 on a major credit card. The minimum payment on that card is $287/month. This cannot be used as a payment in the mortgage application. We must use a payment equal to 3% of the outstanding balance or $450.00 in this example. If a borrower has a buy-now-pay-later credit card, then 5% of the balance must be used. It is also quite common for the credit bureau to either have the wrong payment amount listed on the bureau or the wrong payment frequency which can also drastically affect the amount of the payment used on the application.
5. Lack of knowledge about mortgage programs and mortgage hacks. Many of our clients come to us with perfect applications and their previous financial institution or loan officer just didn’t know enough. There are many programs and policies available for clients to help them get approved for a mortgage that many financial institutions don’t participate in or their employees don’t have any knowledge about them. Some of these programs include; Business For Self Alt-A (stated income), Business For Self Less Than 2 Years, First Time Home Buyer Incentive, First Time Home Purchase Plan (for Metis citizens), Borrowed/Flex Down Payment, and more. Some common mortgage application hacks that we can do are to fix incorrect reporting on the credit bureau, refinance or pull equity out of other properties or vehicles, increase credit scores by increasing credit card limits, get an RSP loan for the down payment in 90 days time, and so much more.
It really pays to use a MORTGAGE PROFESSIONAL! At DLC Mainstream Mortgage we pride ourselves on reviewing the application and all documentation upfront and providing you with a firm pre-approval. If we do have concerns or are on the fence about your pre-approval we will explain the rules and the challenges we think we have to you and your REALTOR and issue a “best-efforts” pre-approval, which basically means that we think there is a good chance that the application will be approved by the lender and/or insurer but there are a few challenges that may prevent this. If we don’t believe you will be approved at this time, we will provide guidance and work with you over time to get you ready for your next mortgage!