5 Ways you can Kill your Mortgage Approval

So, you found your dream home, negotiated a fair price which was accepted. You supplied all the needed documentation to your mortgage broker and you are waiting for the day that you go to the lawyer’s to sign the final paperwork and pick up the keys.

 All of a sudden your  broker or the lawyer calls to say that there’s a problem. How could this be? Everything has been signed and conditions have been removed. What many home buyers do not realize is that your financing approval is based on the information the lender was provided with at the time of the application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval. There are 5 things that can make home financing go sideways.
1 Employment – You were working for ABC company as a clerk for 5 years making $50,000 a year and just before home possession you change jobs. The lender will now ask for proof that probation for this new job is waived and new job letters and pay stubs at the very least. If you change industries they will want to see more proof that you are capable of keeping this job.
  If your new job involves overtime or bonuses of any kind that vary over time, they will ask for a 2 year average which you will not be able to provide.
 Another item that could ruin your chances of getting the mortgage is if you decide to change from an employee to a self-employed contractor just before possession day. Even though you are in the same industry, your employment status has changed . This is a big deal killer. .
2. Debt – A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Your approval was based on how much you owed on that particular date. Buying a new car or items for the new home need to be postponed until after possession of your new home.
Don’t be fooled by “Do not pay for 12 months”  sales campaigns. You now owe this money regardless of when the payments start. Don’t buy a new car and don’t buy furniture for the new home. This will increase your debt ratio and can nullify your financing.
3. Down payment source – And yet again I reiterate that the approval is based on the initial information you have provided. You will be asked at the lawyer’s office to verify the source of the down payment and if it is different than what the lender has approved, then you may be in trouble. For example, you said that you were going to save the funds and then at the last minute Mom and Dad offer you the funds as a gift. There’s no problem accepting the gift if the lender knows about it in advance and has included this in their risk assessment but it can end a deal. .
4. Credit – Don’t forget to make your regular credit card payments. If your credit score falls due to late payments, this can kill your financing. If you have a high ratio mortgage in place which required CMHC insurance, a lower credit score could mean a withdrawal of their insurance once again , killing the deal.

5-Identity Documents  - This can be a deal killer at the lawyer’s office. The lawyer is required to verify your identity documents and see that they match the mortgage documents. Many Canadians use their middle names if they have the same name as their parent.   Lots of new Canadians adopt a more Canadian sounding name for their day to day lives but their passports and other documents show another name.

 Be sure to use your  legal name when you apply for a mortgage to avoid this catastrophe . Finally, keep in touch with your Dominion Lending Centres mortgage professional right up to possession day. Make this a happy experience rather than a heartbreaking one.  

6 Reasons To Get A Home Inspection Before You Buy

In an active housing market sometimes buyers are urged by their realtors to make an offer with no conditions. As a mortgage broker this always makes my heart skip a beat.  I know from experience that financing can go sideways and you need to be sure it’s in place before removing conditions.

  Another item that should not be forgotten is a house inspection. You may have a good eye for décor but house inspections are not for amateurs. We have all heard, “Never judge a book by its cover” so why would you make the most important purchase in your life without checking it out? This may be the best $300-$500 you ever spent. Here’s why.

#1 – It provides an out for the home buyer.

    Sometimes hidden structural issues like a cracked foundation or saggy beams can mean expensive repairs. If the price can’t be re-negotiated then you have a way to walk away from an expensive mistake.

   A few years ago I had a client who I preapproved for a mortgage. He found the perfect house in south east Calgary and made an offer which was accepted. He then ordered a house inspection while I arranged the mortgage. The inspector came back and told my client that there were 10 things he could see in the house that indicated that it had been used as a grow op. My client used this to break the contract and went on to buy another home without any problems.

#2 – Revealing illegal additions or improper renovations

    If the DIY seller wired the house improperly or used sub-standard materials your home insurance could be null and void if you had something happen in the future.  The home inspector for my first home noticed that the indoor outdoor carpet in the master bedroom had been glued to the hardwood, something that resulted in a multi-day project we were not counting on.

#3 Safety and Structural issues

Inspectors go up into the attic , and down into the farthest reaches of the basement and can spot things like mold, holes in the chimney, improper wiring or improperly vented fans.

#4 – Aiding in the planning for future maintenance expenses

   Unless the home is brand new you will need to replace a number of things; water heaters last 6-10 years, roofs about 20 years ,  furnaces about 25 years. . The report will include an estimate on the remaining life for each of these expensive items which will give you time to save for their eventual replacement.

#5 Bargaining power

  If you find something that will cost a considerable amount to replace or repair you can go back to the seller’s agent and ask for a reduction in the price. A leaky roof may cost $3000 to replace. Perhaps the seller would split the cost with you?  It’s worth asking.

#6 Peace of Mind

 Finally, for your own peace of mind. When you have spent all your hard earned cash on a home and will be paying it off for 20+ years, it’s easier to sleep at night knowing that the house won’t come tumbling down on you or that you paid too much .

While an inspection cuts into your budget at a time when you need all the cash you can get,  you will find it is money well spent. NOTE: If you live in an area where housing prices are rising quickly your appraisal may come in low as the property is appraised based on sales in the previous 90 days. Ask your mortgage broker and your realtor if this is the case for your area.

Property Assessments as a measure of Value

 

When homeowners receive provincial Property Assessment notices, some will smile and have a bit more spring in their step, feeling the assessed value is accurate or perhaps even overly positive. Others will wilt and lament a modest gain or even a decrease in the assessed value over the previous year or period. Reactions will of course vary factoring in the potential increase in property taxes that tends to come along with stronger assessments.  The reality, setting aside taxation concerns, is that neither parties' emotions should be tied to the ‘value’ printed on these notices.  A provincial property assessment is an approximate value based on the (broadly) estimated market value as of the previous years. There is a lag time between the estimation of valuation and delivery of the envelope. It also fails to involve a formal site visit or viewing of the inside of the home to consider either significant upgrades or significant deterioration. To put this in perspective, few lenders will work with a detailed official appraisal report that is even 90 days old.  Most prefer a report    completed with 30 days, as markets can move significantly month over month. For these reasons, among others, a provincial property assessment should not be relied upon as a totally concrete indicator of value for the purposes of either purchase, sale, or financing. Always enlist a licensed professional, or perhaps even two or three, in order to get a timely and detailed appraisal of current market value. This will provide a much more accurate reflection of current market values reflecting recent comparable sales, value for zoning, renovations and/or other unique features to the property.  An appraiser is an educated, licensed, and heavily regulated third party offering an unbiased valuation of the property in question. Think of your provincial property assessment as something akin to a weather forecast spanning far larger and more diverse areas than the unique ecosystem that is your neighbourhood, street, and specific property. The forecast may call for rain in your city, yet you might have a ray of sunshine radiating upon your street specifically.