How to avoid having your mortgage approval “unapproved”

 It happens every year.  A client will go to a mortgage broker or the bank and get a pre-approval and then go house hunting.  They find a home and make an offer which is accepted. They then go back to the lender with the offer and all the paperwork and all of a sudden, they are not approved.

 How did that happen? What happened to the preapproval?   What most people do not realize is that a preapproval is a brief overview to see if you are creditworthy and it tells you how much you can afford. The pre-approval is really no more than an interest rate hold.

   Inexperienced bank employees and a few brokers fail to give their clients the 5 Commandments when they give their clients the pre-approval.

 Here they are:

1-   Don’t make any large purchases – don’t buy a new car or change the lease. Do not go out to buy the new furniture for your home until after the mortgage is approved. Even if you have one of those no payments for 90 days plans from the Brick, Sears or Leon's , they do appear as purchases made at this time on your credit bureau report.

2-      Don’t apply for new credit – I know the zero down balance transfer looks appealing but you don’t need another hit on your credit bureau. Put off the temptation until after the deal is done.

3-      Keep your job – This may sound like a no-brainer but there are a lot of people who will switch forgetting about the 3 month probation or will become consultants which means they are self-employed. Don’t change industries.  More than one mortgage has been shot down by a job change.

4-      Pay your bills – pay them on time and don’t let the balances get close to the credit limit.

                           If you let your balance get close to your limit you can lose 30 points. Go over by a                   dollar and you will lose 35 points in a flash. Lenders often check for credit score drops in the days leading up to your visit to the lawyer’s office.

5-      Don’t move large amounts of cash around in your accounts. If you are receiving a gift for your down payment from your parents be sure to photocopy the cheque and the deposit receipt. Money laundering is a big worry with lenders so you should wait until your broker tells you it’s okay to move funds.

Finally,  be aware that the lawyer will ask you for 2 pieces of identification. If you make an offer on a house use your formal name, not your nickname. If the name on the offer and the name on your identification do not match you could delay or kill the home purchase at the last minute.

Let’s face it. Buying a home is a life changing event. Deal with a professional mortgage broker and you can avoid making stupid mistakes that will deprive you of owning the house of your dreams. 

The best time to buy a house is now

When is the best time to buy a home? People have differing opinions as to when the optimum time is to purchase a new home. According to Mark Di Vincenzo from Time Magazine's  Business & Money section, January is the best time.
 He feels that as there are fewer buyers due to nasty winter weather, you are less likely to have bidding wars. He also figures that after the Christmas season bills arrive, carrying a mortgage for a house you do not want makes you want to sell even more. While I agree with him on these points he seems to forget that after Christmas no one wants to list their homes and that the majority want to wait until spring.
    I have found that the start of the second week in January brings out the buyers. After the Christmas decorations have been taken down many people start to think about spring and the idea of moving into a new home. Perhaps it's because their rental apartment is getting too cramped with all the new Christmas toys but I have found that year after year, this January trend continues to occur.
    I , however, have a different view on when the best time to buy a home , rental property or second home is; the best time is NOW.  Why?  There are a number of reasons.
   1-  While you are saving to purchase a home, housing prices are going up. Don't expect them to drop unless you live in the greater Vancouver area or perhaps in a condo in downtown Toronto.
 2- No matter what price you pay now, you will start developing equity in your property by having the value of the property go up and your mortgage payments lowering the balance each month. When you are renting, it's the landlord who is benefiting, not you.
3- finally, the sooner you move into the home you can start making improvements which will add value to the home; unfinished basement, upgrading the kitchen or bathrooms , landscaping or building a detached garage can all add to the value of the home. Some of these improvements can even be attached to your mortgage to make the monthly payments manageable.
 Contact me to find out about the Purchase Plus Improvement program available through CMHC and Genworth Financial.
   If you agree that now is the best time to buy, the first step is to get pre-approved for a mortgage.. Contact me via my website to get started on the home buying process.
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What's the Score? How you can improve your credit score

The credit score, also referred to as a “FICO score,” is a mathematical formulae created by Fair, Issac and Company.

The credit score is used by most companies to decide if the applicant is a good credit risk or not. Equifax and Trans Union will calculate the numbers from the credit report and generate a number between 300 and 900.

A low score indicates a bad risk. A score of 680 or more puts the applicant in the lenders’ good books.

How scores are calculated:

Factor Weight Points Payment History Bankruptcies, late payments, past due accounts and wage attachments, collections, judgements - none is better 35% 315 Amounts Owed Amount owed on accounts, proportion of balance to total credit limit - moderate use is best 30% 270 Length of Credit History Time since accounts opened, time since account activity – The longer you have had your account open, the better. 15% 135 New Credit Number of recent credit inquiries, number of recently opened accounts - less is best. 5 per year max. 10% 90 Types of Credit Number of various types of accounts (credit cards, retail cards, mortgage) - variety is good 10% 90 Potential Totals 100% 900

 

Fair Isaac reports that the American public's credit scores break out along these lines. It would be similar for Canadians.

Credit score	Percentage
499 and below	2 percent
500-549	5 percent
550-599	8 percent
600-649	12 percent
650-699	15 percent
700-749	18 percent
750-799	27 percent
800 and above	13 percent

How Clients Can Improve Their Credit Score

1. Order a copy of the credit report, review it carefully and correct any significant errors. 
2. Pay bills on time. 
3. If there is a questionable credit history, they could open a few new accounts and use them responsibly, paying them off on time. 
4. Avoid opening accounts without intention of using them. You can, however, open it use it once and then maintain a balance of 0 which will build up your score.
5. Having a credit card or instalment loan can help boost a credit score, as long as the balance is not too high. 
6. Keep balance low in relation to available credit. If the credit limit is $1,000, keeping the balance below $500 (or 50 per cent of the limit) will improve the score. Balances of more than $750 (or 75 per cent of the limit) will decrease the score. Going over the limit has an even more negative effect and you can lose 35 points quickly.
7. Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (i.e., “balance transfer”) and closing an old account can hurt the score.

 If you would like advice on how to improve your credit score so that you can buy a home contact me through my website at davidcooke.ca    

2/3's of Canadians pay off their mortgages early

Will Dunning, chief economist for CAAMP, The Canadian Association of Accredited Mortgage Professionals  , came out with a report recently on the effects of mortgage rule changes in July by the Finance department and general observations on the housing market in Canada in 2012.

     Here are some of his observations.

     Here are some of his observations.

1-Since the most recent round of mortgage tightening came into effect in July 2012, there has been a drop in Canadian housing resale activity: between August and October, sales were 8 per cent lower than in the year prior to the announcement

2- Approximately 17 per cent of high ratio mortgages funded in 2010 could not have been funded today, including 11% of prospective high ratio homebuyers who can’t qualify under the new 25 year amortization rule

3-Regardless of whether Canadians initially selected a 20, 30, or even 40 year amortization period, survey findings continue to indicate that actual repayment periods have generally been only two-thirds of the contracted periods

4- It is not only first time buyers who are affected: reduced activity at entry levels means that move-up activity will also be gradually impacted, because potential move-up buyers will find it more difficult to sell their current homes

5- Canadians have continued to show prudence when it comes to mortgage repayment: one-third of borrowers made additional payments or accelerated payments on their mortgages; 87 per cent of homeowners have at least 25 per cent equity in their homes

6- 61 per cent of people who renewed in the past year saw a reduction in their interest rates

7- Among borrowers who took out a new mortgage in 2012, a record 47 per cent obtained
from a mortgage broker.

What do each of these items mean to you?

1-If you want to sell a home in Canada, you will probably have to keep it on the market for a longer period of time.

2-it’s getting harder for first time home buyers to qualify for a mortgage, therefore move up home buyers will have to lower their sale price or wait longer for a qualified buyer.

3- Canadians have and remain to be prudent. They will pay off their mortgages faster.

4- ditto #2

5- there’s more proof of Canadian financial prudence. This is how we have avoided the

bubble the U.S. experienced.

 In conclusion, the housing market is softening after 4 years and 4 changes to the mortgage rules. It will be harder to sell your starter home and move up to a bigger home unless you have substantial equity in your home.
 If you have questions, feel free to contact me As you can see almost half of Canadians are now using mortgage brokers. Why aren’t you?

David Cooke, your Calgary mortgage broker . Find his mortgage website at http://davidcooke.ca

Consumer delinquencies at lowest level since pre-recession according to Equifax Canada

Toronto, ON, November 6, 2012 - According to Equifax Canada’s Q3 Quarterly Credit Trends Report, as of September 30, 2012, consumer delinquencies have dropped to 1.22 per cent, the lowest level since before the financial crisis.

The report also reveals that total Canadian non-mortgage debt increased slightly by 1.8 per cent since last year.

Furthermore, credit card balances continue to decrease, while other credit products such as bank loans and lines of credit show very moderate growth compared to the same period last year.

The greatest increase was captive Auto Finance loans, which grew by 9 per cent over last year. The report revealed the Auto Finance loans have the lowest level of delinquency.

“To see serious delinquencies drop to a record low of 1.22 per cent is a very positive sign that consumers are doing a great job at managing their debt obligations,” says Nadim Abdo, Vice President, Consulting Solutions, Equifax Canada.  “The growth in credit over the past two years has slowed down significantly and the Canadian appetite for new credit has also diminished. According to Equifax’s Credit Seeking Index, which measures the velocity at which consumers are seeking new credit facilities,  consumer demand for new credit now is 9 per cent lower than it was prior to the financial crisis.”

Cristian deRitis, Senior Director of Consumer Credit Economics at Moody’s Analytics commented on the report by adding “consumer credit conditions in Canada remain stable and are in line with Moody’s Analytics projections for GDP growth and unemployment. Debt levels and available credit continue to rise, though at a slower pace than several years ago. Balances are declining for credit cards, personal finance and sales finance loans as borrowers turn to bank installment loans and lines of credit to meet their needs.  Auto financing continues to experience rapid expansion as Canadians flock to dealer lots and showrooms,” deRitis explained.

Other Equifax Report observations:

• Average consumer non-mortgage indebtedness in Q3/2012 increased by 2.6 per cent in the last 12 months, compared to a growth of 4.4 per cent in the same period last year;
• Average credit card debt has continued to decrease for the past eight quarters; it decreased by 3.6 per cent in Q3/2012 from the same period last year;
• Average bank installment loans grew by 4 per cent over same period last year and average bank revolving loans (lines of credit) remained stable;
• 90-day delinquencies continue to improve and have decreased to a rate of 1.22 per cent; and
• Consumer bankruptcies slightly increased slightly by 5 per cent from the same period last year.

For detailed graphs, please go to:

http://www.equifax.com/international/canada/Q3_2012_Consumer_Trends_Equifax_Canada.pdf

for more information contact David Cooke, your Calgary mortgage broker.