Save, Save, Save!

In the mortgage business, the following are the key factors used to determine success at getting approval on a mortgage or not:  credit, income, downpayment and net worth.  As always, the economy affects the financial industry mood.   Therefore, when the economy is unstable, like today, it determines the way lenders evaluate the factors listed above. 

One strong comment from lenders these days is if the client’s credit is not so great and the person is being given the downpayment from someone else (gifted money) the lenders see this as a weakness and may decline the mortgage application.

If you are not planning to buy for several months, get the gifted money into your account now, so when asked to prove downpayment in the future by giving your three months bank history, the lender does not see the large gifted deposit in your account. 

Of course, the best way to get the mortgage you want is to:

 Save, save, save your money!

Co-Signer vs. Guarantor

It is not unusual for clients, especially in these challenging times, to be requested by a lender to get support for the purchase of a home.  Generally what lenders ask for is a co-signer or guarantor.  These two words are different because they have separate obligations.  I have observed that when economic times are tougher, there are more requests for a co-signer than a guarantor. 

You need to know a co-signer is considered better than a guarantor because a lender typically “seeks strength in an application” using a co-signer.  Here is why:

A guarantor signs a promissory note stating that he or she will support the applicants in case of problems.

A co-signer, on the other hand, is put on title and assumes more responsibility if the applicant(s) have financial problems.

To avoid worry, the lawyer will have the co-signer as a “tenant-in-common” and assigns approximately 1% ownership.  Clearly, the applicants still own the home, but the co-signer holds responsibility as well. 

The “on title” status is what makes a co-signer more significant than a guarantor.

In the future, if/when applicants correct the problem that lead to the request for a co-signer or guarantor, only the co-signer is on title.  In the future, to remove a co-signer from title, the deed must be changed and a fee paid. 

*The above statements are not legally based but outline how lenders treat both forms of support. 

Economy & Mood

Recently I encountered a stark reality in the mortgage business.  I reviewed in June 2011, the profile of a couple who came to me for a mortgage.  Their situation was quite financially weak, which made them unable to get a mortgage approval at that time.  There was a gifted downpayment, a serious past credit issue, and generally limited credit scores. 

I suggested that they wait at least a few months before buying.  This advice was based on the advice of the lenders and the insurers who make the ultimate decision if a person can qualify or not.  Again, they first came to me in June, and this September they returned.  What they didn’t know was that the industry has changed.

The lenders and insurers moods have changed due to the economy:  Greece is near bankruptcy and unemployment has not improved in North America.  Those same lenders who were encouraging in June changed their minds and became discouraging in September.  The emotional part for me is, I based my advice on June’s predictions, when I encouraged the couple their deal might work.  Guess who is the bad guy now?

 I feel for people whose deals fall through, but thankfully, that doesn’t happen very often.  However, the mortgage industry is forever changing, and seems to be changing more rapidly every day.  This is not a good thing for people with poor credit and weak finances.

Credit Saga

I believe I could blog almost every week about credit horror stories because they happen so frequently.  This week is no different.  I was recently asked by a bank employee to investigate if she could secure a mortgage.  She had been bankrupt a year ago and had a recent marital split.  Her bank employer would not approve her, even though she had worked for this bank for over 20 years. 

As a broker, I have lenders that will consider a situation like this. So, I took her application and drew a credit bureau.  Sure enough, she was three months from the end of the period where the bankruptcy shows on a credit bureau.  After a bankruptcy, a person must have perfect credit behaviour—that means no late payments, excessive use of credit or too many inquiries.  In her case none of this occurred, yet her rating was low.  After looking into it, we found out her ex-spouse had ordered a credit card and she was on his application.  She never knew about the card and he failed to make payments.   It was considered written off on her bureau too, which is why her score was so low. 

I thought initially I could easily help—now, it is going to involve hard work to get her over this hurdle and get her approved.

Home Buyers Beware

Many people do not know, but there are changes happening in the mortgage business and the confusion is just beginning.  Taking effect March 18^th, 2011:

1. The longest amortization you will be allowed to use if you purchase after this date will be 30 years.

Why is this important?  Well if you were pre-approved some time ago, your application may have used 35 year amortization.   With the new change to 30 years, now you may not qualify for the same amount, and your payment will also increase.  See your broker agent or bank to be sure. 

2. If refinancing to pay off debts, do renovations, or invest some money, the maximum amount allowed, less your current mortgage is 85%.  This is a drop from 90%.  If approved before March 18, 2011, you can still use 90%.  If you have not applied for a refinance yet but are planning to soon,  call me ASAP.

I don’t represent the lender or the bank, I represent you!

Please don't hesistate to call if you have questions.

Bryan – 519-426-9842