There are easier approaches to getting prepared for a mortgage submission and there is a harder, more stressful route. Why not learn from the mistakes of other borrowers, experience a less stressful process and increase your mortgage options.
I am going to delve into the action items you can do to relieve your mortgage application headache. This list continues from part 1 (see blog here). There is lots to learn, stay tuned for future additions to this list.
Items below aren’t necessarily a deal breaker, as there are mortgage solutions for all types of applications, but collectively these items will increase your mortgage options. Also noted are some items unique to real estate investor applicants.
10. Acknowledge that being self-employed and documenting minimal income will most likely put you in a different rate category than the lowest advertised rates. There is a large lending space for borrowers in this group, and often it is very case specific. Saving on income taxes is a huge benefit to a business owner, and usually trumps trying to fit into the ever-shrinking ‘most conventional’ lending sandbox.
11. Keep your credit situation consistent between application and closing. Avoid buying or leasing a car, buying furniture on store credit cards or applying for more credit, without consulting your mortgage broker. The lender approves you on your credit status presented to them at application time, and expects no significant changes. They can check credit again before close, and can cancel your application if there are significant changes that impact your debt ratios.
12. Ask for access to money when you don’t need it. Specifically, if you foresee in the future you will be needing funds, like for an investment property downpayment, consider doing a refinance now (this includes setting up a secured line of credit), when you are in optimal income and credit position to look best to the lender. The most successful investors have their access to funds set up well before they submit offer to purchase, in this way, one uncertainty and risk is ironed out.
13. Have a reasonable financing condition time and avoid extremely short closing. Working within tighter constraints is possible, it is just a more stressful route. With short closings makes sure your lawyer can accommodate, and inquire about any rush fees. Providing all the documents upfront and discussing the mortgage plan with your mortgage broker prior to offer submission can help reduce time needed for finance condition.
14. Choose a closing date that is not a Friday or the last business day of the month. This may help, as lawyers and lenders are very busy with a lot of closings at that time. Similarly, if you submit a live application during this time, lenders are busy with these closings and may have slower turnaround time. Lastly, holidays also may impact turnaround time, as lenders essentially are making up the missed day. Make sure your financing condition specifies ‘banking business days’ not ‘calendar days’ or ‘days’. A common oversight is forgetting that Remembrance Day is a banking holiday.
15. Always assume mortgage rules and policies can change. We have seen enough evidence in the Canadian lending landscape of this happening in the last several months and years. Understand that only the current policies will apply once you submit a live application and receive a commitment back from lender. Pre-approvals, rate holds and very long closings are all subject to potential policy changes at the time your application goes ‘live’.
16. Allow your mortgage broker and lender to deal with the minute details and calculations of your file, rather than trying to overanalyze yourself. Policies constantly change. This is what the mortgage broker will do for you and explain to you what your limitation may be, if any. Conversely, don’t dismiss applying based on your assessment, a mortgage broker can take a proper look and provide potential options.
17. Operate on the assumption that the lenders will NOT overlook property and price issues. Items that can raise questions include submitting MLS listing with unique or derogatory remarks or lack of photos, a private sale, using the same realtor or brokerage as seller, a listing price too low or too high, paying significantly over asking, adjusting the price with an amendment for home inspection items. These are not deal breakers necessarily. Prepare with explanations, and lender may decide to mitigate risk by sending out an independent appraiser.
Stay tuned for part 3.