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. There is lots to learn, so I will continue the list, across multiple posts. So stay tuned for the next post.
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.
1. Do your taxes, file on time, pay your taxes owing, have the most recent Notice of Assessment (NOA). The government is first in line for your funds, ahead of any mortgage lender. Can you blame the lender for wanting that cleared off?
2. Keep your employment situation stable. Avoid changing jobs that involve a probation period, becoming freshly self-employed or commissioned, or, stating the obvious, becoming un-employed. Doing this after submitting to lender and before closing is a file-stopper, but even doing these things before applying for mortgage may reduce your options. With a proper discussion with a mortgage broker, an appropriate plan can be formulated
3. Understand that your credit is more than just the credit score number. Lenders look at the entire credit history, blips and all. Just because you are all about cash and no credit cards or loans, with super-high score doesn’t mean you are good to go. Not having a ‘trade-line’ history affects your file. Conversely, minor blips are not necessarily the end of the world, but this should be discussed with a mortgage broker.
4. Have or receive down payment funds that are easy to track. With anti-money laundering rules in place, lenders need to follow the money. Moving money around amongst your accounts is okay, but there will be just more documentation and statements you will need to provide.
5. Understand that borrowing funds for a downpayment will have to factored into your debt ratios. Also, understand that lenders may use a higher monthly loan payment in their debt calculation than your actually minimum payment (like interest only).
6. Stress test your portfolio at higher rate to see if you are comfortable with an increased monthly payment. This is more for your assessment of budget comfort level, not so much about the intricate mortgage qualifying policies. The mortgage broker will deal with that on their end.
7. Know that generic mortgage and rate information will not always apply to you. Lots of published rates are full of restrictions and fine print. Now more than ever, mortgage solutions are designed based on risk. Owner occupied, rentals, refinances amongst others, are now becoming their own categories. An investor mistake is expecting rate and product offering for owner-occupied to be the same as rental.
8. Assume an appraisal will be required. Depending on your situation, there may indeed be no appraisal, but assuming without context is risky. Even with no appraisal, the lender is evaluating the property.
9. For your portfolio rentals, have leases in order, track rent deposits, have property management agreements in place (if manager is the landlord listed on the lease), report rentals on taxes, avoid having unique payment arrangements such as cash or pay by the room. It is very difficult to count income if there is sparse documentation.