Why Does My Mortgage Lender Hate Me?
If it seems like it is harder to get a mortgage that is only because it is. Scallywags and scoundrels have committed fraud on a massive scale and so the lenders all have to ask for a pile of paperwork to prevent fraud. The government is looking to make sure that we don’t get in over our heads and so they have implemented changes to all things mortgage. And finally, the whole dang global economy seems unable to get its bearings so everyone has to be even more diligent about everything so that don’t get stuck with a pile of foreclosures.
Now that you know the reasons, let’s take a look at just how you may be affected personally.
The sad truth of the matter is this. Mortgage fraud happens all the time. People present false letters of employment, bank statements and all matter of things. You should know that lenders check companies online, cross check documents, assess viability of income and call employers. Here are the most common documents a lender is looking for:
- Letter of Employment on company letterhead. It will outline the basics of your employment including income, if you are on probation, how long you have been with them and a contact person to verify the whole thing.
- Recent paystub where the numbers match what the letter says.
- Notice of Assessment for the last 2 years from the CRA to confirm income sustainability and that you do not owe any taxes.
- If you are self-employed or own rental properties – Last 2 year’s complete T1 Generals (accountant prepared is best) and likely your business financials as well.
- 90 day history on ALL accounts making up any part of the down payment. This is not us trying to be intrusive, it is actually part of the anti-terrorism initiative to make sure all funds are legally sourced. I swear we do not care how much you spend at Starbucks.
- They will ask for your property tax bill, mortgage statement, T4’s, lease agreements and anything else they need to ensure they have met all of the documentation requirements of their investors and the mortgage insurers.
2. Affordability ratios
There have been some government-imposed changes over the last few years as to how we have to calculate things. Let’s look at the ones which will likely affect you the most.
- 3% rule – If you have a line of credit with a balance of $20,000, you are likely only required to repay 1% or $200 a month. That is not the way of the mortgage universe. In our world, we are required to use a payment of 3% of the balance of all lines of credit and credit cards when qualifying a mortgage. The same $20,000 now has a minimum payment of $600 a month which can greatly decrease your overall affordability.
- Maximum amortization – If you have less than 20% to put down, your maximum amortization just became 25 years. If you have more, you can still opt for a 30 or 35 year amortization.
- 80% Refinance – You are only able to refinance your home to 80% of its appraised value.
- Allowable Income – Not all income is created equal. A non-taxable truck allowance, tips, cash under the table will not be used to help you qualify. Lenders want a 2 year average if you are commissioned, receive hefty bonuses, or self-employed. If you are trying to avoid taxes by claiming little income then you may be in for a shock come mortgage time. The lenders need to see you can afford the home you are asking for. And I will tell you that anyone in the oilfield and its related industries are being scrutinized very carefully as far as income sustainability.
- Qualifying Rate – If you are choosing any term but a 5 year fixed, then you have to qualify for the mortgage based on the bank of Canada posted rate. This is to ensure you can survive a rate increase when your mortgage is up for renewal.
So now you know that getting a mortgage is considerably much harder than it used to be. Please don’t take this personally! The truth of the matter is that if I were lending someone $300,000 to purchase a home I will be honest and say I sure as heck would want to make sure I was going to be paid back. Wouldn’t you? Have a great week!