There are an endless amount of mortgage difficulties that can arise when trying to purchase a new property or refinance an existing mortgage. The following list is among the most common, each of which can be overcome with the right strategy.
- Current credit situation
Your current credit standing is important for getting you the highly sought after rates advertised by all major banks. To obtain a bank rate, your credit score must be greater than 650. Any score between 630-650 can still get you a decent rate, but may require the assistance of a cosigner/guarantor. Anything lower than a 630, and you will most likely need to obtain a mortgage through an alternative lender and can expect a rate between 4-5% (dependent on a full review of your credit derogatory). Through an alternative lender, a larger down payment will be needed due to different lending criteria. This leads into the next mortgage difficulty.
- Insufficient down payment
Directly affected by your credit score, down payment qualifications are a big mortgage problem for mortgage seekers. For purchasers, a bad credit score (<650) means that they will need provide a minimum down payment of 15% (not including closing costs). This can be very difficult to do, depending on the area, type and price of home you may be looking to purchase. For current home owners, if you had previously obtained a high ratio mortgage through the bank and you let your credit deteriorate, you may be at risk. If your current institution decides NOT to renew your existing mortgage due to poor credit and you are forced to get financing elsewhere, you may not have enough equity in your home to obtain a mortgage through alternative lending.
- Income
Income often becomes a mortgage problem. It’s as simple as not having enough declared income to show on your application. NOA’s T4’s and job letters will most likely be requested for income validation, so consistency is important to avoid any mortgage difficulties. If you are self-employed, or perhaps have a side job that earns you extra income, it is important that this can be validated though the supporting documents. It is not enough to just state that a given amount is earned annually. If you do not earn enough income to obtain the mortgage you are seeking, a cosigner can always be added to strengthen the income portion of the application.
4. Outstanding debt
Debt becomes a very common mortgage difficulty when trying to lend under the lending criteria of banks and alternating lending institutions. Though your credit may be great, is it necessary for us as brokers to position an application that is appealing on the level of risk. The level of risk is measured using GDS and TDS ratios which factor in income and liabilities. If your GDS and TDS ratios are very high, it means that the affordability of your payments (mortgage, car, maintenance, etc.) versus your annual income is high and the lender will often feel that it is too risky to finance your request.
- Providing the correct documentation
Providing the correct documentation with accurate information can be a tricky mortgage difficulty. The reason for this is because the mortgagor needs to see consistency. Job letters, pay stubs, NOA’s, gifted letters, T4’s and bank statements are all documents commonly asked for. Though they may not always request all documents, they will most likely request a combination of a few. It is important that these documents are accurate with the information that was first provided in the preliminary mortgage application. Any discrepancies will raise flags and potentially cause the lender the back out. It is important to be upfront and honest about income, debts, judgments, liens, etc. to avoid any mortgage problems with potential lenders.
Common mortgage problems are easy to overcome. At Canadian Mortgage Services, we provide a full mortgage service. That includes providing you with initial consultations, alternative options, spreadsheet analysis and out of the box thinking. We enjoy finding great solutions to overcome these mortgage problems for our clients.