Making an offer to purchase a home includes successfully negotiating three key points: price, inspection and financing.
Financing can be the trickiest of the three and the one element over which the buyer has little control. Buyers wait for banks. Banks seldom hurry for buyers.
I recently had a client purchasing his first condo. He had a 20 per cent down payment. The inspection went quite well. The deal nearly fell apart as his bank dithered over whether or not to give him a mortgage.
As it turns out, the mortgage department was hung up on his credit report, which showed that he owed $700 to a cell phone company. Their attitude was "Why should we take a chance on a guy who doesn't pay his bills?"
My buyer had paid his phone bill and had the monthly statements to prove it. As it turns out, he was the victim of identity theft. Someone used his name to take out a phone contract, ran up $700 in long-distance charges in one month and then disappeared.
It took some fast talking to persuade the bank that he wasn't a deadbeat. They wanted all kinds of paperwork proving it, paperwork that would have taken him weeks, if not months, to sort out. He didn't have that much time. In most cases, buyers have 10 to 15 days to get their financing approved. If the time runs out before the bank given its approval, the vendor can back out of the deal. My guy had 15 days to get his mortgage approved. We were now 18 days into the process, with no answer in sight.
In this case, the vendors gave him a little extra time and he persuaded the bank that the phone bill was not his.
It was a needlessly nerve-wracking mess.
Here's the point. It's a good idea to have a look at your credit report periodically, just to make sure that everything is in order. You can correct errors that might be dragging your credit score down. It's always better to do this before you are in the process of seeking credit.
The higher your credit score, the better mortgage rate you'll be offered.
Industry Canada walks you through the ins and outs of obtaining a copy of your credit report here.
If you are buying a property and need a mortgage there are a few standard documents that any mortgage lender will want to examine. It's your job to collect and deliver them, electronically, by fax or in person, in a timely fashion.
Here's what your bank will ask to see:
*A letter of employment from your Human Resources department, stating how long you've worked for your employer.
*A recent pay slip.
*If you are self-employed, the bank will instead ask to see your Notice of Assessment from the federal government for the previous income-reporting year. Sometimes the bank will ask to see the last two NOAs.
*The last three monthly bank statements.
*A list of your assets, including investments.
*A copy of the property listing.
With these documents in hand, the bank will then determine your credit worthiness. It all boils down to a few basic questions.
*How much of your gross income is used to service your debt each month?
*How much do you have for a down payment? How long has that money been in your account?
*How stable is your employment?
*How good are you at paying your bills on time?
All lenders have their own criteria for evaluating the information. You don't necessarily have to be perfect. Sometimes meeting three of the four criteria is good enough. Depends on the bank. Depends on the circumstances. It is not a bad idea to think about cleaning up your credit before you decide to start house hunting.
If you can't do that, why not consider working with a mortgage broker. Brokers know the quirks of all the banks and they know how to push a file through the system. For example, if you have a bankruptcy in your past, a broker can steer you to a lender that won't automatically refuse you because of it.
I wish my first-time buyer had been working with a mortgage broker. It would have saved us all a lot of time and worry.