Most often clients need pre approval for their mortgage as requested by builder or sellers to make sure the buyer is qualified and able to close the deal. Usually clients approach their bank or mortgage agent or broker to get the requested pre approval docs. There is so much misunderstanding and misconceptions about pre approval and pre qualified process. So let me to explain the direrence and importance in simple way to understand in a better way.
Mortgage Pre Approval does not mean you’re good to purchase with no concerns. Don’t be fooled by this and don’t put firm offers in on any property without calling your mortgage broker first.
What many clients don’t know is a pre approval does not give you the right to go in on a purchase with a firm offer. #Realtors must understand this as well and protect the interest of your clients. You should always obtain condition for financing for a minimum of 5 business days or minimum 3 business days is advisable and if you really want to go in firm then you must consult with your broker first. Sometimes lender are busy enough to underwrite the deal for approval in short period of time.
Here are some of the reasons why:
- Pre approval is just a system generated approval typically which no one looks at. Only few lenders may look at the application with no documents in hand. The banks are even worse as they don’t dig into much of the required items until the deal becomes live. At times when clients send the documents in – their job details may differ from what you understood or what they’ve completed on an application. Eg. Temporary Part time is different from permanent part time or commission or salary plus bonus or contract jobs or self employed, or fluctuating income or you may have a T4 or Notice of Assessment from 2019 or job letter 3 months old but that does not mean the income is currently the same also you may have a pay stub showing 40 hours weekly but then when you receive the current job letter later – you come to learn that the client is only guaranteed 30 hours a week and the rest are fluctuating or their letter may state they are part time on contract then you’re in a mess because if it’s not permanent lenders will ask for the past 2 years and if clients didn’t make much income to average then your ratios will be off.
- Property type/ location – Income and ratios can be well in line but if the property you purchased does not meet the lenders or insurers requirements then it’ll be declined. I’ve gotten pre approvals for clients in the past but upon receipt of the purchase agreement- the insurer or lender did not proceed because of the property.
- Some lenders may have a cap on funding on that building if it’s a condo or some may not want to proceed because of a bad stigma on the property or area.
- If the property tax or heat or maintenance fee is higher than what was used on your pre approval application then the ratios will change and it may affect your borrowing amount if it goes over the GDS/TDS threshold.
- I’ve seen situations where other properties owned was not included on the pre approval application. This would cause major issues with debt servicing as you would have to disclose all properties owned as it’s part of your liabilities too eg. Property tax, heat or if there’s a mortgage.
WHAT IS GDS/ TDS ? It is good debt servicing and total debt servicing. It cannot exceed a certain percentage. Eg. Ratios can be 39/44 for some insurer if your score is above 680. However go to the 3 insurers website. Google CMHC, Genworth and Canada Guaranty to view their GDS/TDS requirements if you’re putting less than 20% down also look at the insurance premium that is capped on your loan based on your down payment amount.
If you’re putting minimum 20% down then it’s considered a non-insured deal so it’s conventional. If your score is 680 + then your ratios can be 39/44. There’s exceptions to this rule as well.
Keep in mind, the lenders and insurers has the right to ask for any additional items prior to closing and choose to interpret the documents according to their risk appetite and guidelines. At times, it all depends which underwriter you get as well. Some would think out of the box and provide exceptions.
Some clients think going to the bank or on an online calculator for a pre approval is good enough. It doesn’t work that way.
Contact a professional mortgage broker that will walk you through this process and if there are issues that arises along the way on a deal, a professional broker will always mitigate and fight for you. A broker has access to multiple lenders and deals with all the banks, monoline lenders, alternative lenders, credit union and trust companies. Your options are not limited.
With my experience and understanding the various lenders guidelines, I know exactly who does what and know where a transaction will fit hence why I don’t submit client files to multiple lenders at the same time and know who to go to. I will also not leave your deal half way if I take it on. I will look up the property with the insurer before you put an offer in as well.
CALL ME for guidance and understanding the process if you’re looking for a mortgage #Purchase or #Refinance. Consultation is totally free and you can either book in person or Zoom meeting. We can work and provide the professional advice from the comfort of your home for all your mortgage and financing needs.
Rajiv Verma, Mortgage Broker
rajiv@simplifymortgage.ca or Direct line# 647.291.7116
Simplify Mortgage Solutions-The Mortgage Centre Lic#13135
www.SimplifyMortgage.ca
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