Different Approaches to Pre-Approvals

Tracy Head • March 22, 2024

As a mortgage broker I am able to work with clients all over BC. I grew up in Mackenzie, a small community in northern BC, and still have ties to the area.


I worked with the realtors there before I moved to the Okanagan, and we continue to work together over fifteen years later.

This week we’ve seen a surge in homes selling in Mackenzie and I’ve had interesting conversations with both of the realtors I work with.


They had questions around how I figure out price points for clients when I am working on a pre-approval. More specifically, they asked about whether or not I collected documents from my clients before they had an accepted offer to purchase.

My answer was that I absolutely gather the bulk of the documents we will need ahead of sending my clients out shopping. 

I also pull credit reports about 95 per cent of the time before I send people out looking for a home.


Why?


Even with clients that I know to be squeaky clean and solid financially, over the years I’ve had to deal with surprises that might have affected their approval.


Recently I was working with a client that has been with the same employer for 25 years, has over $300,000 in his account, and whose credit score was 821 (900 is a perfect score). Slam dunk, right?


As it turned out, he has a fairly common name. At the very bottom of his credit report was an outstanding collection to an insurance provider. I was surprised to see it as I know he is meticulous with his finances.


He had never had any dealings with that particular company, and it took him almost three weeks to get confirmation from the company that it was not his debt, and another few days to have his credit bureau corrected.


Another client I worked with had everything in order and looked like she was ready to write an offer at the $650,000 price point. 

I pulled her credit report and found a vehicle loan with a payment of $785 per month. When I asked her about it she said she hadn’t mentioned it because she didn’t make the payments. She had co-signed a loan for her daughter. 


When you co-sign a loan, you are jointly and severally responsible for the amount outstanding. That means that should the other person ever default on a payment you are responsible for making the payment.


This means that we have to factor that payment in when calculating what you qualify to borrow. In her case, this dropped her purchase price considerably.


I’ve also run into situations where clients tell me how much they earn, and when they send their documents in the T4s and paystubs don’t support what they’ve told me. In one case the gentleman said he told me what he figured he would make this year.

As a general rule lenders won’t use predicted income (other than a few specialty products); they work with historical information and what can be confirmed via employment letters and contracts.

So why is all of this important?


If I send you out shopping for a home, I want to be certain that I am able to arrange a suitable option for you. If I send you out shopping for a home, you get excited about the possibilities and write an offer. Now the sellers of that home are also excited and are out looking for their next property.


We’ve tied up two or potentially more homes, and realtors have spent hours working to show homes and make magic happen to bring offers together.


If I haven’t done my due diligence and missed something that will affect your approval we have wasted a lot of time and energy for everyone involved.


Sometimes clients just want to know generally the price point they are looking at and want to know if there is anything they need to deal with before heading out shopping. If they are looking at buying a home six months or a year down the road it is a different conversation and I don’t ask for documents upfront.


When you are working on a pre-approval and your mortgage person asks for a full document package upfront, don’t roll your eyes. Fully disclose your financial situation. This helps us put you in the best position to be successful once you’ve found a home you love.


PSA: If you haven’t already dealt with the Speculation Tax Declaration, take a minute and do it today.

Tracy Head

Mortgage Broker

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Mitigating Mortgage Moments

By Tracy Head • February 7, 2025
This week I had a panicked call from a realtor I work with on a regular basis. One of her sellers had a sale that looked like it was going to collapse. He was counting on the sale of that home for the down payment of his next home. She called mid-day Wednesday. The sale was supposed to complete on Friday. She asked if I could talk to the purchaser and potentially arrange financing for her. Before you read the next part, this is not intended to single out any particular bank or mortgage person. It could just as easily be a mortgage broker or a branch employee. The back story is that the purchaser had been working with a mortgage specialist from one of the chartered banks since mid-December. The specialist gave the client the go-ahead to remove her financing subject January 17th. The specialist then said they needed to extend the closing date by a week. Then by another week. Then she told the client she would have to come up with twenty per cent for her down payment. The client scrambled and came up with the additional money needed for her financing to be approved. I might not have believed this story except I did see the email chain. So what actually happened? My guess is that the mortgage specialist did not have an approval in place with the insurer or her bank when she gave the client the ok to remove her financing. The client had not seen nor signed any mortgage paperwork before removing her financing subject; she was trusting that her mortgage person had things well in hand being as she was told she was approved and things were fine. The buyer in this case is a first-time home buyer and did not know any different. I have pulled off the odd miracle in my days but I had serious doubts about being able to help this client in one day, especially being as she was buying in a smaller remote community so we had fewer options. We were working on her application and 6:00 pm Wednesday evening had word that the bank she was originally working with had come through and would be sending mortgage instructions to the lawyer the following morning (we are now at the day prior to closing). When you are purchasing a home and applying for mortgage financing, I feel it is so important to work with a team of professionals that have your back. As someone who has never bought a home before or maybe hasn’t done so in many years its important to do your homework and understand the process. If you think things are going sideways with your financing please make sure you ask questions to better understand what’s happening. If you have a feeling that something is really wrong, don’t wait until you have no other options. When you choose a mortgage professional to work with (and realtor for that matter) do a bit of homework. Ask your friends who they have used and what their experience was like.  Buying a home is stressful enough on a good day, but what this poor client has been through could have been avoided had she had a better idea of what the home-buying process was supposed to look like.

Private Lenders

By Tracy Head • January 24, 2025
The easy fix isn’t always the right fix. I’ve been wondering how long it would take to see the fallout as clients who have been paying really low interest rates come up for renewal. We have all experienced a steep increase in the cost of living. Even though rates now are sitting where most clients qualified with the stress test when they originally got their mortgages, for many people life has happened in the meantime. What do I mean by that? Often clients are having to push right to the top of what they qualify for just to get into the housing market. As we are going through the mortgage approval process we talk about keeping big consumer purchases (financing a car or furniture as an example) to a minimum as additional loan payments reduce borrowing power. Once clients are into a home life does indeed happen. The older car dies and a new car is necessary. Little ones come along and that can affect family income and add a daycare bill to the bottom line. Property taxes increase. Grocery prices skyrocket. You know the list. Balances start creeping up on credit cards or lines of credit. There are lots of different mortgage products to help with consolidation of debt. Lately the challenge has been that even if clients have significant equity in their homes with the increased interest rates they may not qualify with traditional lenders. Alternative lenders and private lenders come into play as options in this case. I’ll leave the alternative lenders to another day because I have a cautionary tale about private lenders. Not all private lenders are created equal. I have several that I work with when my clients need a solution in the private world. There is a time and a place where a private mortgage is the ideal fit. As long as you have an exit strategy (a plan as to how it will be paid out in a relatively short time frame ie: one year) this can be a great option for clients. Then there is the private lender that hurts my heart. Heavy catchy marketing bombards us from multiple venues. Their jingle is running through my head as I write this. For them the bottom line is that if you have adequate equity in your home you are approved. Cool. That fixes the immediate problem. However, more times than I like to think about, this lender creates far bigger problems for people. Despite the fact that you have equity in your home you still have to make the payments on these private mortgages. Interest rates are usually around the 14% mark so payments are high and you are not making any headway with paying down the mortgage. If there is no significant increase in your income you struggle and find yourself in a financial bind again. They set up another mortgage with an even higher rate. When you sign on for a private mortgage your are responsible for covering your legal fees, the lender’s legal fees, and there is also a lender fee that is included. Even a small private mortgage can end up costing almost $10,000 to put in place. If you couldn’t cover expenses with your first mortgage (at reasonable rates) guess what happens when you start adding in more and bigger payments on top of your normal expenses? For most people the only out at this point is selling their home. That is a very hard conversation for me to have with clients, especially when they’ve been in their home for many years. If you are finding that there is more month than money, sitting down and reviewing your expenses is the first step to take. Are there any areas that you are able to cut back? Do you have any options for increasing your income?  If the answer is no, talking to a mortgage professional sooner rather than later may help identify some options before you end up in a never-ending cycle of sleepless nights and missed payments.
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