Different Approaches to Pre-Approvals
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.
