5 reasons the bank may turn you down for a mortgage

Blog Posts David Cooke 24 Jul

Mortgage rules have become stricter over the past few years. Assuming you have a down payment, good credit and a good job, what could prevent you from obtaining financing for a home purchase?
Below are five less obvious reasons a bank may turn you down:

It’s not you, it’s the building
Hate to be the bearer of bad news, but even if you’re the perfect candidate for a loan, you can still be rejected by a lender if the building you’re considering flunks a bank’s requirements. There are myriad reasons a building can be rejected, but one possible reason could be the building construction or condition.
In downtown Calgary we have some condos that were built in the 1970’s using a technique called Post Tension. It has been discovered that the steel rods in the walls can corrode over time and the buildings could collapse. Some lenders are okay with an engineer’s report but others won’t consider lending in this type of building. A few years ago a condo was found to have water seeping down between the inner and outer walls from the roof. This resulted in a $70,000 special assessment for each condo owner. Before the problem and the cost were assessed most lenders refused to lend on this property.
If a condominium building does not have a large enough a reserve fund for repairs a lender may want to avoid lending in that building as well.

Your credit doesn’t make the cut
If you have a credit score of 680+ this probably won’t be a problem for you but for first time home buyers with limited credit this can be a major stumbling block to home ownership. Check your credit score before you start your home search.
Not having enough credit can also be a problem. If you have a Visa card with a $300 limit, that won’t cut it. A minimum of 2 credit lines with limits of $2,000 is needed; one revolving credit line such as a credit card and an installment loan such as a car loan or a furniture store loan.
A long forgotten student loan or utility bill from your university days can also cause problems if its showing as a collection.
You’re lacking a paper trail
You have to be able to show where your money comes from. A cash gift of the down payment for your new property without a paper trail isn’t going to fly with the bank. If it is a gift, we need to see the account that the money came from, a gift letter from a family member, and the account the money was deposited into.

Your job
Being self-employed or a consultant comes with its own set of obstacles. But the solution here, too, is about documentation. And be prepared to offer up more documentation than someone with a more permanent income stream. Two years of Notices of Assessment from the CRA will show your average income over a two-year period. This could be a problem if your business had a slow start and then really picked up in year two. The two-year average would be a lot lower than your present income.
Another stumbling block may be how you are paid. Many people in the trucking industry get paid by the mile or the load. Once again a two year NOA average should help.
In Alberta, many people are paid northern allowances, overtime and a series of pay incentives not seen in other industries. This can be a problem if you do not have a two-year history.
When you apply for a mortgage you need to stay at your position at least until after your home purchase is complete. Making a job change with a 90 day probation means you will need to be past your probation before the mortgage closes. If you make a career change , you may need to be in your new industry for a least a year before a lender will consider giving you a loan.
The property’s appraisal value is too low
This often happens in a fast moving market. The appraisers base their value on previously sold homes on the market in the last 90 days. If prices have gone up quickly your home value may not be in line with the appraisers value. If the home you want to purchase is going for $500,000 and the appraised value is $480,000, you have to come up with $20,000 PLUS the 5% down payment in order to make the deal work.
Finally, with all the potential problems that can arise, it’s best to contact a Dominion Lending Centres mortgage broker before you start the home search to make sure that you have your ducks in a row.

Mortgage brokers are super heroes

Blog Posts David Cooke 12 Jul

Mortgage brokers have a reputation as superheroes. Although we cannot leap tall buildings in a single bound we can do extraordinary things.

Is the down payment money coming from outside of Canada? I had a client who had a joint account with her father in Japan. She showed me bank statements with the money in the account and leaving Japan. I had another bank statement showing the funds coming into her Canadian account. Finally I showed the foreign exchange rate for that day from Yen to CAD. The bank accepted this as a suitable paper trail.

An unusual down payment source? I had a client who sold his vintage Cadillac for his his down payment. A copy of the registration, the bill of sale and a bank statement showing the funds going into his account was deemed fine by the bank.

Is your down payment coming from multiple sources? I recently had two brothers purchasing a home together. They both had their money in RRSP’s and TFSAs. It took some explaining but we were able to show all the down payment and closing costs coming from four different sources.

Several years ago I had a client defaulting on two mortgages. Foreclosure was just days away.

I was able to consolidate the two mortgages, pay them out and get a reasonable payment schedule for one year. After the year , I moved him to a regular lender and arranged for a line of credit so that he could pay for some home renovations with a low interest rate secured against his home.

I had a couple who wanted to buy a home. The husband had had a business failure and it had affected his credit. I could only use the wife’s credit and her income for this purchase. She was a foster mother with six children. Her income was good but not high enough. I was able to get the lender to gross up her income by 25%, as her income was tax free. This was enough for them to buy a large home for the couple and their foster children.

Small towns can also pose unique problems. I had a client who wanted to refinance his home. I checked his credit report and found a credit card that he did not have. He told me that there were five people with his name in this small town. He also revealed that he had an account at Home Hardware that was not reporting on the credit bureau. The manager was a friend and thought that the loan would hurt his credit so they made an informal arrangement to pay it off.

Did I mention that he had three jobs? He worked as a tire installer, and invoiced the company from his firm. I was able to get a lender to accept this client his varied income and got the mortgage . Come to think of it , perhaps mortgage brokers are superheroes. If you have a difficult situation the best person to speak to is a Dominion Lending Centres mortgage professional, if it can be done legally, a broker can do it.