Hooooorayyy! With the lightening of restrictions and the ability to move around, see our friends, family, the people love and want to hug. I missed hugs; life appears to be returning to normal, and thank goodness, maybe the MLS porn phase is over, well maybe reduced as we focus more on summer and getting outdoors. 

How are you spending your summer? I am trying out camping, yep, you heard it here, I am camping. Ok, my tent holds a lovely mattress that is 20” thick; these hips do not sleep on the ground. And, when you car camp, you can bring a whole lot of home comforts. My favourite part of camping is the early morning walk with Walter; everything seems fresh and new as if anything you could wish for is possible. The quiet, the breeze rustling the leaves, the sun streaming through the leaves of the tree, and the only noise breaking the silence are our footsteps and the birds singing. I never thought I would be the person to say, “let’s pack up and go camping,” but here we are, and I love it. I guess you can teach an old dog new tricks. 

What will you do this summer with your regained freedom? How will you spend these glorious few weeks? Let me know. I love hearing your news and stories. The sun is shining most days, and there is a renewed optimism in the air. I LOVE IT!

Walter Update

Well, let me tell you. Walter is growing faster than the weeds in my garden. At four months old, he is now 54 pounds. He is so intelligent! He swims in the lake. He loves camping, fetching and is learning that the cat is the boss around here. He is the light in my day.

The most common reasons a lender declined your mortgage application 

Rejection is an inevitable part of life, but it’s not as easy when it’s a mortgage application that’s declined.

Let’s be blunt here: it sucks!

Understanding why your mortgage application is declined can help you anticipate and avoid hiccups and get you back on track for homeownership.

Here are the most common reasons banks and mortgage companies reject an application:

CAR LOANS

Cars loans are one of the main factors why borrowers don’t qualify for a mortgage loan. For every $500 in-car payment, it limits a borrower’s mortgage eligibility by $100,000. As a result, a car payment can make a significant difference to your pre-approval.

CHANGES TO YOUR CREDIT AFTER QUALIFICATION

Did your credit activity change after your pre-approval?

If you opened new credit lines or made big purchases after your initial qualification, your lender’s earlier decision might be irrelevant now.

INADEQUATE EMPLOYMENT HISTORY

Mortgage applications always cover the past three years of your work history, but underwriters are also looking at your current employment trend and career as a whole.

Lenders want to see a consistent and stable source of income, as well as employment experience. Income that shows you’re capable of earning a sufficient income level now and in the future—after all, they want to ensure they’re lending money to someone who can pay them back.

If you changed jobs frequently, started a new career, or have many gaps in these two years, lenders may need more proof that you’ll have an ongoing source of income.

LACK OF CREDIT

Your credit history is proof to lenders that you can keep up with loan payments and pay your bills on time.

While you can take steps, it’s trickier to prove your financial responsibility with little or no credit history.

Fortunately, opening credit cards and waiting another year or two isn’t your only option.

Some alternative lenders and private mortgage lenders consider “non-traditional” credit histories, including documentation from landlords, utility companies, and other parties you’ve paid regularly. In fact, in some cases and exceptions, this can even get accepted by best rates and terms lenders. 

HISTORY OF BAD CREDIT

Did your credit score improve in the months or years before you applied for a mortgage loan?

If you’ve had poor credit in the past, a new and improved score may not be impressive enough to counteract a spotty history.

Late or missed payments, defaulted loans, and other red flags may tell lenders that your financial improvements are only temporary. A key thing to remember, pay your bills on time, every time, even if it’s only the minimum. 

UNPAID TAX LIENS OR JUDGEMENTS

Unpaid taxes would be a huge stain on your credit history, especially if the government took legal action to collect your outstanding debts.

If there are derogatory statements on your credit bureau, they will need to be cleared for mortgage approval. For example, when you were young, a forgotten phone bill that went to collections and is sitting on your credit bureau will need to be paid and updated to show paid before mortgage funding. 

BUSINESS DEBT

As a sole proprietor business owner, all your financial liabilities are relevant to lenders.

That means your business expenses and loans will be part of your overall debt-to-income ratio calculations.

If your loan application was rejected and you have outstanding business debts, you may need to pay down debt or liquidate assets to improve your ratio.

DOWN PAYMENT SOURCE ISN’T ACCEPTABLE

Not all down payments come directly from a savings account, but it must be acceptable to your lender if you’re using a different source of funds.

Is the source of your money easy to verify? Can you prove it’s not another debt? For example, if you plan to use the money you received from a loved one, the financial institution will require the family member to sign a gift letter to confirm this is not a repayable loan. You should also be able to explain it and trace it back to them.

YOU ARE SELF-EMPLOYED

Unfortunately, lenders don’t always reward the entrepreneurial spirit.

If you’re a freelancer, contractor, or business owner, you depend only on yourself for your monthly income.

As mentioned earlier, lenders prefer a more stable source of income, but with extensive documentation and solid work, history could redeem you. Lenders who offer the best rates and terms on mortgage loans will require a minimum two-year history of your income tax returns to adjudicate whether a borrower qualifies.

TAX RETURN ERRORS

Were your tax returns inaccurate?

Lenders will dissect your tax return, as well as financial and employment records that cover the same years.

If there are discrepancies, they cannot verify your income to their satisfaction. 

NOT ENOUGH SAVINGS

Before you borrow money to buy a house, you must also ensure you have enough money in savings for closing costs, emergencies and provide a positive net worth. It doesn’t look good to a lender if you owe more than you have in savings; a negative net worth is not in your favour. 

Your income is an essential factor, but so are your savings.

DOWN PAYMENT IS TOO SMALL

Are you putting enough money down?

Suppose your down payment is less than 20 percent of the purchase price. In that case, it will be harder to qualify, given that the mortgage application must abide by the mortgage default insurer rules, which are stricter than the lender guidelines.

INCOME TO DEBT RATIO ISN’T DOCUMENTED

Lenders need concrete proof that debts don’t swallow up your monthly income.

Lenders offering the best rates and terms need sufficient sources of income, including but not limited to a letter of employment, recent pay stub, income tax returns. Similarly, lenders may need your tax returns, pay stubs, employment records, and documentation of all your debts and other fixed monthly expenses.

CHANGE IN INTEREST RATES

Financial institutions are required to follow the Federal rules (the stress test – which changes); lenders must qualify an application as though you are paying a higher interest rate. However, the stress test is not the rate you pay; it’s for qualifying only.

What this means, if mortgage interest rates go up, a borrower’s application gets adjudicated at a higher rate. It means qualifying is more difficult to qualify for a mortgage. As of July 22/21, the stress test rate is 5.25%, and the regular discounted rates are 1.99% – 2.39%

YOU WEREN’T HONEST WITH YOUR LENDER

Of course, if your mortgage pre-approval was based on factors that weren’t accurate, your lender will find out.

Undisclosed debts or unreported income changes may come up during the underwriting process, increasing the risk to the lender and making you look unreliable. It’s always, always, always important to provide proof of income documents during the pre-approval stage! This will help ensure your pre-approval is authentic and properly underwritten, preventing future headaches.

YOUR NEXT STEPS

Was your mortgage application rejected for one or more of these reasons?

Before you appeal the rejection or re-apply with a different lender, address the factors that make you look like a financial risk. Speak to your Mortgage Broker about this.

Your goal is to buy a house you can afford, and your broker can help you determine what needs to change to qualify with any lender.

No matter your financial situation, working with real estate professionals and providing the proper documentation are two crucial ways to improve your odds and prevent any surprises after the initial pre-approval.