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August 12, 2016 - No Comments!

4 things that can ruin your mortgage application

Alex Khalil is a private lender & Mortgage Broker with Dominion Lending Centres - Mortgage Evolution -  Want to see more articles like this one? Like my Facebook page - Looking for a mortgage or mortgage advice? Request a Call Or Apply Now.  

As a mortgage broker, I often encounter clients who make great income, have great credit, and quite frankly have done everything right but are shocked to find out their mortgage application has been declined by the bank.

Sadly, although these customers are A1 clients, they have made some innocent mistakes along the way that could have easily been avoided. If you plan on buying a home in the near (or distant) future, think twice before signing and get in touch with a good mortgage broker. Here are 4 things that can ruin your mortgage application:

1) Taking out a car loan

This is probably the most common hiccup I come across. Client has great income, great credit, pays his or her bills on time but decides to get a car loan with a $350 payment. To add to it, the client decided that he can afford $750/month payments so that the loan would be paid out in a shorter time frame and increases the payments. Sounds responsible right?

The problem with this situation is that we now have to use $750/month against his debt servicing. That $750 per month could make or break his mortgage application. Client would have been better off not getting that car loan, structuring the car loan differently and lastly although the increased payment seems like a responsible move, his best bet would have been to keep the set payments low and simply make higher payments.

Working with an experienced mortgage broker and getting some advice on how to structure this transaction prior to signing on the dotted line could be difference between home ownership and renting.

2) Co-Signing for a friend or family member

Of course you trust your friend or family member, after all why wouldn’t you. The problem here is that many times things can go south and if, unbeknownst to you, your friend or family member defaults on a payment obligation, it will directly affect your credit rating.

Moreover, as with the car loan, the additional debt load regardless if not being paid by you must be included in your debt ratios and can ultimately result in your mortgage not being approved.

Now that does not mean that you cannot co-sign or be a guarantor, however, as with the car loan scenario, how you structure the transaction is extremely important. For example, being a guarantor, not on title as opposed to a co-signer, on title, could potentially avoid any future debt servicing issues. And remember if you co-sign, be prepared to verify the payments are in fact being made and in the worst case scenario be prepared to actually make those payments. If you are unable or unwilling to do either, say no!

3) Lines of credit

Lines of credit are a great resource to have at (generally) very reasonable interest rates. The problem with lines of credit is that the payment weight used for a line of credit is higher than that of a regular recurring credit product.

Recently the new standard debt ratio calculation when considering lines of credit is 3% of the current outstanding balance. That means a $10,000 line of credit would weigh as a $300/month payment against your ratios, even though your payment probably is not even close to that.

Don’t get me wrong, there is nothing wrong with a line of credit, but as with any credit product, make sure you pay the balance down to zero or if that is not an option at least down by half a minimum of 60 days prior to your intended home purchase date to allow sufficient time for reporting to the credit bureau.

4) Credit inquiries

These days there are so many ways to inadvertently get your credit pulled. Simply applying for insurance, credit card processing, an apartment, a utility account or consulting with any number of other creditors can cause a pull on your credit bureau. Multiple pulls, particularly within a short period of time can have a major impact on your overall credit rating.

Always read the fine print carefully and look for any hidden verbiage that authorizes a credit inquiry. Don’t be shy to cross that portion out or refuse consent if you do not feel it is appropriate. Generally speaking things like applying for a hydro account should not significantly affect your credit score.

Also if you notice unauthorized inquiries or activity on your credit bureau contact Equifax and Transunion immediately and be sure to have these items removed.

Now, if you have already gotten yourself into any of these predicaments, do not panic! That is what a good broker is for. Good brokers have good solutions and will work with the right lender for your specific situation.

Often there are work arounds, but the broker client relationship should be a long term one. Your broker should be continuously working with you and reviewing your financial heartbeat on a regular basis to ensure you are a prime candidate for mortgage financing.

Alex Khalil is a private lender & Mortgage Broker with Dominion Lending Centres - Mortgage Evolution -  Want to see more articles like this one? Like my Facebook page - Looking for a mortgage or mortgage advice? Request a Call Or Apply Now.