Category Archives: pre-approvals

Mortgage Pre-Qualification vs Mortgage Pre-Approval vs Mortgage Approval

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Buying & Selling Tips

Mortgage Pre-Qualification vs Mortgage Pre-Approval vs Mortgage Approval

What are the differences between each stage of the mortgage process?
By Kara Kuryllowicz September 18, 2019

In early 2019, several Canadian banks launched digital apps that offer home buyers easy, hassle-free mortgage pre-qualification in 60 seconds or less. Sounds great, right?  The problem is many consumers believe a mortgage pre-qualification is a lot like a mortgage pre-approval or mortgage approval. As a result, prospective home buyers and sellers are left expecting the financial institution associated with the app to lend them hundreds of thousands of dollars, despite the fact they simply keyed their names, addresses, contact information and gross income into various online fields.

Getting Mortgage Approval

“Every week, as many as 40% of my new clients come to me because they’ve just bought a home and discovered that mortgage pre-qualification is meaningless and that they do not have the financing required for the purchase,” says Tracy Valko, owner and principal broker of Dominion Lending Centres Valko Financial Ltd., and a director at Mortgage Professionals of Canada.

Let’s get real: A mortgage pre-qualification gives the financial institution warm leads (names, contact information, purchasing timeline) and tells consumers how much money a financial institution might loan them. There is no way any financial institution will actually lend consumers hundreds of thousands of dollars just because they spent 45 seconds with the company’s mortgage pre-qualification tool.

Lenders do everything they can to ensure the borrower will repay the loan. A mortgage pre-approval looks at how an individual manages his/her money to determine that person’s creditworthiness. The next step is the mortgage approval which assesses that specific person’s ability to repay a loan of a certain amount at a set interest rate on a particular home.

“Always get a mortgage pre-approval before you start searching for a home and have a mortgage approval in place before you waive your financing condition on the offer – back out of a deal after it’s firm and you could be sued by the seller.” says Valko. “A mortgage pre-approval will tell consumers and their realtors what they can realistically afford to buy.”

Let’s further define the terms consumers need to fully understand before they commit to a real estate agent and start shopping for a home.

What is Mortgage Pre-Qualification?

It takes less than 60 seconds because it requests only the most basic information, whether it’s submitted to an online app or a financial representative. Mortgage pre-qualification never requires supporting documentation that proves the consumer actually has a full-time job, is paid a weekly salary and has earned a good credit score. At best, a mortgage pre-qualification can provide a very loose, broad estimate of a consumer’s home-buying power based on the consumer’s unverified data. Because the consumer typically inputs the information into an online tool, it takes just seconds for the software, not an experienced, professional underwriter, to pre-qualify a consumer for a mortgage.

If consumers notice and bother to read the apps’ fine print or legal disclaimers, they’ll likely see a statement like this one: “This is not a mortgage approval or pre-approval. You must submit a separate application for a mortgage approval or a mortgage pre-approval and a full credit report.”

In other words, they’re not actually promising you a dime, let alone enough the hundreds of thousands of dollars you’ll likely need to buy a home anywhere in Canada.

What is Mortgage Pre-Approval?

In general, it will take two to five business days to investigate an individual’s financial circumstances and the risk that a person might represent to the lender. The underwriter will need the basics, such as name, address and contact information in addition to detailed data on their income, assets (e.g. stocks, RRSPs, property, vehicles, savings), liabilities (e.g. debt, loans, mortgages) and their credit rating and report as well as the available down payment. Supporting documentation may be required to prove any or all of the above.

Unlike a pre-qualifying app, lenders’ underwriters may request a letter of employment, a Notice of Assessment, pay stubs, or T4 for the two most recent years as well as documentation indicating the down payment is available. The lender or mortgage broker will also require the consumers’ permission to pull credit scores and credit reports from organizations such as Equifax.

Your credit score, typically 300 to 800+, is based on feedback from lenders who confirm that you do or don’t pay your bills in full and on time every month. The credit report includes your name, address, social insurance number and date of birth as well as your credit history, for example, your debts and assets and whether you’ve ever been sent to collection or declared bankruptcy.

“Lenders want to know how well or how poorly you manage your money and will be looking for patterns of insufficient, late and missed payments,” says Valko.

A mortgage pre-approval is generally valid for up to 120 days at a specific interest rate unless the consumers’ circumstances change, for example, employment status, down payment, or income. For example, a consumer may not realize it, but their probationary status with a new employer, whether it’s three, six or 12 months, does matter to lenders. Likewise, a move from a salaried to a contract or self-employed position will also be seen as a higher risk.

“I’ve had clients believe they were full time, salaried employees, then discover they’re still on probation when we start underwriting,” says Valko. “An electrician client left his full-time salaried position to work independently and didn’t realize it negated his mortgage pre-approval, which was based on the guaranteed weekly paycheck versus the sporadic earnings associated with self-employment.”

What is Mortgage Approval?

This is the big one. Once consumers have identified the homes they want to purchase, they need mortgage approval to buy that specific home. Lenders assess the age and condition of the homes and consider comparable homes to confirm the price being paid is fair and market value. The mortgage approval is valid until the closing date unless the buyers’ circumstances change.

“Only the mortgage approval accounts for property specifics, such as taxes or condo fees, so give your underwriter/lender time to ensure the numbers previously used are still valid and that the property is acceptable to the lender,” says Valko.

If you’re serious about the home search and purchase process, skip the mortgage pre-qualification apps. Instead, take the time and make the effort to get mortgage pre-approval, then find the home suits you best, then get mortgage approval to close the deal. Then? Enjoy your new keys.

Source: –  Kara Kuryllowicz September 18, 2019

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A first-time homebuyer’s guide to getting pre-approved for a mortgage

Many Canadians might want to start their homebuying journey by contacting a realtor and scoping out open houses, but their first step should actually start in a lender’s office. The mission: To get a mortgage pre-approval. In this process, a potential mortgage lender looks at your finances to figure out the maximum amount they can lend you and what interest rates are available to you.

Lisa Okun, a Toronto-based mortgage broker, recommends getting a pre-approval right out of the gates. “You need to understand the financing piece before you start shopping. Through the process of getting a pre-approval letter, you will also get your ducks in a row,” says Okun.

Make yourself house proud.

The key benefits to getting a pre-approval are that you’ll have a ballpark figure for the maximum mortgage you can qualify for and your lender can estimate your monthly mortgage payments. You’ll also be able to lock in an interest rate for up to 120 days. This means if interest rates go up in the months following your pre-approval, most lenders will honour the lower rate that they initially qualified you for.

That said, pre-approvals have some limitations. Okun breaks it all down here.

Photo: James Bombales

Let’s start with the basics. Where do you get a pre-approval?

Mortgages are available from several types of lenders like banks, mortgage companies and credit unions. If you’re getting a traditional mortgage, you can get pre-approved by one of Canada’s major banks or through a mortgage broker or agent. A bank will only be able to offer you mortgage products under their umbrella. Mortgage brokers and agents don’t actually lend the money directly to you. Instead, they arrange the transactions by finding a lender for you and then get a commission from the sale. Unlike a bank, brokers and agents have access to dozens of mortgage products.
Not all mortgage brokers have access to the same products, so it’s important to shop around, do your research, and compare interest rates and products before you settle on ‘the one’. Even half a percentage point can make a massive difference in the size of your monthly payments and the total interest you’ll pay over the life of your mortgage.

Photo: James Bombales 

Your pre-approval is not a guarantee.

With a pre-approval, your lender is approving you. With a final approval, they will be approving the property you intend to buy, along with ensuring your finances haven’t changed since you were initially given the green light.

“A lender is always going to reserve the right to approve you on a live transaction,” says Okun. “Let’s say someone’s credit score dropped in the six months that they were shopping. That could change things. Now, I may have to assess you at a lower debt servicing ratio.”

In addition to the possibility of your financial snapshot changing, the lender may not like the property you want to buy (remember, as the primary investor, it’s their house too). “If they believe they would have trouble unloading that property in the event of a default, they may not go for it,” says Okun. “For condos, many have minimum square footage requirements. If there’s an environmental issue, they may have concerns about that. Or if they decide that you overpaid for it, they might only be willing to finance the property to a certain amount. Then it’s up to the client to decide if they want to come up with the difference, or if they want to walk away from that property.”

Photo: Helloquence on Unsplash

What do lenders require for a pre-approval?

Whether you go to a bank,mortgage broker or agent, you will need to provide documentation that shows your current assets (whether it’s a car, a cottage, stocks, etc.), your income and employment status, and what percentage of your income will go towards paying your total debts.

Proof of employment

Your lender or broker may ask you to provide a current pay stub or letter from your employer stating your title, salary, whether you’re a full-time or part-time employee, and how long you’ve been with the organization.

If you’re self-employed, your lender will need to see your taxes from the last two years (Notices of Assessment from the Canada Revenue Agency). “Ideally, it’s going to show two years of working at the same business,” says Okun. “If you had one venture and then you abandoned it and you started something new, that’s not going to show as well as if you’ve had the business for three years and your income has steadily increased.”

If you are currently employed, this is not the best time to switch up your resume. “If someone is full-time employed and they just started in a new job, I can still use a job letter and paystub,” says Okun. “But ideally, I want it to say they’re not on probation. Not to say that would kill it but it’s a bit easier if they aren’t.”

If you’ve recently switched jobs, your lender may ask to see your tax returns from previous years to confirm that you’ve had continuous employment and have stayed within a relative income bracket.

Photo: James Bombales

Proof of downpayment

Your lender will want to have an understanding of how liquid your downpayment is. “I usually don’t ask for a history of the funds when we’re discussing pre-approval, but I will ask a lot of questions about where the funds are and how accessible they are,” says Okun. This could include details on whether you’re waiting for an inheritance or gifted funds, selling stocks or other investments, or corralling funds spread across multiple accounts.

Your lender should also have a conversation with you about closing costs, moving costs and ongoing maintenance costs to ensure you’re prepared for the total cost of owning the house you’re approved for.

Credit score

Before you meet with a lender to get a pre-approval, order a copy of your credit report and review it for any errors.

If you don’t have a good credit score, the mortgage lender may refuse to approve your mortgage, decide to approve it for a lower amount or at a higher interest rate, only consider your application if you have a large downpayment, or require that someone co-sign with you on the mortgage.

Your credit score will also have an impact on how much mortgage you qualify for. Lenders figure this out by looking at what percentage of your income will go towards your housing costs and total debts (including housing). If your credit score is higher, you are allocated the maximum percentage allowance, which means you get more house for your money. “If your credit score is above 680, the limit for your gross debt service ratio (GDS) is 39 percent and total debt service ratio (TDS) is 44 percent,” says Okun. More on that below.

Photo: James Bombales

Calculating your total monthly housing costs and total debt load.

Your gross debt service (GDS) ratio encompasses your monthly mortgage payments, property tax, heating and 50 percent of condo fees (if applicable). This is sometimes referred to as PITH (Principal, Interest, Taxes and Heating).

Your lender will also do a calculation called total debt service ratio (TDS) that determines what percentage of your income is going towards servicing your total debts (including the housing debts you’ll be taking on).

To calculate your TDS, add up PITH and every other debt you have including car loans, credit cards, lines of credit, student loans, etc. Then see how that stacks up against your income.

The guidelines state your GDS should be no more than 32 percent and your TDS should be no more than 40 percent. However, as mentioned above, if you have a fabulous credit score you can stretch this maximum to 39 percent for GDS and 44 percent for TDS.

You might be wondering how your lender can calculate your property taxes when there isn’t a property in question. To do this they set aside one percent of the forecasted purchase price. On a $600,000 property, this amount would work out to $6,000 a year. “It’s not going to be that much but that’s the calculation your lender will use,” says Okun. That’s why it’s a good idea to run the numbers with your lenders every time you find a property of interest so they reflect your actual affordability.

Photo: James Bombales

Levers you can pull if you aren’t pre-approved for the amount you want.

Maybe your affordability isn’t reaching as high as you’d like. In this case, there are a few levers you can pull. One option is to go with a “B lender” — an institution that offers a lower barrier to entry to qualify for their products. The only problem is that this can often be offset with higher interest rates and fees.

“There are B lenders that would have different debt servicing ratios, and will let us push those numbers a little bit further,” says Okun. “But you’re going to pay a higher interest rate and there’s going to be a one percent fee to do your deal with them.” Say your mortgage is $800,000. Prepare to be dinged at least $8,000. And it’s not just a one-time fee — if you have to renew, they’ll ding you again.

“There’s always a solution, but you have to ask yourself, ‘Is it worth it and how much is it going to cost?’” says Okun.

Another suggestion Okun shares is to add a cosigner. With an extra income, you’ll have access to a higher purchasing price. “You’re also going to be taking that person’s liabilities onto the application now, so they have to be a good applicant in terms of their debt,” she says.

You could also contribute more to your downpayment to ensure you’re putting down at least 20 percent. This will give you access to a 30-year amortization, instead of a 25-year (this is the amount of time you’re given to pay your mortgage back in full). “This stretches your loan over 30 years instead of 25 which changes the payment significantly,” says Okun. “That allows you to essentially afford more.” Another strategy is to pay off significant debts so they aren’t tipping your debt servicing ratios over the edge.

Where there’s a will (and a patient lender), there is often a way.


Source: –  

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Unravelling The Mortgage Challenges Of Going From Pre-Approval To Approval


Pre-approval and approval are terms we hear thrown around a lot in real estate, and yet all too seldom do homebuyers know what’s necessary to secure one in the first place. The fact is, a pre-approval should be one of the first steps in the property search process.

As the real estate market in B.C. continues to sweep along at its dizzying pace, many have been left scrambling to make subject-free offers without a pre- approval in place. This, of course, complicates things even when the live file is submitted. During the pre-approval stage it’s important to be upfront and provide accurate information so that your broker and the lender are aware of any possible challenges ahead. Once you have your pre-approval, the more constant everything stays, the better your chance of getting the approval when the time comes. Complications of pre-sales, co-signer’s, or an unexpected life change are some of the few things that can cause your pre-approval to be declined at the last minute.


Co-signers or guarantors can be a tricky business. Quite often, particularly among younger people who haven’t had time to build up a long credit history or stable income, a co-signer may be required by the lender to strengthen the application. It’s important to remember that not all co-signer’s are created equally and, there is just as strong a chance that a co-signer/guarantor will be turned down as there is that you will be by the lender.

Assuming someone has agreed to be your co-signer, this alone is not enough. They will needs a strong credit score, as co-signing or guaranteeing a loan will increase their debt load and it’s their responsibility to pay off the debt if you default. Added to that, if they are asset heavy but have no consistent salary or income base, this will not be looked upon favourably by the lender and you may be turned down for the loan.

When looking for a co-signer, think like a lender. Do they have stable income? Are they in debt? What is their debt-to-income ratio? Have they co-signed for anyone else in the past and, if so, did they take on any additional debt as a result? The more you know about your co-signer, and the more prepared you are with paper evidence of their financial status, the better chance you stand for the approval. Most importantly, if you plan on having a co-signer or a guarantor, their situation must also remain constant as they are really treated as another applicant on the same loan.


A pre-sale is when a buyer purchases a property that has yet to be finished, and the majority take place before construction has even commenced. Particularly in a highly competitive market like Vancouver, one of the most attractive features of a pre-sale home is that despite the down payment, you have extra time to cobble together the amount of money you will need to close. For those whose current credit is preventing them from obtaining a mortgage, this extra time can be a welcome and important opportunity. In addition, buyers can often reap the benefits of climbing market value before they even put a dime into a mortgage, strata fees or property tax.

In the case of obtaining a pre-approval, that same time frame that is so attractive for building income can be the very thing that hinders you most. With a pre-sale, usually you are required to put down 15-20 per cent in stages, although here in B.C. some developers are now accepting five per cent from first-time homebuyers who are approved or pre-qualified for a mortgage. However, it’s important to remember that with a pre-sale your broker cannot usually hold the rate for too long; much less until project completion.

With the typical pre-approval letter at a maximum of 120 days, and some lenders doing a pre-approval for pre-sales up to a year in advance, what your broker may be able to provide you with would not hold until the project is complete. Sometimes, the lender financing the project can offer a pre-approval until the completion of the project. However, they will be using higher rates to qualify so if you are tight with your current income and debt level, you would most likely not qualify with the higher or posted rates.

If contemplating a pre-sale, make sure to be realistic about the completion date. Mortgage rules change often and there is no guarantee that the rules or your situation is unchanged at your completion.


We have all, at some point, found ourselves in a situation we didn’t anticipate. Whether it’s loss of a job, a decrease in salary, health problems, or any other number of new adjustments such as getting a car loan. But changing jobs, adding debt, and moving around your down payment money can not only affect your pre-approval — it can void it, as it may push your ratios overboard.

Think of a pre-approval as the lender approving your file based on your current condition and any changes will jeopardize that approval. Any variance in your income or debt level is an immediate alarm to the lender, and will affect your pre- approval.

Pre-approvals can be extended with an updated credit bureau and information. If you are actively looking for a home, it’s best to do everything in your power to remain as financially and professionally stable as possible. In other words, if it’s your dream to open your own business, you may want to reschedule that for a couple years down the line. Being realistic and planning ahead are two of the best incentives to guarantee that you are eligible for the mortgage when the time comes.

Source: Huffington Post   Mortgage Professional, Thinking Outside The Branch



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6 Ways to Build Your Credit From the Ground Up

Credit Score Rating FBN

Limited or no credit? You’re in good company.

One in 10 adults in 2015 is “credit invisible,” meaning they have no established credit with a nationwide reporting agency, according to the Consumer Financial Protection Bureau. Another 8% have insufficient credit history or one that’s too old to track.

Many times, consumers with no credit history are new to the world of credit. They can find themselves in a Catch-22 scenario, says Jennifer Tescher, president and CEO of the Center for Financial Services Innovation in Chicago.

“You need to have a credit history to get credit,” she says. “And you need to have credit to build (a) credit history.”

A “thin file” means you don’t have much of a track record with credit. Either you have only a few accounts, or your credit is relatively new, or both, says Maxine Sweet, who retired in 2014 from the credit bureau Experian, where she was the vice president of public education.

While “thin file” consumers have passed the initial hurdle, they could still “have a much harder time” qualifying for certain credit products, such as credit cards or “instant” in-store accounts, as opposed to mortgages or community bank loans, says Tescher.

If you fall into either category, here are six strategies you can try to establish, re-establish or beef up your credit file.

Don’t go crazy with the credit applications

Some of the groups at risk for no credit or a thin file include young adults, the elderly (if they haven’t used credit in a while), new immigrants and people who avoid credit.

Working to establish credit? Go slow, be very selective in your applications and nurture existing accounts. Never pay late, and — with credit cards — keep balances reasonable.

While “thin file” consumers have passed the initial hurdle, they could still “have a much harder time” qualifying for certain credit products, says Tescher.

Particularly dangerous: multiple applications, he says.

Someone who is “exploding onto the credit scene” — going from no credit to multiple applications in a short period — is “someone who could be getting in over their head,” he says.

The old secured credit card

With a “thin file,” you have credit — just not much of it.

“You’re in there and you have some data,” says Tescher. “But you don’t have enough trade lines to be automatically scored. And it usually means less than three trade lines (or accounts).”

One solution to build credit: a secured credit card.

Beware of “fee-harvester cards,” says Linda Sherry, director of national priorities for Consumer Action. These cards charge fees for everything, and those fees are high, she says.

One good source for a secured card is your bank or credit union. “Many banks don’t necessarily advertise these products, but they have them,” says Tescher.

Make sure you opt for a credit card that reports your on-time payments to the three major credit bureaus — Equifax, Experian and TransUnion. Some cards don’t report or only report if the account goes into collections.

If you’re looking to build good credit, you need a credit card that will tell the bureaus all about your good habits.

Buy something small

While most negative information comes off your credit report after seven years, even the good accounts can disappear after 10 years if they’ve been closed or inactive. In addition, some scoring formulas can’t generate a credit score if it’s been a while since any of your creditors reported to the bureaus.

That means some people who had robust credit files at one time could potentially find themselves with a thin file or no credit score if they close accounts or stop using credit.

If you have a history of credit but no longer have a score, make a small purchase on one of your existing accounts and pay it off right away, says Barry Paperno, consumer credit expert.

That will give you the recent activity the scoring formula needs to assign you a score, he says.

If you’re new to the credit game, it could take a while to get a credit score, depending on the scoring model used to compute it. For a FICO score, your oldest account needs to be at least six months old. Using the VantageScore model, a consumer’s credit report could be scored after the first month of paying on a credit account.

Become an authorized user

This strategy can be chancy for the authorized user and the primary cardholder.

In the perfect scenario, the authorized user gets charging privileges on another person’s credit card, stays within whatever limits the cardholder sets and the cardholder’s good payment history for that account appears on the authorized user’s credit record.

The gamble if you’re the authorized user: If the account holder misses payments, goes into collections or declares bankruptcy, that bad behavior can also land on your credit report.

Before you attempt this arrangement, find out from the issuer if you have the power to remove yourself from the account. Also, ask the issuer what would happen to account information — good or bad — that’s already on your report if you’re no longer an authorized user.

If you become an authorized user, monitor your credit report regularly to ensure the account is reporting and paid on time. Check your report for free at myBankrate.

The gamble if you’re the primary account holder: The authorized user could max out the card and leave you with the bill.

One possible solution: If you want to add an authorized user, don’t give that person a card, says Sherry.

A ‘credit builder’ loan

This product is very similar to a secured card, except that it’s in the form of a loan.

One example: Your bank makes you a small loan, which you use to purchase a CD, says Tescher. The bank holds the CD, and you make monthly payments. At the end of your loan, you own the CD. Your gain: a small nest egg, plus a record of good credit, she says.

The price: any fees and interest you pay on the loan.

For a long time these and similar loans were a staple, particularly at small or community banks, she says. Now institutions “are taking them off the shelf and dusting them off because they are becoming increasingly relevant,” she says.

Paying for money you don’t need can be counterproductive — the point of good credit is to save money — so reserve this step as a last resort. If you use it, look for low rates, minimal fees and a lender that reports good behavior.

Ask questions before you apply

With little or no credit, consider talking to lenders before you apply.

Some lenders have access to services that pull data from other sources for people in just your situation, says Tescher.

These services help lenders identify potential customers by analyzing data from nontraditional sources — such as rental or utility records — when potential customers don’t make the cut based on traditional data, she says.

While seeking lenders who consider this information won’t change your “classic” FICO score, it could help you get credit.

FICO offers lenders its own solution to scoring consumers with thin files. Called a “FICO Expansion Score,” it includes alternative data, such as checking accounts, installment purchase plans and phone payments, to rate creditworthiness.

With the regular VantageScore, another credit-scoring model, nontraditional accounts (such as rent and utilities) will be factored into your score if they’re on your credit report, says Jeff Richardson, spokesman for VantageScore Solutions.

The company also offers two thin-file scoring formulas: one for high-risk consumers and one for those with low risk, says Richardson.

Ask before you apply: If your conventional credit score or application doesn’t make the grade, does the lender have a way of considering any additional data to underwrite you for credit?

Source: By Dana Dratch Published July 10, 2015 Copyright 2015, Bankrate Inc.

Bidding war homebuyer beware: Appraisers may not be as eager

Hamilton's real estate market remains hot in August.

Appraisals come in lower than buyers’ offers in Hamilton’s hot housing market

By Kelly Bennett, CBC News Posted: Aug 24, 2014 6:00 AM ET Last Updated: Aug 24, 2014 6:00 AM ET

Competitive homebuyers in Hamilton’s hot housing market are often facing a critical disagreement as they try to buy a house – the property appraiser doesn’t share their opinion about how much the house is worth.

And that can leave homebuyers without the financing they need to close the deal.

The tension, between eager buyers and sellers and often conservative appraisers and bankers, is arising more in the hot market, local real estate experts said. ​

Lately, some homes for sale have been attracting “five, six, seven” offers, said veteran local appraiser Bob Schinkel, who owns Schinkel Appraisals, a local firm. The winners may be blinded by their victory.

“There’s a good chance that they’re so excited about getting the house that they’re willing to pay more than market value,” he said.

‘Things like this can set a crux in the deal’

The appraisal is typically the most the mortgage bank will allow a buyer to borrow on the house. If they couldn’t pay their bills tomorrow, and the bank had to foreclose, the bank wants to know it could sell the house to cover the debt.

So when the appraisal comes in under what the buyers have agreed to pay, they may have to scrounge up thousands of dollars more for their down payment, or back out of the deal entirely.

Here’s, roughly, how it works. For the sake of round numbers, say a house is on the market for $200,000. A buyer finds out she has approval from the bank to get a mortgage for $160,000, so she offers $200,000 on the house, planning to pay a $40,000 down payment.

But before agreeing to the deal, the bank hires an appraiser to go take a look at the property, to analyze the house and to compare it to other houses in the same neighbourhood of similar size and quality. The appraiser’s report goes back to the bank, along with a price he thinks it’s worth. If that price is less than the $160,000, the bank will most likely only grant a mortgage for that amount, even though the buyer was approved to borrow more.

“They’re hoping to get 80 percent financing but the bank will only lend on the lower of the two, the purchase price or the appraisal,” said Bill Boros, a residential appraiser at Pocrnic Realty Advisors.

The roadblock is popping up more in an escalating market, said Suzanne Boyce, a local mortgage broker who owns the Personal Mortgage Group.

She said it’s important for buyers to make sure they’ve completed their full application for a mortgage before making an offer, not just submitted initial pre-approval paperwork.

“It’s something that the public should know about when they’re purchasing,” she said. “Things like this can set a crux in the deal.”

Sometimes buyers try to increase their competitiveness by making their offer “firm.” But if they’ve gone into the offer without making it conditional on their loan coming through, they could be in trouble – facing a “lawsuit or loss of their deposit or both,” Schinkel said.

‘You always feel that pressure’

The situation underscores a few characteristics of Hamilton’s housing market.

There aren’t a lot of homes on the market, and the low supply increases demand. More homes sold in July than any July for the last 10 years, according to the Realtors Association of Hamilton and Burlington. But the inventory of homes for sale at the end of the month was 8.4 percent lower than the same month last year.

The fever inspires some homebuyers to seek out charming homes, sometimes fixer-uppers, in previously less popular neighborhoods. But appraisers may not be able to find supporting sales of similar diamonds in the rough nearby to support their estimate of the home’s worth.

The market is seeing an influx of buyers from elsewhere, like Toronto, who are surprised to see such “low” prices compared to their previous cities and may not balk as prices rise in a bidding war.

Realtor April Almeida with City Brokerage had an experience recently where an appraisal came in several thousand dollars lower than a client’s offer.

“They can walk away or they have to basically come up with the difference,” Almeida said.

Almeida’s client ended up switching to a mortgage broker instead of taking a loan from the client’s bank. But Almeida said the hiccup was frustrating.

“We’re seeing more of it here, and it’s making me nervous that [appraisers are] trying to quash this market,” she said. “Or are they giving into this perception of this bubble thing.”

The client ended up switching banks and finding a new loan through a mortgage broker.

Boros said appraisers know their estimates may disappoint some people, but he said his duty is to the lender, not to the buyer.

“You always feel that pressure,” he said. “People are trying to buy a house. It’s a matter of explaining to them: We have to base it on the market.”

Over 40% of first-time home buyers in Canada can’t afford a house without their parents’ help, report suggests

BMO’s 2015 Home Buying Report found that 42 per cent of first-time buyers told an online survey that they expected their parents or relatives to help pay for their first home.

Canadian Press | April 23, 2015 | Last Updated: Apr 23 12:47 PM ET
Tyler Anderson/National PostBMO’s 2015 Home Buying Report found that 42 per cent of first-time buyers told an online survey that they expected their parents or relatives to help pay for their first home.

TORONTO — A Bank of Montreal report suggests first-time home buyers are increasingly turning to the “Bank of Mom and Dad.”

Go figure — Canada’s overheated housing market is getting the biggest shot of juice from the efforts of a central bank thousands of miles away. Here’s how it works

BMO’s 2015 Home Buying Report found that 42 per cent of first-time buyers told an online survey that they expected their parents or relatives to help pay for their first home.

That’s up 12 per cent from last year’s report.

The bank also said 40 per cent of the first-time buyers said they couldn’t afford a home without financial help from family.

The study found the first-timers were anticipating a downpayment of about $59,413 on average and had a budget of $312,700 for the purchase — slightly less than last year’s average price of $316,100.

The bank also found that 42 per cent of current home-owners surveyed said they were looking for family help with the purchase. Their average budget was $473,000 and their average downpayment was $123,214.

The BMO report is based on online interviews with a random sample of 2,007 people aged 18 years or more between Feb. 24 and March 5.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error as they are not a random sample and therefore are not necessarily representative of the whole population.

Prices in Canada have been rising since 2009, resisting regulators’ efforts to cool the market by restricting credit. In Toronto and Vancouver, values have surged as much as 56 per cent in six years. Now as the European Central Bank’s bond buying helps drive down rates to near-record lows in Canada, the housing market is poised to ascend even higher.

Re/Max, the country’s largest residential real estate agency, raised its forecast for home price growth to 3 per cent from 2.5 per cent last week because transactions and values were so high in the first three months of this year. In March, housing sales rallied 4.1 per cent, the most in 10 months.

Toronto home sales increased 11 per cent to more than 8,000 transactions in March over the prior year, according to the Canadian Real Estate Association. Prices in the country’s most populous city jumped 10 per cent to about $601,500.

In Vancouver, Canada’s most expensive home market, sales soared 53 per cent and the average cost to buy a home rose 11 per cent to $870,000.

With files from Bloomberg

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Why Getting Pre-Approved For A Mortgage Is A Sham

Mark Greene , Contributor

Source: Forbes Magazine; Updated from an article that first appeared on November 2012

Mortgage pre-approvals are pretend documents.  It is true that preliminary mortgage approval is an essential first step in the home buying process as real estate agents and sellers want proof of a buyer’s ability to secure a mortgage and bid on a property.  Buyers want it to know what their buying power is and what their potential payments and costs will be.  Mortgage people see it as the first date in the courting process with new buyers.  Everybody sees it as a good idea, a prudent and powerful first step on the oft perilous journey to homeownership.  So what’s the problem?

 The fact is that mortgage pre-approvals are not what everybody wants them to be.  They are not ironclad, they are not processed and reviewed by underwriting people and they are not subject only to an appraisal, even though most of them say that.  They are however part of almost every real estate deal and they have become essential in the bidding on a house process.  Since mortgage pre-approval has grown to be so integral to the home buying process, it makes sense that lenders would rigorously address this void.  Not so.

Back in the day (1980s, early to mid-1990s) there was mortgage pre-qualification and it was done by real estate agents.  There were no credit checks and interest rate factors were used to determine monthly payments.  Qualifying ratios were calculated to determine buying power and forms were used and blanks filled in to see what buyers could afford.  That was the pre-approval process.  No mortgage people were involved.  That was back when the mortgage business was more of a well-kept secret, and mortgage reps were relatively scarce.

With the rise of the mortgage lending industry in the late 1990s and the dawn of the 21st century and the proliferation of mortgage originating sales people, mortgage pre-qualification shifted from real estate agents to mortgage reps.  Smart real estate people deputized mortgage reps hungry for referral opportunities, to shoulder this function, leaving real estate agents to focus on the business of selling real estate.  Mortgage reps seized the opportunity to fill this role and mortgage pre-qualification began a rapid process of evolution.

Mortgage reps were primarily sales people, even though their business cards said “Loan Officer” or some variation on that theme, financial skills and training were usually secondary.  That being said, mortgage financing was far from rocket science and the financial skills necessary to be a well-qualified and highly effective “Loan Officer” were easily learned on the job.  So when mortgage pre-qualification became a sales tool for mortgage reps, there was no uniform process for determining and issuing these coveted golden tickets.  Not every mortgage rep did a credit check and the process was usually no more than a telephone conversation and a few mortgage calculations.

At the time, mortgage loans were hand written and manually approved; automated underwriting algorithms and credit scores were not yet part of the mortgage landscape.  Some of us had cell phones, all of us had pagers, and the whole process was a little sloppy. Mortgage pre-approval was relegated to a low priority function and the quality of the vetting process and the resulting finished product suffered.

But as 21st century mortgage technology accelerated, so did the proliferation of easy-to-get mortgage financing.  The rise of Wall Street securitization of MBS (Mortgage Backed Securities), created an almost limitless variety of mortgage products and a market where everybody got approved.  Pre-approval was automatic because regardless of the borrower profile presented, a mortgage product could be found.  Remember, this was when income and assets could be pretend because verification was not a requirement, marginal credit was just fine thank you, down payments were unnecessary because 100% plus financing was available in a variety of forms, heck you didn’t necessarily even need a job to get a mortgage!

Needless to say, the mortgage pre-approval vetting process grew even more suspect.

Then in 2008, it all collapsed.  Defaults, foreclosures, loan buy backs and billions of dollars of bad loan losses changed the mortgage underwriting process forever.   Enter the age of the double and triple checked, redundantly verified, every nook and cranny financial detail examined era of mortgage loan approval.  Should be sufficient, compelling argument, make sense documents would no longer be considered.

Paystubs and W2s used to be sufficient income proof for salaried people, but now tax returns were added to the mix to sniff out deal killing unreimbursed employee expense write-offs.  Unidentified deposits into asset accounts now require sourcing evidence to determine origin eligibility.  Absent the ability to document where the money came from, the asset is eliminated even though the money is right there in the account.  Unless these mortgage approval land mines are fully vetted in the preliminary approval process, purchase contracts live in fear of never closing.

The roadblocks dogging a fix to this dilemma are several.  Mortgage people rarely ask potential borrowers to fax or e-mail supporting documents during the preliminary approval process.  Information describing employment, income and assets are tendered during a telephone interview, an electronic file is created, a credit report is secured and an algorithm delivers an automated underwriting decision.  That’s the process.  This is precisely when the evidence documents should be requested and gotten, but rarely does that happen.  Borrowers are wary of sending tax returns and paystubs and bank statements to a mortgage rep to secure preliminary mortgage approval, because they are not in the lender choosing phase of the process, all they want is a pre-approval letter.  Often, the pre-approval call is the very beginning of the lender courting process and most borrowers don’t like to kiss on the first date.

Even when critical decision making documents (tax returns, paystubs, bank statements), are secured early in the game, there is one significant asterisk that prevents mortgage pre-approval from being what everybody wants it to be, and here is where the con comes in.  Mortgage pre-approvals are done by loan officers, not by underwriters.  Loan officers source and originate mortgage loans, they collect your information and your documents and submit your mortgage loan to a team of processors and underwriters, loan officers do not have the authority to approve your loan. These processors gather, organize and confirm your information, then give your file to an underwriter for approval.  Underwriters are trained and anointed with the authority to give final approval to your loan.

An underwriter has not approved and issued your mortgage pre-approval, your loan officer did. There is no processing of the preliminary loan file and there is no underwriting review.  There is automated underwriting, there is loan officer review and there is hope that a high level of thoroughness was thrown in.  Underwriting guidelines are many, and it is the charge of the loan officer/mortgage rep to completely anticipate barriers to approval before signing off on a deal making, everybody’s counting on it pre-approval letter.

And that is about as good as buyers and sellers and real estate people can expect it will ever be.  Lenders are reluctant to deploy resources and manpower to elevate the mortgage approval beyond what it is now.  Staffing logistics for underwriters and processors are difficult to balance between demand and profitability models and the mortgage lending industry has not yet found a way to justify the manpower cost of processing and underwriting pre-approvals.

At the end of the day, the best that we can hope for from a pre-approval is that the buyer or borrower has been well vetted and deemed mortgage-able.  Beyond that, it is a roll of the dice.

Need more information or advice on #mortgage_qualification, contact the The Ray McMillan Mortgage Team