The Lenders Point of View To Your Credit

Finding A mortgage from the Lenders point of view

Have you ever wondered how the lender looks at your application and makes a decision. This article will give you an insiders viewpoint.

When you fill out a credit application there are a number of important items that the bank or mortgage company is looking for. I have written this article to hopefully help you to see your application from the mortgage broker and the lenders point of view.

The mortgage broker is looking to see what the risks are in doing business with you. It is up to them to recommend your application to a lender. If they recommend bad applications the lender will eventually not want to take their applications

Here is what the mortgage broker and lender need from you in order to make a good qualified decision. The sooner you can supply this information the easier it will be to get your application approved.

Application Process

Personal Information

It is very important to use your correct name and employment information, plus birth date, licence. This way when a credit bureau is done on you they are sure they have the right person . Without this info a different Jane Smith may pop up with problems on their credit.

There are several sections on a credit application. They are as follows.

Inquiries Section

This section of a credit bureau tells the mortgage company how many people have made inquiries on your account. If there are too many inquiries they want to know why. This can affect your rate or even whether they want to deal with you. Don’t shop around. Go to a mortgage broker and let them do your credit bureau once and shop the full market for you. In Canada they have about 45 sources of regular mortgage money and numerous sources of private funds.

Judgement Section
If you have defaulted on any credit and been sued the judgement section will demonstrate this.

Trades Section

Tells the mortgage company who you are dealing with right now. Mortgages don’t show up in Canada but all credit cards, loans, lines of credit show up and whether your pay in instalments or monthly it shows up. There is a rating from R1-R9. R1 means you pay in 30 days, R9 is a bad debt. If you are showing R9’s the bank will be put off.

Beacon Score

Out of the above you will have a Beacon Score that is developed.
The Beacons Score will determine who will deal with you and what rate you will be offered. The higher the beacon score the lower the interest rate. Low beacons bring you high rates. If your beacon is below 600 you will have trouble getting a mortgage. You may require private money which will incur high fees and a high rate of interest.

What is Your Story

The broker needs to know your personal story. Why you have moved jobs or moved homes several times , if this is the case. Are you on probation at your current job, or on contract. Some mortgage companies will listen to your story if you have had some previous financial problems. However, this will not endear them to you enough to offer you a lower rate of interest in most cases.

What is your net worth

Where is the down payment coming from. Did you earn it, is it a gift. As mortgage brokers we have to prove where your down payment came from. This is due to FINTRAC And the governments money laundering rules.

Is your down payment readily convertible to cash. Assets such as horses, collector item cars, antiques and paintings are useful but not easy to convert so the lender is not as concerned or interested in this.

If you have income from a stock portfolio this is of interest to the lender.
The lender wants to see the down payment money in your account.
You will need to provide proof of down payment. An NOA if you are self employed and proof of the last 2 or 3 years income. Pay stubs. If you are on contract the bank will want to review your contract.

The next thing the mortgage company looks at is what collateral are you offering.

They will check the zoning of the property. There are different rules for residential zoning than commercial zoning. If it is a store with an apartment above you will not be able to get the same kind of loan ( approximately 65% ) versus a single family home with up to 95% loan.
If the land is leased again this will be handled differently to single family home.

Each lender has their own unique criteria for what type of property they will lend to. Condition can be important as well.

Does the property conform to the neighbourhood. They want to be sure that if you default they can sell that property within 90 days. They are not in the real estate investment business, they are earning their money on the spread between the cost of their money and what they loan it out for.

Character

Does your financial situation make sense with what your age and your maturity.
Do you have 20 credit cards with balances running on them or just 2. Some people are chronic credit seekers. This is not desirable. . If you are constantly taking money out of your home this is a concern.

The mortgage broker and lender are looking to see if you have integrity in how you do your business and live your financial life.

Typical Case Study of a First Time Home Buyer

Young man – 25 years old.
Beacon score 600 – a bit on the low side
Net worth $20,000. — $15,000 cash in bank for down payment
TDS is 34% with a GDS of 28% – GDS is the % of income that can be used to satisfy the mortgage and property tax payments.
Wants to buy a condo in an older building.
Income is verifiable with full time work, previously a student working on a part-time basis. Had a job loss for 8 months. Current job 6 months, probation is complete. Professional field, full time income, minimum other debt. Everything is current financially.
Current address 3 months, previous address 6 months, prior to that lived with parents.
The condo building is not a problem or concern.

What are the weaknesses of this young persons position.
Beacon is a bit low for most lenders.
Moved around a bit.
Short period of full time work.

However, at this age he is a professional and will likely stay in his full time job from hereon and is just really getting himself established in life. The lenders will take all this into consideration.

The mortgage broker must mitigate the risks to the lender. $15,000. in cash with $5000. Available for closing costs. Meets the lenders financial criteria. The broker must take into consideration the clients history and make a reasoned recommendation based on the above. The broker can recommend an exception for the lower beacon score.

The broker has to look at his list of options to see who will most likely take this mortgage and at what rate. Some will not look at a beacon under 640. So this application may go to a credit union or possibly one of the chartered banks may consider it. He also has to ask himself does the deal make sense. The lender will certainly be asking this question.

This doesn’t mean the mortgage company will agree with the broker. However, it is unlikely here the lender will get too hung up on the fact that he has moved around because of his age and just getting established.

To get your free copy of your credit bureau which you should check once per year go to www.equifax.ca. I don’t believe the free report gives you your beacon score. However, if you pay the $20.00 for the paid version you will get your beacon.
Hope This helps.

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