Straight Talk About Mortgages
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Let’s be straight here:
Not all mortgage people are created equally!
Some are definitely better than others.
Let’s talk more about that…
First of all, why does it matter?
Here’s why: you’ve made an offer on your new home, and now you have a very LIMITED AMOUNT OF TIME to get your mortgage approved...
If you don’t get an approval within that time frame, you will probably lose the home!
This can and DOES happen (especially in a fast moving market)... and the reason is that the buyers weren't using the right mortgage person.
If you do have a good mortgage professional, they will get your mortgage approved in time - no problem.
On the other hand, if you’re dealing with someone that doesn’t have the experience they should have, they might be calling you at the 11th hour asking for more documents at the last minute (that they should have gotten in the beginning), and then your TIME WILL RUN OUT!
Believe me, nothing is quite so heartbreaking as losing that home you wanted because your mortgage didn’t get approved in time.
How to avoid this?
Talk to a good mortgage professional BEFORE you start shopping for a home.
I can help with that, just reach out to me anytime.
However, if you're interested in learning more about your options, keep reading:
What Makes a Good Mortgage Professional?
Ok, so how do you find a good one?
In order to understand what makes the difference between a good mortgage professional and... the other kind... we need to talk about someone you've probably never heard of before: the underwriter.
What’s an "underwriter"?
That’s the person that works for the lender to “assess risk”. Lenders employ several underwriters to assess their risk when lending mortgages.
The underwriter is the person that basically makes the decision of whether or not to give you the money.
After your mortgage professional has gathered all the documents and information they need, they will submit your file to an “underwriter” for approval.
Now… here's where we find what makes good experienced mortgage professional:
Relationships!
A good mortgage professional will have established a strong working relationship with a particular underwriter, and will be automatically assigned to that underwriter on every file they deal with.
This only happens if that mortgage professional does a lot of business. They will have worked with this underwriter many times before, and will know exactly what they need to get the approval. This will move the process along quickly and efficiently - so there’s no delays!
On the other hand, if the person you're working with doesn't do very many mortgages, they will NOT have a specific underwriter that they deal with all the time. Instead, they will get put into a queue and randomly assigned to an underwriter when the time comes. This gives them a low priority and this can cause your time to run out before you get approved... if you get approved at all!!
Knowledge
When that mortgage professional works with the same underwriter all the time, they will know what's needed to get a mortgage approved... and they will get that all up front in the beginning, so there's no delays.
I hope you can see why it's so important to find a good mortgage professional.
Let's look at your options:
Two good options, and one bad one...
In this case, you go into your local bank and ask to talk to someone about getting a mortgage. You will likely be put in touch with someone that works in the branch, like a “financial planner” or something like that. This is NOT a good option.
Because this person doesn't do very many mortgages, they will have NO relationship with any particular underwriter. When they submit your mortgage application to the lender, your file will get put into a queue and then randomly assigned to one of the many underwriters the lender uses. Now they're dealing with an underwriter that they've never dealt with before and have no relationship with - they're starting from zero.
Furthermore, because these people from the branch typically work 9 to 5, they’re not particularly sensitive to a time frame. The real estate world doesn't operate 9 to 5 - and things can move very quickly! This branch person will often drag things out too long, and then find themselves scrambling near the end of the deadline to get more paperwork for the underwriter (which they should have known about in the first place... but didn't).
Two bad things can happen here: either the lender turned you down for the mortgage (after you've made an offer) because this person didn't pick up on some issues with your file ahead of time (and got your hopes up for nothing), or your mortgage doesn’t get approved before your time limit runs out.
Either way, this is the recipe for heartbreak: you've lost the home you wanted!
This is someone that works with one of the major banks - but they’re NOT a 9 to 5 employee. They’re independent contractors and they get paid based on their results rather than a salary. They don't do RRSP's or savings accounts or anything like that. They only do mortgages - LOT'S of mortgages - they're specialists.
A good experienced one will have established a very good working relationship with a particular underwriter, and they work with that underwriter all the time. They will know exactly what this underwriter is looking for and they will get those things submitted right from the start. That's how to get your mortgage will be approved in time!
This can be a great option, if get the right mortgage specialist (I can help with that).
Unlike the first two options, a mortgage broker is someone that works with multiple lenders. These will include some of the major banks, as well as a range of “monoline" lenders. These monoline lenders are companies that just do mortgages – no savings accounts or RRSP’s or anything else, just mortgages... and they're usually only accessible through a mortgage broker. Pros and cons: these monoline lenders can sometimes have very competitive rates, but are often less convenient and less easy to work with than a major bank. A good mortgage broker will advise you of these pros and cons.
Not all mortgage brokers have the experience and skills to get the job done quickly and effectively, but many do. If so, they will have good relationships with underwriters at the various lenders they work with, and they will be able to get your mortgage approved quickly.
If you find the right one, this can be a great option (I can help with that).
Getting started with the right mortgage professional is a crucial first step in buying a home...
Reach out to me anytime, and I can help get you started:
Clint Sanheim
Century 21 PowerRealty.ca
Cell: 403-999-3800
homes@clintsanheim.com
MORTGAGE GLOSSARY
A to E
A
Agreement of purchase and sale
The legal contract between a purchaser and a seller. A professional REALTOR® has the knowledge and experience to best protect you with the most suitable clauses and conditions.
Amortization period
The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.
Appraisal
The process of determining the market value of a property.
Assets
What you own or can call upon. Often used in determining net worth or in securing financing.
Assumption agreement
A legal document signed by a buyer that requires the buyer to assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.
B
Blended payments
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.
C
Canada mortgage and housing corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as 'Hi-Ratio' mortgages.
Closed Mortgages
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.
Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.
Collateral
An asset, such as term of deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.
CONVENTIONAL MORTGAGE
A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a 'Hi-Ratio' mortgage and the lender will require insurance for that mortgage.
Credit scoring
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower's credit worthiness.
D
Demand Loan
A loan where the balance must be repaid upon request.
Deposit
A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser's failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).
E
Equity
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.
F to J
F
First mortgage
A debt registered against a property that has first call on that property.
Fixed-rate mortgage
A mortgage for which the interest is set for the term of the mortgage.
G
Gross debt Service ratio (GDS)
It is one of the mathematical calculations used by the lenders to determine a borrower's capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32% are acceptable.
Guarantor
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.
H
High-ratio mortgage
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a 1st mortgage up to 80% is arranged and a 2nd mortgage for the balance (up to 90% of the purchase price).
I
Interest ADjustment Date (IAD)
The date on which the mortgage terms will begin. This date is usually the first date of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.
Interest-only mortgage
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since one is not paying any principal.
K to Z
M
Mortgage
A mortgage is a loan that uses a piece of the real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.
Mortgagee
The financial institution or person (lender) who is lending the mortgage.
Mortgagor
The person who borrows the money using a mortgage.
O
Open mortgage
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.
P
P.I.T.
Principal Interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.
Portable Mortgage
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.
PREPAYMENT PENALTY
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.
PRIME
The lowest rate a financial institution charges its best customers.
PRINCIPAL
The original amount of a loan, before interest.
R
Rate commitment
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary lender to lender anywhere from 30 to 120 days.
Renewal
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with the same lender or transfer to another lender at no cost.
S
Second Mortgage
A debt registered against a property that is secured by a second charge on the property.
Switch
To transfer an existing mortgage from one financial institution to another.
T
Term
The period of time that the financing agreement covers. The terms available are: 6 month,1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term one chooses.
Total debt service (TDS) Ratio
It is the other mathematical calculations used by lenders to determine a borrower's capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit cards debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40% are acceptable.
V
Variable Rate Mortgage
A mortgage for which the interest rate fluctuates based on changes in prime.
Vendor take back (VTB) Mortgage
A mortgage provided by the vendor (seller) to the buyer.
CENTURY 21 PowerRealty.ca
INFO & SERVICES
CENTURY 21 PowerRealty.ca
2974 Main Street SE, Unit #200, Airdrie, AB T4B3G4
(403) 948-2121
INFO & SERVICES
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