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Getting Ulcers Over Meeting Your Loans Officer? - 7 Helpful Tips
Obtaining a loan or mortgage can be a very stressful and very frustrating process. The idea is to make the entire process go as smoothly as possible. What is most important? Be prepared before you sit down with your loans officer.
Remember, you have to exercise control over your own loan process, so here are some things you can do to help ensure successful results.
1. STRAIGHTEN OUT YOUR FINANCES. That doesn't mean that you should clear your debts before walking into that loans office. Simply know what's coming in and what's going out (where and why) - i.e. know your personal cash flow. Have a good idea of what you own, and what you owe - i.e. your assets and liabilities. You may be in for a rough time getting the loan, so have all your documents handy.
2. CHECK YOUR CREDIT RECORD. You can check your own credit record at the credit bureau http://www.equifax.ca/. However, you must remember that every time you authorize a check to be done by someone other than yourself, it could affect your credit negatively.
Everyone's heard the horror stories: Your best friend, your sister, neighbour, goes to buy a home only to discover the worst … that the credit report contains negative or inaccurate credit information. While expecting a clean record, he/she discovers an $80,000 outstanding bill, that is not their own. The loans officer has no choice but to take this information at face value. The best policy is to clean up the credit problem prior to applying for the loan. And you've probably heard how difficult that can be, but it's important to try nonetheless.
Here's what to do: First, order a credit report on yourself. You can contact Equifax by phone: (1-800-465-7166), or online at http://www.equifax.ca/. For less than $10, Equifax will send you your credit report. This is the same information lenders will receive. By getting a copy of your credit report before you apply for a loan, you'll get a first look at any problems or discrepancies that have sprung up.
Perhaps, we should backpedal a moment and talk about credit bureaus. In this computerized, big-brother-like world we live in, credit bureaus generally have exchange agreements with companies who provide credit, like credit cards (Visa, MasterCard, American Express, and and department or retail stores), as well as banks, credit unions, and savings and loans companies.
On a daily, weekly, monthly, or semi-annual basis, these companies electronically send all their information to the credit bureau, which stores it in a mammoth database and updates the records of each person on file. When you go to any department store like Sears and sign up for its credit card, it calls the credit bureau (to do a credit check) to be sure you have enough funds to pay your bills. Banks do it the same way. When you go to apply for a mortgage, the lender wants to know how many debts are outstanding, and your consistency in paying them off.
Credit bureaus provide that information. They can even tell if you've been paying your taxes or if you have court judgments against you.
So let's say you've ordered your credit report and it turns up an erroneous bill that is not yours. What should you do? You could go to the credit bureau, but since they didn't originate the information (remember, all the information is sent to the credit bureau from the companies giving credit), they probably won't be able to help you.
Instead, you should go to the source of the problem --- the company or credit originator that claims you owe them money. Ask them to pull up the payment record and try to work out to whom the bill actually belongs. (If it turns out to be yours, pay it.) There should be some identification other than the name that can easily solve the problem, such as the Social Insurance Number, the male/female check box, age, race, etc.
Once you prove that the bill is not yours, the credit originator should correct its computers. Of course, it may take some time for that correction to work its way through from the company's computers all the way through to the credit bureau. However, if you've started this process before you've found a home, you shouldn't have too much trouble. On the other hand, if you've gone to a lender because you've found the house of your dreams and then discover your credit is in jeopardy, you may want to get a letter from the credit originator explaining the error and that it has been corrected. You want to get your name cleared up as quickly as possible.
3. THE INFORMATION PACKAGE. It's a great idea to gather information ahead of time and organize it so that it's easily accessible for you to review and have corrected. Part of this package should consist of complete copies of your past two or three tax returns plus a current pay stub should you be employed. An employment record from your employer would also be a good idea. For self-employed people, tax records, a current profit and loss statement, balance sheet and an up-to-date cash flow statement would be appropriate. This type of preparation should impress your lender.
4. KNOW THE CURRENT LENDING GUIDELINES. Obtain a current copy of the lender's lending guidelines. If you are applying for a High Ratio Mortgage, the federal Canada Mortgage and Housing Corp. (CMHC) must insure these loans. The protection is for the lender, not for you. Mortgage insurance is expensive: it can range up to 2.5 per cent of the value of the loan. You have to insure the entire loan, not just the amount that is above 75 per cent of the purchase price. That means the insurance premium for a $140,000 mortgage would be $3,500. Most lenders will let you roll the insurance premium into your mortgage. If you do, though, you'll end up paying a good deal of interest on the insurance fee as well.
One advantage to this type of financing is that CMHC-insured mortgages become open after three years. All that's required to pay off your mortgage at that point is to pay a penalty of three months' interest. (An open mortgage means you can pay it off or refinance at current rates at any point.)
5. CMHC's 5% DOWNPAYMENT PROGRAM. If you are a first-time buyer, you can put as little as 5 per cent down with an insured mortgage --- provided you earn enough income to qualify. The amount of money you can borrow under this plan depends on where the house is located. Contact CMHC for more information about your specific situation and location.
These loans must be insured, and while you can choose any term you wish, your income must be able to meet the payments required under a three-year term.
6. CONVENTIONAL MORTGAGE. Conventional mortgages require a down payment of 25 per cent of the home's appraised value. If you're looking at a house with a price tag of $200,000, that means you need to come up with $50,000 of your own money. But if you don't have that much saved, you may still be able to purchase that property.
Although it may seem that the lender's primary role is to disqualify mortgage applicants, the reverse is true. The lender wants to qualify as many applicants as possible, since lenders make their money by approving loans. However, they are restricted by the rules and regulations of a larger, more powerful body. You can assist your lender by understanding up front the process he/she has to follow.
7. QUALIFY YOUR LENDER. Just as you shop for a real estate broker and a new home, it's very important to shop for a lender. I can assist you by making recommendations. Always ask for at least 3 different Mortgage Lenders. And not all lenders are created equal. Loan products, services, style, and personal attention vary greatly. Look for a lender that is best qualified to meet your needs. Look for someone exceptionally well trained and thoroughly knowledgeable in the mortgage type you want to use. Look for someone who is seasoned in the business and can guide you through with a practiced hand. For example, if you're self-employed, and you have been for only a year, you may find it more difficult, even though you may have paid every bill on time in your life. The reason for that is that lenders need to see that you've been self-employed, maintaining an income for at least two years, and have the tax returns to prove it. At this point, your choices would be to wait until you've been self-employed for two years, or go with a sub-par loan (also known as a B or C loan in the lending industry).
GENERAL COMMENT. You have a better chance of receiving the loan you want by developing a good relationship with your lender.
