PURSUING A MORTGAGE
Over the past five years, the Canadian government has implemented a slew of wide-reaching changes to the guidelines for residential lending. These new regulations have contributed to limited mortgage growth as banks have had to tighten their lending policies to comply, making it much more difficult to borrow money. Due to these changes, and a variety of other factors, some would-be homeowners have had their mortgage applications denied.
But failing to qualify for a mortgage doesn’t mean your dreams of home ownership are over. Here, with the help of local mortgage and real estate experts, we explore what to do if you’ve been denied a mortgage.
“I think it’s important for clients to understand that mortgages are much more complex now than in the past,” said Teddy Kyres, mortgage broker and president of Groupe Hypothécaire Orbis. “Many people have the wrong understanding of the different rules and guidelines and, on top of that, there are more and more self-employed individuals out there and the banks have limited programs for them.”
There are many reasons why people may not qualify for a mortgage. The most common reasons include poor credit due to delinquent payments in a person’s credit history, limited or no credit history, insufficient income, insufficient funds for a down payment, and a bad borrowing track record.
“If a client is refused, they often feel like their dream of home ownership has been crushed,” Kyres said.
“But there are other avenues to explore. Many people believe their own bank has all the options for a mortgage, but this is far from the truth.”
Every institution has a different set of lending standards and qualifications, so if one bank does not approve a loan, it doesn’t necessarily mean another will not, he explained. Plus, aside from banks, there are many different lending institutions that are not commonly known to the general public.
These include: virtual banks like First National, MCAP, Merix, and more; alternative lenders, such as HomeTrust or Equitable Bank; and private lenders as well.
“There are many different alternatives that a client should explore before they feel like they’ve run out of options,” Kyres said. “It’s also possible to reapply for a mortgage with a co-signer or guarantor.”
If you have been denied, there are proactive steps that can be taken to improve your chances of qualifying in future applications.
“Working with a mortgage professional, people can create a strategy going forward in order to help guide them to their goal of home ownership,” Kyres said. “We often help clients with strategies to improve their credit, create a strategy to pay off their debts, or save money and create a future budget in order for clients to be comfortable with their future payments.
“We also help educate each client on all the different aspects of home ownership so that they don’t encounter huge surprises when they do purchase a property.”
In addition to working with a mortgage broker, consulting a real estate broker can be helpful as well in order to get a sense of the market, and what type of properties fall within a client’s budget.
“We start the buying process by having a preliminary meeting where we review a buyer’s wish list and discuss budget,” said Jay Deakin, real estate broker and owner of Deakin Reality.
“If the buyers have not yet been to the bank, we can help them with the basics of their budget, but we always recommend they see a mortgage specialist or broker before visiting homes.”
Doing so can narrow down what a client can realistically afford and help avoid disappointment down the road.
“Before we get too involved in the buying process, it’s important to set expectations and make sure that a client’s budget and wish list are consistent,” Deakin said.
Another advantage of working with a mortgage broker prior to shopping for a home is the possibility of becoming preapproved for a mortgage.
“The buying process can sometimes happen faster than expected, so it’s important to have financing in order as early as possible,” Deakin said. “There’s nothing stopping a buyer from reaching out to a lender up to a year in advance of the purchase.”
Starting the financing process early has several benefits, he added.
“Having a file started and preapproved with the bank will mean you look better prepared when making an offer and makes your final approval process move faster,” Deakin said.
“In a competitive environment, these things can set you apart from other buyers and could be the difference in having your offer accepted over others.”
And if someone’s preapproval process reveals problems, at least buyers will have the time and opportunity to work out any issues that may stand in the way of home ownership down the line.
“The Montreal market is very strong right now and having your application denied can feel devasting, but there are always things you can do,” Kyres said.
“If home ownership is the goal, people should be working with experienced professionals to navigate the complex process in order to ensure they’re in the best possible position to obtain a mortgage.”