Turned Down by Your Bank?
Consult Dan Balch, London’s professional mortgage broker for assistance in getting the right mortgage across London, Woodstock ON.
Getting turned down at your bank is not the end of the world. It may seem so at the time, but where the bank has limited products to sell you we have access as a mortgage broker to over 50 lenders, with each having slightly different rules. We also have access to the three insurers and even private money.
When trying to approve you for a mortgage we all deal with 4 criteria:
- Credit worthiness
- Down payment
- The Property
1) Credit worthiness
Is all about your credit. What is your credit score, if you don’t know you can ask the bank, they probably won’t tell you, but you can always go to the two credit agencies Equifax and TransUnion and ask to see your credit bureau. Credit bureaus are really the only indication we have to show your willingness to pay back credit.
Your credit score or Beacon Score is a probability score of you going bankrupt. The higher the score, the less likely for that to happen. There are 6 beacon scores in Canada and the one you get from the credit agency is different than the one we use to obtain you a mortgage. The score is based on a number of things being, 35% is based on how you pay your bills, are you current, are you late, do you have collections etc. 30% of your score is the amount of credit you use and the relationship between your credit limit and your balance (PLEASE NOTE, you should never go above 50% of your credit limit.) How long you have been on the credit bureau will account for 15% of your score (so don’t cancel those cards if they are not costing you anything, they will give you valuable history), and 10 each for inquires and new credit and the mix of credit you have.
If you have had problems with your credit recently or with a year your score will usually be low. This will kill the deal almost 100% of the time. It is very important to find out the reason for the turn down so you can correct the problem but also, over 40% of credit bureaus are reported to have errors in them, yours might one of them. The only other way to get around this issue of having bad credit is to add a co-signor to the deal that has “great” credit.
It is becoming more prevalent today that people are either on contract, part time or self-employed. This in its self is not so much an issue as long as we have a 2-year track record, but the bank still treats people on salary better. If you are on contract, is this your first contract or one of many, is this in your field of study? Are there any guarantees to the contract, and will it be renewed. These are questions that need to be answered up front and backed up with paperwork.
The biggest reason for turn downs now is you are self-employed. Being self-employed you use deductions to write all your income off and show very little for qualifications purposes. All is not lost, there are lenders who are sympathetic to your issues, but if we are ‘stating’ your income, you need to have at least 10% as a down payment. The important part of self-employment is good paperwork. The magic number on your tax returns is line 150, and we will also need to see your NOA or Notice of Assessment to show you don’t owe any income taxes.
3) Down payment
Getting approved for a mortgage is all about minimizing risk. If you are only putting 5% down then the chances of the mortgage company losing money if the mortgage should go into default are quite high. That is why you have to get your mortgage insured through one of the insurers (CMHC, Genworth, Canada Guaranty) and of course pay a premium for the insurance. If you have “issues” with your deal then putting down a bigger Down payment would reduce the risk and increase the chances of success.
It is not too often a deal is declined because of the property but it can happen. If you are buying a ‘fixer upper’ the mortgage company doesn’t want to take that back and try to sell it to recoup their money. You must realize that bank looks at the deal from the worst-case scenario, if it should go into default and they have to sell it to get their money back. Banks and mortgage companies are looking for properties that are saleable at the time you buy them. .
The reality of the current mortgage climate is it is more difficult to get approved now. The number of policies from the insurers, lenders and government is changing all the time so to really have a chance at success you must seek out a professional who only deals with all this on a daily basis. Go to a good mortgage broker who has access to over 50 lenders and 3 insurers and private lenders and you will have better success.
It is also worth noting the experience of the mortgage broker will make a difference. Going to a broker with many years’ experience will increase your chances because they will know how to structure a deal. It often comes down to something that if you knew you could fix months ago you could get approved today. The broker should know which Mortgage Company is doing what or who and which issuer may be more favorable to your situation.
To see if we can help you get approved, please click on the link below and fill out an application. We have had very good success stepping in where the bank has let you down.