This is really THE #1 reason clients get declined. The good news is, as I have said before, that credit scores are a snapshot in time about a month ago. Scores can change significantly within a day, a week, or a month, you just have to know how to manage your credit in order to maximize your score.
There are really so many ways to improve your credit score, it will probably take another Top 10 list to explain all the different ways. And, each credit bureau is unique to each client, so it is often difficult to provide exact advice without knowing the specifics of an individuals' credit bureau.
The best solution is to sit down with a Mortgage Managers broker for a No Cost, No Obligation Credit Assessment. We can give you the specific advise you need to improve your credit score. We will work with you, regardless of how long it takes, to help walk you through the steps of improving your credit score sufficiently to qualify for a mortgage to purchase your new home.
Wednesday, May 26, 2010
#3 - Errors on the Credit Bureau (that you don't know about)
This one happens on a daily basis. We routinely see clients that have been turned down by their bank due to "something on their credit bureau". Since the loan officer at the bank branch never actually sees your credit bureau he/she cannot tell/show you what the problem is.
The first thing to keep in mind is that the credit report is a snapshot in time somewhere between 1-2 months ago.
A professional Mortgage Managers broker will sit down with you to review your credit bureau in detail and explain how credit scoring is calculated. The most common error is from loan and credit card balances that have not been updated for months. Often a credit card is reporting a high balance when, in reality, the client had paid the balance down.
Or perhaps there are late payments reporting in error, or collections are showing as unpaid, or maybe a loan or credit card is not reporting on the credit report at all.
The point is, unless you review your credit report with a professional mortgage broker, you will never know what is on your credit report and therefore will never get the issue resolved.
The first thing to keep in mind is that the credit report is a snapshot in time somewhere between 1-2 months ago.
A professional Mortgage Managers broker will sit down with you to review your credit bureau in detail and explain how credit scoring is calculated. The most common error is from loan and credit card balances that have not been updated for months. Often a credit card is reporting a high balance when, in reality, the client had paid the balance down.
Or perhaps there are late payments reporting in error, or collections are showing as unpaid, or maybe a loan or credit card is not reporting on the credit report at all.
The point is, unless you review your credit report with a professional mortgage broker, you will never know what is on your credit report and therefore will never get the issue resolved.
#2 - Not Enough Established Credit
Banks and the insurers (CMHC, Genworth) seem to have ever changing criteria for meeting their requirement for established credit. For example, right now we have clients that have owned their home for 5 years and have been paying a mortgage. They also have a car loan of $475 per month that they have been paying perfectly for the last 4 years. However, I cannot get an approval (from CMHC in this case) unless the clients get a qualified co-signor! I think that is crazy.
A few weeks ago, I had clients approved through CMHC with only a credit card that has been open for only one year.
Fortunately, we can still get them approved through a finance company at a higher interest rate.
A few weeks ago, I had clients approved through CMHC with only a credit card that has been open for only one year.
Fortunately, we can still get them approved through a finance company at a higher interest rate.
#4 - Short Time on the Job - Still within Probationary Period
Often if you have just started a new job and have nor past your probationary period, banks don't want to take the risk of finaning you just incase things don't work out.
However, it has come to our attention recently that it really depends on what kind of job you have, who your employer is, and where you worked previously. If you have a "professional" job, like a lawyer, doctor, nurse, etc., some of our lenders see these jobs as "risk free" from an employability point of view. Whereas, if you deliver pizza, work in retail, or work in construction, they typically won't finance you. However, if you can prove you have been in the same line of work and can demonstrate your income via your last two years of Notice of Assessments, then you might have a way to go. And, if you happened to have recently graduated from university or college and have gotten a job with the federal or provincial government, some of our lenders will approve your mortgage even if you are not past you probationary period.
However, it has come to our attention recently that it really depends on what kind of job you have, who your employer is, and where you worked previously. If you have a "professional" job, like a lawyer, doctor, nurse, etc., some of our lenders see these jobs as "risk free" from an employability point of view. Whereas, if you deliver pizza, work in retail, or work in construction, they typically won't finance you. However, if you can prove you have been in the same line of work and can demonstrate your income via your last two years of Notice of Assessments, then you might have a way to go. And, if you happened to have recently graduated from university or college and have gotten a job with the federal or provincial government, some of our lenders will approve your mortgage even if you are not past you probationary period.
Sunday, May 9, 2010
#5 - Self Employed and Can't Prove Your Income
In April, CMHC made some major changes to their programs for self-employed clients.
Prior to April, all self-employed clients could use "stated income", if your credit score was high enough, whereby you did not have to prove any of your income, you just had to prove you had been in business for at least two years. You could finance up to 95% of the value of the proeprty on a purchase.
Now the CMHC "stated income" program is really only available for clients that have been self-employed for more than 2 years, but less than 3 years.
If you are self-employed for 3+ years, you must use your average income from the last 2 years of your Line 150 on your Revenue Canada Notice Of Assessments.
However, if you are financing less than 60% of teh value of your property, we do have a couple of lenders that will provide mortgage financing without needing to prove your income.
Prior to April, all self-employed clients could use "stated income", if your credit score was high enough, whereby you did not have to prove any of your income, you just had to prove you had been in business for at least two years. You could finance up to 95% of the value of the proeprty on a purchase.
Now the CMHC "stated income" program is really only available for clients that have been self-employed for more than 2 years, but less than 3 years.
If you are self-employed for 3+ years, you must use your average income from the last 2 years of your Line 150 on your Revenue Canada Notice Of Assessments.
However, if you are financing less than 60% of teh value of your property, we do have a couple of lenders that will provide mortgage financing without needing to prove your income.
Thursday, May 6, 2010
#6 - Debt Ratios are Too High
There are two debt ratios the banks use to determine if they will approve your mortgage application, or not.
The first is your Gross Debt Service Ratio (GDS). This calculation is calculated by adding your monthly mortgage payment, monthly property Taxes, $100 per month for utilities, and any condo or lot rental fees. Take that figure and then divide it by your Gross Monthly Income. The maximum GDS is typically 32%.
The second is your Total Debt Service Ratio (TDS). Thic calculation is similar to the GDS calculation. You add the same items as in the GDS calculation + your monthly credit card and loan payments. Take that total and divide it by your Gross Monthly Income. The maximum TDS is typically 40%.
There are a number of ways to improve your GDS and TDS calculations. To lower both your GDS & TDS ratios, you can:
- buy a less expensive home
- stretch the amortization out longer
- get a better interest rate mortgage through a mortgage broker
- get a mortgage with a term of 5-years or longer to avoid needing to meet CMHC's requirement to qualify using teh Bank of Canada 5-year posted rate
To lower your TDS ratio you can also:
- pay off a loan or credit card
- refinance a loan with a small balance but a big payment
- get a $0 down payment mortgage and use your cash to pay off other debt
- if refinancing, consolidate some debts into the new mortgage
If you can improve your credit score sufficiently, most lenders will disregard the GDS ratio and allow your TDS ratio to go up to 44%.
A qualified mortgage broker can give you specific advise on your unique situation.
The first is your Gross Debt Service Ratio (GDS). This calculation is calculated by adding your monthly mortgage payment, monthly property Taxes, $100 per month for utilities, and any condo or lot rental fees. Take that figure and then divide it by your Gross Monthly Income. The maximum GDS is typically 32%.
The second is your Total Debt Service Ratio (TDS). Thic calculation is similar to the GDS calculation. You add the same items as in the GDS calculation + your monthly credit card and loan payments. Take that total and divide it by your Gross Monthly Income. The maximum TDS is typically 40%.
There are a number of ways to improve your GDS and TDS calculations. To lower both your GDS & TDS ratios, you can:
- buy a less expensive home
- stretch the amortization out longer
- get a better interest rate mortgage through a mortgage broker
- get a mortgage with a term of 5-years or longer to avoid needing to meet CMHC's requirement to qualify using teh Bank of Canada 5-year posted rate
To lower your TDS ratio you can also:
- pay off a loan or credit card
- refinance a loan with a small balance but a big payment
- get a $0 down payment mortgage and use your cash to pay off other debt
- if refinancing, consolidate some debts into the new mortgage
If you can improve your credit score sufficiently, most lenders will disregard the GDS ratio and allow your TDS ratio to go up to 44%.
A qualified mortgage broker can give you specific advise on your unique situation.
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