I really enjoy being a mortgage professional. Every day I am given the opportunity to help people through what can be a very stressful time. One of my favorite things is to make that phone call to let a family know the mortgage is all approved and they can officially start packing. My least favorite part is when I meet with clients who have made a misstep and must delay their home ownership goals. This week we are going to look at 5 very common things people do which cause the delays.
- No established credit. Credit cards are not evil in and of themselves. You need them to book a trip or even a hotel room. Mortgage lenders need to have an idea of your ability to handle credit and the only way they can see this is through your credit usage. It may seem wise to only pay cash for everything but it will not serve you well when you want to buy a home. You must have 2 types of credit reporting for 2 years. Pay the cards off in full every month if you like but you they are a necessity in the modern world.
- Too much debt. The flip side of that is those who carry too much debt. For every $400 in debt payments you have, you reduce your purchasing power by $100,000. We are required to use a higher rate to qualify people for mortgages given changes made by the government. We also have to use 3% of the credit balance as a repayment in the calculations. So that $10,000 line of credit may only require you to pay $100 a month but on the mortgage application it shows as $300 which can affect your maximum purchase price.
- Late payments. If I were lending someone $300,000 you can bet that I sure as heck will be looking through their credit history very closely. In this day and age the excuse “I didn’t get the bill” does not hold up very well. Online banking, E-statements and reminders to yourself in your calendar will ensure you never have a late payment. In the terms of any credit facility you will find that the onus is firmly on you to ensure payments are made on time.
- Do it yourself. The 2 areas I see this most often are taxes and separation agreements. If you are self-employed then please do yourself the favor of protecting your business by finding a well-qualified CPA. These people will help you avoid problems and they will represent you should the CRA audit you. The same can be said of a separation agreement. Divorce is messy and the process can be painful and expensive but to protect your interests you need to have it done correctly by a lawyer. Lenders have declined many a mortgage application when the financial statements or separation agreement are not properly prepared.
- Disputes with creditors. Mistakes can occur. A credit provider may inadvertently report something wrong. That being said, it is never the correct strategy to dig your heels in and wait them out. Make sure you have all documentation and take the time to work with one of the 2 credit reporting agencies to have mistakes corrected properly. I have met with many people haunted by the ghosts of this. Their credit score drops and it can delay home ownership.
And there you have it. 5 things to avoid when it comes to credit. Til next we meet!
“Don’t let anyone work harder than you do”