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How NOT to Screw-up Your Mortgage Approval Posted by Joe Samson on Friday, July 8th, 2016 at 9:52am. In one of my recent transaction the clock was approaching the eleventh hour and it was supposed to be time to waive the financing conditions on the property that my client was head over heel about. As the afternoon rolled around my client was bitting her nails and kept a close eye on her phone, expecting to receive the good news from her mortgage broker about the financing approval. The mortgage broker that she picked, was nowhere to be found and there were a lot of CRICKETS all around us. Then out of nowhere, like a bolt from the blue sky an e-mail poppedup suggesting to us that we should get an extension from the seller because the lender had not responded yet. I mean REALLY…? This dude had her file for well over a week and he is coming out of the closet asking me to get an extension for our mutual client in the last minute? Guess how much sellers love these kinds of conversations? Guess how much the buyer loves this scenario when they don’t know how the seller is going to respond. Especially after they had invested close to $800 into reviewing condominium documents and paid for the home appraiser? And now all that work and spent money is hanging on by a thread if the seller doesn’t want to entertain the idea to extend the condition date. Nobody who is a party to the transaction is happy to have these kinds of stand-offs. But what can you do about it and how do you end up with the upper-hand when it comes to getting your financing approved? Below are several tips and tricks that you should consider using to avoid missing out on the deal of your life.
How to Prevent the Financing Blues? Avoiding disappointment is always the best thing that you can do, but occasionally it does happen when some mortgage brokers are just simply incapable of getting things done with the lender. Selecting a great mortgage broker is essential for getting the financing approved. Choosing to work with the wrong person can be detrimental. Let me explain… In the aforementioned encounter that I had with getting my buyer’s mortgage approved, the reason given to me by the mortgage broker of why the client’s financing wasn’t approved on time was simply put to us as - “the lender did not get back to us yet”.
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I scratched my head about that answer for a few minutes but I still couldn't understand why a lender would do that? They clearly know about the importance of keeping deadlines to waive conditions and they also know about the consequences of missing out on securing another mortgage which means more profit to them. Don’t tell this to anyone else, but just because they have the money that you need, sometimes the banks try to make it sound like they get to do anything is not always the case. At the end of the day banks still want your business. So if the bank’s business also depends on securing the next mortgage, then it still didn’t make sense to me why would they be so willing to drop the ball and not communicate anything back to the mortgage broker so that the buyer and seller can stay informed? Then I remembered of a conversation that I had with a good mortgage broker associate of mine - he told me that they have a really good relationship with the underwriter of a particular lender and often they can get borderline applicants approved and faster than anyone else. Then I had an “ahhhhh so….” moment. So if a mortgage broker can have a preferred treatment with a lender, then the opposite must also be true.
Reasons Why Banks May Have Peripheral Service Mortgage brokers are responsible for collecting all the documents from the purchasing clients and presenting it to the lenders for approval. But because mortgage brokers are on a commission based compensation model, they may have tried to bend the truth in the past to squeeze the approval through or may have given other reasons why lenders may not like dealing with them. If a particular lender becomes suspicious or has any reason not to trust a mortgage brokerage, then the client’s file may end up receiving subordinate attention (I am going to explain this in a bit), hence may be the explanation why banks are not giving them the courtesy of keeping them updated in a timely manner. The second reason why banks may prioritize one application over another could be due to the fact that they simply try to provide the best service to their most appreciated clients and everyone else has to stand in line to have their files looked at. There are some really successful mortgage brokerage who send a ton of clients to a particular bank. There are also smaller mortgage brokerages who only send a few clients to the bank and their lack of ability to refer more business naturally means that they will be bumped to the back of the line. Certain banks provide a designated underwriter to only handle the clients of a high volume mortgage brokerage, while others’ application may get sent to the head office’s approval centre (a.k.a. “the black hole”). If the application is being reviewed at the head office, then it’s anybody’s guess when they will respond as the mortgage broker has no direct communication with the underwriter. As a disclosure on my part, this is simply the best theory that I was able to come up with and I know for a fact that you won’t find a single lender that will admit to this business practice. But if you can confirm or deny this theory, I would love to hear your comments below.
Never Give Up Control of the Situation One of the most important steps that a home buyer or their REALTOR® can do to keep the transaction on time is to never give up control of the situation. As it’s been revealed to you, far too often people like to point fingers at each other as to why things didn’t get done on time and even less often do they want to take responsibility for a negative outcome. If you want to have a positive result, then you will need to be able to control the entire buying process, otherwise you are at the mercy of somebody else. From the minute you decide to purchase that property, you will need to establish authority not only over the terms of your agreement, but you need to make it very clear to your client’s lender that they absolutely need to have the mortgage approved before the condition deadline rolls around.
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But, if the real estate agent does’t have any relationship with the lender or the mortgage broker, then it may be a bit difficult to exercise any leverage over therm. By leverage I mean that Mortgage Brokers love getting referrals from real estate agents and the only way they can keep those referral coming is if they do a great job servicing the client.
How to Win Before the Bank Lets you Down? Fortunately there is a way of ethically “tricking” the lenders and gaining the upper hand even when they let you down by requesting an extension on the property that others may be standing in line and waiting for your conditional deal to collapse. Most certainly everyone is under pressure at their job and that also includes the underwriters working for the lender. Just imagine someone plugging away with their work and every time they look at their inbox tray, there is another file that they have to get to but they have another dozen approvals to review before hand. Basically underwriters always end up with more work than they can possible handle. On top of the overwhelming workload, they have tight deadlines that they supposed to keep. Well… sort of. In order for the underwriters to juggle things and try not to miss the deadline, underwriters either need to work first on the “most preferred file” or prioritize the files based on the deadlines by which they need to have the approval in place by. This means that if you were to give the lender 2 weeks to get a mortgage approved, most likely it’s going to sit on their desk for another week before they actually do anything with it as they have multiple other files with higher priorities ahead of yours.
The Solution to Controlling the Bank The solution is actually simpler than you may have thought. While negotiating with the seller, I always find out from the seller’s agent “how would they like to have my client approved quickly?” The answer is always: YES. Then I point it out, that it’s great that our interests are the same as theirs and I propose that we’ll agree on a tight financing condition date (this is music to their ears). BUT in case the bank cannot complete the approval on time, then we’ll require a few more extra days as the time allowed to get the financing approval done was very tight to begin with. By getting the seller to sign off on extending the condition date at the same time when they accept the offer will set you up with a longer condition date than you could have asked for in the first place and it puts a bit more pressure on the bank to giddy up and start hustling. So the agreement may speak to a 4 day financing condition day which will ensure that the bank will keep a close eye on the file. But in case the bank drops the ball, I have already set up the expectation with the seller to be prepared them to extend the financing condition date in case it’s necessary. The buyer doesn’t have to stress themselves either about loosing the property if the seller did not want to agree to extend the condition date, because they have already agreed to it when it in advance and the buyer is just exercising their options. Voila. It’s that simple.
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Final Thoughts It can be very disappointing for both the buyer and the seller when financing isn’t approved in time or all together. Although not every situation can be prevented, but if a home buyer is properly approved for a mortgage prior to commencing their home search, then these tips above will most certainly ensure a positive outcome. It is important to understand how lenders and mortgage brokers operate so that you can be a few steps ahead of them and detect any problems even before they occur. Prior to consulting with any lender or a mortgage broker, check with your real estate agent to see if they can recommend someone with whom they had a great experience working with in the past. If you had found the above information valuable, please share with your friends and anyone that you may think would benefit from this article. Your comments are always welcome!
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