September 28, 2018
With the recent regulation changes in Canada, being approved for a mortgage has become a little more difficult. So why are we receiving contradictory information about how quick and easy getting a mortgage can be? Transparency, as we all know, is not a word that would be dominantly used to characterize the banking world, and in many other industries unfortunately.
We thought it was time to unveil some of the misleading interpretation that might have been adopted due to recent promotional content within our industry.
SPEED OF MORTGAGES
Technology is evolving with incredible speed and, although that is wonderful, many industries are struggling to keep up in the background. For example, filling out a mortgage application online or on a mobile app speeds up the initial interaction with the customer. However, in the background, the same process still applies and that takes time. On one hand, information can travel a little faster, thanks to new software and the ALL MIGHTY interweb. On the other, no matter how fast we press the APPLY or the SEND button, an application still has to go through many intricate layers of approvals. Also, every time a new regulation or rule is passed, the industry has to adapt their processes, making it that much more difficult to “keep up”. Having said that, many industries can relate to this also.
This is where home buyers, especially new home buyers, need to be careful and understand that the only thing that is QUICK & EASY is getting contact information and generating an extremely vague mortgage amount to the consumer. Furthermore, the mortgage amount may even be greater than what they’d actually be approved for, which will excite them enough to continue with the full mortgage approval.
One of the most recent messages you might have heard is, “Prequalify for a Mortgage in 60 Seconds”. This message is accurate, so why would an experienced Mortgage Brokers roll their eyes reading this?
The word “qualification” is deceiving to begin with, because it implies a process that will actually qualify you for a mortgage, which it will not. As an experienced homebuyer, you may already know the difference between a mortgage qualification and mortgage approval, but a first-time homebuyer may not. And unless you have gone through the home buying process, it’s more likely that you may not even be aware that they have potential to hold two separate meanings.
SO, WHAT DOES THIS MEAN?
If the advertising is claiming that the process takes “60 seconds” or that you can apply “quick and easy”, this is clearly just a qualification or the start of a pre-approval. These fast applications are just to have you answer preliminary questions and get the ball rolling; by no means, will you actually qualify for a mortgage in 60 seconds. The worst part is that the estimated mortgage amount could be far off from the real number. You may even go house hunting thinking that you’ll be approved for the amount that you were qualified at, and in the end, disappointed to find out that you can’t afford your dream home.
SO WHAT MESSAGES SHOULD YOU TRUST?
So, what messages should you trust? Definitely not the advertisement promoting “THE LOWEST RATE!” or “NO CREDIT APPROVAL”. As enticing as they may sound, skip the headache and make an appointment to get a FULL pre-approval for a mortgage. What can you expect from a FULL pre-approval? You can expect a fully underwritten file submission to the lenders giving you a precise mortgage amount you can be approved for. This type of pre-approval will be recognized when applying for a mortgage and can even be used to hold an interest rate. Since interest rates are on the rise, this can be especially valuable.
Finally, what all of these quick pre-qualified applications and processes have in common, is there is no documentation collected upfront. Documentation of income and cash flow is what can make all the difference. It would be like filing your taxes without the use of any documents to support the numbers. Also, what you yourself may consider as your annual income, may not be what the lender recognizes as your annual income. That’s why Mortgage Brokers and lenders request a few documents up-front regarding your income to ensure that the numbers line up. Without analyzing this information, your entire pre-qualification number could be way off.
These new technologies that pre-qualify you quickly are not entirely evil. They are helpful in that the very least they use some basic math to give you at least an idea of what type of amount you may qualify more. More importantly, some of them pull a credit score which can immediately indicate that there may be some work on your end to improve your credit before a mortgage is in the cards. Just be cautious, that these tools are just that, one piece of a very complex puzzle that may be the first step in the journey.
Like with most advertisement, we need to be cautious before accepting things at face value. As consumers, we are bombarded with loud messages and sometimes need help from industry experts to filter and interpret advertising. If time, efficiency, and savings is important to you, then having an experienced and knowledgeable Mortgage Broker guide you through the home buying process is the best thing you can do for yourself.
Please feel free to contact me with any questions you may have. It would be a pleasure to assist you or any one of your friends or family members!