NAVIGATING THE MORTGAGE MAZE WITH BILL BADRAN: PART 1
In this next edition of our mortgage industry series, we continue our discussion with mortgage broker and financial advisor Bill Badran. This time we’ll be talking about the relationship between a client and their mortgage broker, as well as offering a few tips to ensure the entire process flows smoothly. Below is Part 2 of our interview with Bill.
1 -Can you explain to us what role mortgage brokers play in the lending process?
Mortgage brokers are essentially guides and advisors who are skilled at asking the right questions and finding out their clients’ real needs. They will ensure that the loan offer from the lender is the right fit for their client. With access to many financial institutions, the broker can not only source the best mortgage products for their clients from a wide variety of lenders, they can also help plan and accommodate their clients’ future needs. For example, if someone is planning to do a major renovation, or to purchase a second vacation home or an investment property, a specific type of loan might be required. A lot of homebuyers tend to overlook the value that a good mortgage broker brings to the table. Instead, they focus almost entirely on whatever lender can offer the lowest rate. When choosing a lender, the cost of their services–the interest you pay–should be one of many things to consider, but it shouldn't be the only deciding factor.
2 -What can people do to improve their credit rating?
Borrowers should stay away from a lot of consumer loans and credit cards. As well, keeping balances at least 50%-60% below the limit demonstrates to lenders that a borrower is not overly dependent on credit.
3 -Are there methods you recommend to pay down a mortgage faster?
The Smith Manoeuvre (which we hope to cover in more detail in a future blog) is a very in-depth strategy that will build an investment portfolio to pay down a mortgage faster. As a Smith Manoeuvre Certified Professional, I have a tremendous amount of knowledge on this strategy. As well, most lenders allow borrowers to prepay 15-20% of their loan annually. These payments can be made in a lump sum or sporadically throughout the year. Lastly, there is the option to pay a mortgage with weekly or bi-weekly accelerated payments, which gives a borrower additional payments annually that go directly against the principal.
4 -Are there things a client can do to improve their borrowing power?
Yes. Do not take out any additional loans during the mortgage approval process. When a client’s file is declined, it is usually because of debt ratios being too high, which is often related to a car loan. As well, by providing a larger down payment, the borrowers are considered much less of a risk to the lender. A borrower with an 80% loan-to-value (LTV) ratio is much more attractive to lenders than one with a 95% LTV.
5 -What can clients do to facilitate the approval process and avoid headaches during their mortgage application?
Always get pre-approved for a mortgage before you start looking for your next home, so there are no surprises during the loan underwriting process. It’s important to know exactly how much house you can afford, so that your mortgage broker will be able to provide advice on things like the amount of the down payment and how much of your monthly income should go towards paying off other debt like credit cards and car loans. This should be done at least a month in advance of making any offers on properties. This way, all the paperwork is in order and the required documents can be sent directly to the lender immediately following the acceptance of an offer. This avoids the risk of failing to meet deadlines for proof of financing during an offer, which can cause a buyer to lose a property altogether.
6 -Do a lot of homebuyers use gifted money? And how do they show these funds legally?
Many borrowers receive some or all of their down payment as a “gift” from a close family member, usually a parent. All banks will allow a gifted down payment. Borrowers must prove that the funds have been in their account for 90 days. However, some banks just want to see that the funds exist, and even more recently some lenders are only asking for 30 days of account history. Some parents will lend money to their children through lines of credit where they must simply show the balance and the limit on the account.
7 -What do you find most challenging about the mortgage business?
It can be challenging to quickly establish a relationship of trust with the client to understand their financial situation and real needs. Many clients do not understand all the steps and processes involved, so they don’t know whom to trust and why. Most clients are simply looking at interest rates without knowing their real needs and are often reluctant to divulge the details of their financial situation. A mortgage broker must have a good, solid work ethic and extensive knowledge of the industry in order to reassure clients and build that trust. It’s important to establish this early on, so that clients can feel that they are well supported and in good hands from the very start.
Thanks again, Bill, for sharing your knowledge and expertise with us. Looking forward to learning more about the Smith Manoeuvre next time we chat!
At TEAM BROADY, we like to keep our clients and friends as informed as possible on the many aspects of real estate. In an ever-changing real estate market, it is important to work with an experienced team. Reach out to us today about your next home sale / purchase. We can be reached at 514-613-2988 or by email at email@example.com.