Frequently Asked Questions

• What Is Bridge Financing?
• Why use a mortgage broker?
• How do Brokers get better deals than many Banks?
• Are there fees for your services?
• How does a mortgage broker get paid?
• What is required to obtain a first Mortgage?
• Can I use gift money as a down payment?
• Should I wait for my mortgage to mature?
• Should I go with a Fixed Rate or Variable Rate?
• What's the difference between a Closed Term and an Open Term?
• Should I take a short term or a long term mortgage?
• Cashbacks and gimmicks, do they save me money?
• How do I establish a credit history?
• What can affect my credit history?
• What types of assets may qualify as collateral for a loan?
• What are some reasons I may be turned down for a loan?
• What does an inquiry for a loan do to my credit report?
• What is a consolidation loan and how does it work?
• When should I ask for a co-signer for a loan?
• What should I know about loan insurance?
• Five do's and don'ts from mortgage experts!

• Bridge Financing
  A loan required by a builder so as to obtain funds during the period between a permanent commitment and a construction loan.The lender will usually require a permanent mortgage commitment to the full amount of the construction loan plus a hold back provision that states that only the floor amount will be funded at the completion of construction.
  
• Why use a mortgage broker?
  YOUR lending institution will only advise you on their own product. You could visit every institution out there, one by one if you had time......
  Or, you can talk to talk to a mortgage broker who will shop for the best mortgage for you from all available lenders including many you would not usually think of on your own.
  
• How do Brokers get better deals than many Banks?
  The lenders who work with mortgage brokers include traditional sources, such as chartered banks, trust companies, as well as corporate and private pension funds. In addition to these sources, brokers often develop professional relationships with private sources of funds, termed private lenders. These lenders can provide many various mortgage products not available at conventional sources.
  
• Are there fees for your services?
  There are no fees on conventional mortgages as we receive payment for placing the mortgage from the financial institutionsm, however, in some circumstances lender/broker fees may apply.
  
• How does a mortgage broker get paid?
  MOST Financial Institutions pay a referral fee to the Broker for doing all the legwork and credit research for them (the job of a loans officer). Since this service is valuable, a commission is paid by the lending institution to the mortgage broker. In some rare circumstances, a client's financial requirements, credit, or job situation is more complicated and in these cases fees payable to the Mortgage Broker and/or the Lender may be charged.
  
• What is required to obtain a first Mortgage?
  In order to get the best rate, terms and conditions, you'll need to provide us with:
  • Employment verification with proof of income
  • A good credit rating
  • Verification of source of down payment
  • An online application
    
• Can I use gift money as a down payment?
  Yes, most lenders will accept down payment funds that are a gift from family. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan.
  
• Should I wait for my mortgage to mature?
  No. You should contact us up to 120 days before your mortgage matures so I can secure you the best rate available at that time. Doing this will protect you from any increases before your renewal date. You will also benefit from decreases should they occur. Most lenders send out their mortgage renewal notices only a month prior to renewal, offering existing clients their posted interest rates. The rate you are offered is usually not the best. We will investigate all of your options and find the solution that best suits your needs.
  
• Should I go with a Fixed Rate or Variable Rate?
  That's a difficult question......here are the differences:
  • Fixed Rate Mortgage
    The mortgage rate stays the same for the whole term and the mortgage payments are consistent during the term of the mortgage.
  • Variable Rate Mortgage
    The mortgage rate varies with fluctuations in the bank prime rate. As a result, mortgage payments may vary during the term of the mortgage. A minimum term commitment is often required (usually 3 years). You may have the option to "lock-in" the mortgage at a fixed rate during the term.
    
• What's the difference between a Closed Term and an Open Term?
  • Closed Term Mortgage
    The mortgage contract is typically written for terms of 1 to 10 years. Penalties may be triggered if the borrower wishes to end the contract before the term expires (early repayment).
  • Open Term Mortgage
    The mortgage contract is written for a short term (usually 6 months or 1 year). No penalties are triggered if the borrower wishes to end the contract before the term expires.
    
• Should I take a short term or a long term mortgage?
  The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6 month terms to 10 year terms. Savings can be had by taking a variable or floating rate mortgage. Typically the shorter the term or guarantee of the rate, the lower the rate will be. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision.
  
• Cashbacks and gimmicks, do they save me money?
  Be very careful! Some of the gimmicks used to entice you to take a mortgage at an institution may seem very appealing but the long term effect could be costly. A 3% cash back may seem great on closing, but a 1% discount in your rate may save you considerable more over the 5 years. It is important to look at the numbers. We have the software available on our system to compare your options. Give us a call to do the math.

• How do I establish a credit history? How do I establish a credit history?
  If you do not have credit history, you may wish to start small. Having a utility bill in your name and a retail store credit card will help you establish a credit history. Always paying these bills on time each and every month will improve your credit history. A simple way to ensure that you make your payments on time is to sign up for automatic withdrawals on the due date. This will prevent the creditor from receiving your payment past the due date. In most cases you can choose to have the full amount or the minimum amount deducted from your account. Even the minimum amount deducted monthly will help your credit rating. You will also save on the hassle of writing and mailing cheques each month, or scheduling your online payments so they are processed on time.

• What can affect my credit history?What can affect my credit history?
  Consistently late payments or missed payments will negatively affect your credit history and may result in your being denied credit - even if you are just a few days late. Having too many credit inquiries will also affect your rating, as will a declaration of personal bankruptcy, an unreliable employment history or even moving residents several times in a short period of time.

• What types of assets may qualify as collateral for a loan?What types of assets may qualify as collateral for a loan?
  You may wish to use your house or other property in your name or your car as collateral for a loan. These items are viewed as security for the creditor; the creditor may take possession of them if you default on your loan.

• What are some reasons I may be turned down for a loan?What are some reasons I may be turned down for a loan?
  Often your credit history is why you are turned down for a loan. If you are viewed as a risk, and your report indicates that with prior creditors you consistently made late payments or skipped payments or defaulted on a loan, it will affect your score and may result in your being turned down for the loan.

• What does an inquiry for a loan do to my credit report?What does an inquiry for a loan do to my credit report?
  Each time you apply for a loan with a financial institution, they look at your credit report, and that inquiry goes on your report and will negatively affect it if there are too many inquiries within a short period of time.

• What is a consolidation loan and how does it work?What is a consolidation loan and how does it work?
  A consolidation loan allows you to pay off several creditors and pay the balance to one creditor. This simplifies making monthly payments and can possibly reduce interest rates, so you may end up paying less than what you would have paid without the loan.

• When should I ask for a co-signer for a loan?When should I ask for a co-signer for a loan?
  A co-signer adds security for the bank or financial institution that provides your loan. With a co-signer, you may have a better chance of being approved for a loan. That's because your co-signer agrees to make payments on your loan if you default. A friend or relative can act as a co-signer.

• What should I know about loan insurance?What should I know about loan insurance?
  Loan insurance is meant to protect you and your family in the event that you cannot make your payments on time due to a qualified disability, the loss of your job, etc. Rates and coverage will vary, but you will be protected and the insurance company will make your payments. Policies may include life insurance, disability insurance and involuntary unemployment insurance, and are often subject to terms, conditions and policy limits.

•  do's and don'ts from the mortgage experts

  5 DO'S AND 5 DON'TS FROM THE MORTGAGE EXPERTS
  Courtesy Michael D. Larson

  Sure, you're eager to buy a house, but obtaining a great home loan takes discipline and forethought. Get started by checking these 10 keys for getting the best deal.

  Here's the good news: More people than ever can buy a home.

  Now for the bad: It's going to take a lot of patience, restraint and some careful planning to get there. That loan officer sitting across the table won't look kindly on the new Lexus you bought or the stack of credit-card bills on the kitchen counter. And if you've only managed to put away $1,000 in savings by then, it'll be time to forget about the $300,000 beach house. To pull the purchase off, try heeding some of the guidelines below that our experts suggest. It may not always be fun, but doing so will help get you where you want to go.

  Pay your bills and start saving

  "No. 1, pay your bills on time. There is no single element that can so dramatically impact the success of an application as your credit history," says Brian Israel, vice president of Chicago-based Harris Trust and Savings Bank's residential mortgage division. "Another thing, of course, is savings. People should have a good disciplined savings pattern. ... That's the kind of behavior that's going to make them a successful homeowner."

  Everybody comes into the real estate market with a different perspective and level of experience. The fact that online mortgage applications, new loan products and rising interest rates are competing for attention these days makes it all the more difficult to give foolproof advice. But some general rules apply to pretty much anybody when it comes to getting the money to buy a home. So here are some of the dos and don'ts that buyers will want to consider.

   

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  Five do's

  • Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine how good a loan you get -- if you get one at all.

     

  • If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That's because credit-scoring systems look at the performance of similar loans first when deciding what type of score to assign. It will give the most weight to the performance of another mortgage, for example, then the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Lastly, it would evaluate the payment performance of so-called "revolving" loans, such as credit cards, which feature variable payments that fluctuate with the outstanding balance.

    "If you had to prioritize -- and we would hope you wouldn't be in that situation -- pay your mortgage loans, pay your installment loans, pay your revolving loans," Israel says.

     

  

  • Consider paying off more debt and putting down a smaller amount at closing. The move leaves borrowers with larger mortgages, but it will allow them to replace high-interest rate debt with lower-rate mortgage debt.

    "We see that trend in the marketplace, whether it's a refinance transaction or a purchase transaction," says Larry Hamilton, chief executive officer of SouthTrust's mortgage lending division in Birmingham, Ala. "They are putting less equity in their homes, borrowing more against the homes and they're paying off consumer debt, at least for a while."

     

  • Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower's credit score, especially if they're filed in the months prior to the home loan review process.

     

  • Increase the size of the down payment you're able to make by saving as much as possible, as often as possible. Don't put the savings into something volatile, such as an individual stock. But evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save.

    "It depends on how much you have saved already, but I think it's important to take a portion of each month's income and set it aside for the down payment," says Brad Blackwell, senior vice president for retail mortgage banking at Seattle-based Washington Mutual Inc.

     

   

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  While these are all good steps to follow, borrowers have to think of what they shouldn't do as well. Resisting the temptation to splurge or slip-up in the credit arena is at the top of the list.

  Five don'ts

  • First off, don't make any big purchases over the next couple of months. Besides the obvious fact that it makes less money available for the down payment, it might require you to get yet another loan. A significant debt such as a $15,000 auto loan will look bad to the mortgage lender's credit-scoring systems. Plus, the human underwriter won't want to see you adding a couple of hundred dollars per month to your monthly expenses.

    "Generally, as a rule of thumb, you want your total debt obligation to be no more than 40% of your gross monthly income," says SouthTrust's Hamilton. "You certainly don't want to load up on consumer debt if you're anticipating purchasing a home and you're unsure of what your mortgage payment is going to be and if you think you're within the range of exceeding that 40% requirement."

     

  • Don't try shooting for that six-bedroom house in the Hamptons if it's going to be too much of a stretch in your current budget. Lenders consider what's known in the industry as "payment shock" when approving loans. Somebody who goes from a relatively small monthly housing payment to a huge one either won't qualify for a mortgage or will end up having to cover too much loan with too little money.

    "If you've paid all your bills on time, but you've been paying $450 in rent with a roommate and now you're going to have a $1,650 principal and interest and insurance payment on a house, how would you handle your monthly payment?" asks Israel of Harris Bank. "You have to make sure you're comfortable about that kind of a debt load."

     

  

  • Don't just get pre-qualified for a mortgage, get pre-approved. To get pre-qualified, a borrower need only submit credit, income and debt information voluntarily to a mortgage broker or lender. That means the resulting estimate of the maximum mortgage and home that's affordable is exactly that -- an estimate. Before they can get pre-approved, however, homebuyers must allow their lenders to pull credit reports, check debt-to-income ratios and perform other underwriting steps. That puts a borrower much closer to obtaining a loan and locking in a rate and term.

     

  • Don't forget what kind of money personality you have when getting a mortgage. By taking out a 25-year fixed rate loan rather than a 10-year mortgage and investing the money saved on monthly payments, you might earn a higher return on your money in the long run. But that approach won't work for people who spend any extra cash laying around on dinner and a movie twice a week. They can force themselves into saving and accumulating equity faster by going with the shorter term and higher payment.

     

  • Last but not least, don't forget that homeownership brings with it many burdens. The cost of defaulting on a loan is much greater than the penalty of missing a rent payment. Too many black marks on the financial history and it will be 23% interest credit card mailers that show up in the mailbox rather than the 9.9% ones your neighbor gets

Allyson Foulis
Expert Mortgages (Victoria) Ltd.
2600 Rainville Road
Victoria , BC V9B 3N1
Phone: 250-727-7746
Fax: 250-721-5924