When bank says no, where do you go?
By Robert Prince
You want to buy a home by the bank turned down your mortgage request.
It’s not an uncommon scenario since the federal government changed the lending rules last year to tighten up the mortgage criteria.
You can find out why you don’t qualify and set about fixing the problem, or you can see whether someone else will lend you money based on your current situation.
Vivian Hatiras, a mortgage specialist with TD Canada Trust, says nobody likes to be turned down for a mortgage, but it doesn’t necessarily mean there aren’t ways to change your current situation to make it more acceptable to a lending institution. She says the information you receive from your banker can be used to improve your financial picture so you can come back and ask for a revised approval.
“If, for instance, you have some unfortunate credit events in your past, your credit can often be rehabilitated in as little as a year, depending on the problems. It might be that simple.”
Hatiras also points out that down payment issues can often be changed in your favour if a parent or grandparent is willing to provide the money ... and if the lending institution is willing to allow a co-signer, that can improve your situation, as well. Finding a co-purchaser is another good way to resolve the issue.
Asking your bank if they have alternative lending channels is one more route to try, says Hatiras.
Alternative channels will have different rates and approval criteria.
If you still can’t get anywhere with your bank, Brandee McWhinney, a Maple Ridge mortgage broker who works with Dominion Lending Centres, has some other ideas.
“Each client’s situation really is different,” says McWhinney. “There is no cookie-cutter. Some people qualify for traditional bank mortgages and some don’t. But that doesn’t mean they can’t get a mortgage elsewhere. It’s just a matter of matching the client to the right lender.”
For those who don’t qualify for a typical bank mortgage, there are mortgage companies, mortgage insurance corporations, private lenders and even self-directed RRSPs to consider.
Mortgage companies are the next best option for most people, says McWhinney. They’re classified as monoline lenders (meaning they only do mortgages), and they tend to have greater options available in terms of interest rates because their overhead tends to be much less. They also tend to be a lot more competitive because they have to hustle more for the business. You’ll still have to meet all the federal mortgage regulations, however.
You might also want to check with a credit union. They are regulated provincially, and can still offer mortgages longer than 25 years, which could help with payments.
Next on the list of options, says McWhinney, are mortgage investment corporations. They are basically groups of investors who pool their cash to lend out. Because they take a higher risk, they typically charge a higher rate. However, they are regulated, which provides safeguards to borrowers., and they don’t always look as hard at income, but more at the value of the property.
Individual lenders are another source of mortgage money. These are basically people with money who are willing to lend. There are no set standards for this kind of mortgage, although it still has to be registered, and McWhinney says it’s likely the lender will be very thorough in her due diligence, particularly with regards to ensuring property value.
Another option is a self-directed RRSP. If you have a large pool of RRSP money available, you can, in effect, lend it to yourself without cashing in the RRSP.
McWhinney says there are many reasons why someone might not qualify for a traditional bank mortgage – self-employment, contract work, bruised credit, a complicated down payment, untraditional incomes sources, or even being retired.
“What you can get in terms of a mortgage entirely depends on what your story is right now. However, if your story is packaged properly, and presented to the appropriate lender to suit your needs and situation, then you might not have to worry about being turned down.”
Whatever your situation, says McWhinney, don’t fall into the trap of thinking you’ll automatically qualify for a mortgage just because you currently have one. The rules have changed, and you need to find out early whether you still qualify to avoid major problems down the road.