Mortgage lending has become very complex, with constantly changing rates, terms and conditions. Each lending institution has its own criteria that apply to potential borrowers. Some insist on a particular type of property as security, while others require a certain type of applicant. In this latter case, factors such as type of employment, job stability, income and credit background are weighed. There is a broad range of philosophies and policies held by the various lending institutions on the issue of security and applicant qualifications in order for a lender to advance mortgage funds. These are subject to change from time to time.
Other factors such as the availability or shortage of funds, past experience in a specific area and perceived resale market for a particular property could also affect mortgage approval.
Mortgage brokers make it their business to know all the various plans and lending policies, as well as the lender’s attitude on various aspects of mortgage security and covenants. For this reason, a mortgage broker performs an invaluable service in the real estate financing process. Their role is that of matchmaker; attempting to introduce the appropriate lender to the purchaser. Mortgage brokers are governed by provincial legislation.
Mortgage brokers have access to numerous sources of funds, including the following:
- Conventional lenders such as banks, trust companies and credit unions;
- Canada Mortgage and Housing Corporation (CMHC);
- Private pension funds;
- Union pension funds;
- Real estate syndication funds;
nsurance companies;
- Private lenders.
Knowing all the lender’s objectives, the broker is capable of matching the applicant and his or her property with the appropriate plan and lender. Alternatively, the broker can provide a series of mortgage plans from which the borrower may select the one that best suits his or her needs.
Basically, here is how the process works. The normal procedure is for you to complete an application form supplied by the mortgage broker, provide a copy of the agreement of purchase and sale, as well as provide proof of employment, the length of time employed and your annual salary. A letter from your employer is often also required. If you are self-employed, you are normally required to provide the last three years of financial statements of your business and/or copies of the last three income tax returns for your business.
In addition, you normally pay the mortgage broker the cost of obtaining an appraisal of your property. The broker also does a credit bureau search. The broker attempts to get you a good deal, by matching you up with a lender who will loan you money based on your financial needs, the terms you require and the information that you have supplied. Since brokers operate exclusively in the money market, they know at any point in time who is giving the best rates and most favorable terms. Tentative approvals are generally given within one to two business days from application.
Mortgage brokers basically offer two types of services:
- a simple mortgage that will get automatic approval in your particular circumstance, especially when the buyer is living in the home. Consequently, this saves you a lot of time and frustration spent searching. The broker generally receives a commission directly from the lender–a “finder” or “referral” fee. You don’t pay any extra money or higher interest. Lenders do this because the mortgage market is so competitive.
- a more complex mortgage that would not be automatically approved, or possibly was initially declined by prospective lenders. This takes more time, skill, and persuasion on the part of the broker to source out a lender or number of lenders who will provide the funds you need. For example, if you did not have the normal amount of money required for a down payment, had a negative credit rating, were highly leveraged already, did not have the normal income required or were recently self-employed, you would probably be turned down by a conventional lender such as a bank, credit union or trust company. Mortgage brokers also provide other services such as the financing of construction, recreational or revenue properties, debt consolidation and financing of equity.
If a mortgage broker succeeds in arranging your financing, given the above types of more difficult factors, you would pay a commission. The amount of the commission is based on the degree of difficulty in arranging financing and other related factors.
To find a mortgage broker, look in the Yellow Pages of your telephone directory, ask your real estate lawyer, or your realtor. Remember to “comparison shop” before deciding who to deal with. Most mortgage brokers are available by phone or pager seven days a week and will arrange to meet you at your home or office in the day or evening, depending on your needs. You can also use a mortgage broker to obtain a pre-approved mortgage commitment and mortgage term guarantee, generally good for 60 days, depending on the market. If the mortgage rates go down by the time you need the funds, you get the lower rate, and if the rate goes up, you are guaranteed the original commitment rate.
