| |
One of my Clients (George) feels he has been unjustly targeted by the system.
Some years ago, he was given a "golden" handshake, so he was forced to
treat the event as being an opportunity to start his own business. With the
expert help of accountants to minimize his earnings, he pays very little income tax.
Hearing interest rates are very low, he decides he wants to buy a home, for the
first time in his 44 year life. He read a sign at the bank where he was applying for
a pre-approved mortgage that announced the 5 year mortgage rate at 8.75%. Although
his friend got a 5 year term at 7.95%, he decided to apply anyway. The mortgage
officer, once queried about the rate, said that it was possible to get discounted rates,
but first one must apply. Because he is self-employed, George was asked to produce his
last three "Revenue Canada Assessment Notices" to prove taxable income.
From those figures, debt service ratios will be calculated using a three year
average. As Sun readers know by now, a mortgagor (borrower) can spend 32% of this taxable
income to pay for principal, interest, taxes and heat on the unit. It turned out that
using the system's analysis, George only qualifies for a $58,000 mortgage with his bank.
George knows that he makes more money than declared, but he gets to write-off a
bunch due to his employment status. The mortgage officer lends a sympathetic ear, but
cannot get him approved for more than $58,000. Hearing mortgage brokers may do more,
he applied with me.
George desperately wants this $160,000 home but only has $40,000 to put down. His
credit rating is perfect. Even with high debt service ratios, Mortgage Matters was
successful in locating a mortgage lender who would finance the $120,000. George's
glee was short lived. He really does not like the rate of 8.75%, since his friend
got 7.95%, and he really doesn't like the idea of paying mortgage broker fees ($500) and
lender fees ($300). He feels he should be getting the same type of deal as his friend .
I said to George that his "friend" was gainfully employed and that his
friend's debt servicing was in line with accepted standards. Had George still been
employed at his old job, I could have provided even a better rate than his friend.
He had to speak to his lawyer and Real Estate Agent. The Realtor called to say that
he would pay for my fees and the lender fees, and attested to the fact that getting him
financing for 75% at the aforementioned rate with no provable income was indeed great
work. His lawyer called to say he was concerned with what he assumed was a
"private" mortgage. I said to the lawyer that this was
"institutional" money, not private. His lawyer was surprised that we were
able to find financing with a mortgage Company, since George's declared income was so low.
George called back to apologize for his behavior, and would now be pleased to
accept our commitment.
Some people just can't show enough provable income to qualify, but their credit history
(rating) and cash down payment go a long way towards getting some institutions to
understand. By the same token, don't be surprised if the rate is not discounted and
that you must pay some fees to secure the financing required.
|