It’s remarkable how often we find surprises in people’s credit history when it is time to apply for a mortgage. When the clock is ticking on a conditional offer to purchase, it can be very stressful trying to clear up errors at the last minute. It typically takes a few weeks, which is time, you may not have.
Regular readers will already know I am a strong advocate of proactively managing and reviewing your personal credit history. If you are new to this routine, I urge you to open an account at Equifax, Canada’s largest credit bureau, and access a personal copy of your credit history.
Our office has had three recent examples which caused grief for the buyer in each case. Today we will look at the first situation, where Geraldine and David were first-time buyers house hunting this summer within Toronto for a suitable semi-detached home. They had been thwarted in multi-offer situations a few times and had almost given up hope of finding a home – especially as it seemed prices were rising monthly. They were putting 5% down on a $705,000 home purchase in Toronto
Geraldine had been correctly tracking her credit history for a few months. A few weeks before she and David made their offer, her credit score was 730. The debt service ratios on this file were tight – both had to keep their score over 680 to qualify for a mortgage using a Gross Debt Service Ratio (GDS) of 39% and a Total Debt Service Ratio (TDS) of 44%.
But when we prepared the application she was shocked to find out her credit score had plummeted to 643. Turns out her bank had reported a very recent late payment on her Visa card. Disaster! Geraldine was 100 percent certain this was a reporting error, and she hunkered down to do battle with the bank and Equifax.
The clock was ticking, as they had a condition of finance which would expire in five business days. I had no doubt this would get resolved in due course, but understandably they did not want to lift their condition of finance without the assurance of a mortgage approval.
It took several hours of her time, and a great deal of stress, but through dogged persistence, she was able to get this addressed within a few business days. Sure enough, the application was approved the very next day, but the mortgage insurer (Genworth) would not issue a commitment until the property was appraised.
I guess this was because the property purchase price was above the asking price, and with only five percent down, the insurer wanted to be sure there was actual value there.
When you apply for a hi-ratio mortgage, it must be first approved by your lender, and also by a mortgage insurer.
There was no way we could order the appraisal, have it completed and a report on the lender’s desk (and Genworth’s desk) within 24 hours. Emotions ran high as an extension was requested, and ultimately granted. And the good news is the appraisal came in perfectly, and Geraldine and David were able to lift their condition of finance and firm up their offer, but a couple of days after their initial five business days had expired.
Had Geraldine’s credit report not been compromised, all this could have been done within five business days. It was just hard work and perseverance by her, as well as a sympathetic seller’s real estate agent and her clients, which allowed she and David to complete the purchase on time. And remember, this happened to someone who was already tracking her credit history!