How to Prevent the Financing Blues?
Avoiding disappointment is always the best thing that you can do, but occasionally it does happen when some mortgage brokers are just utterly incapable of getting things done with the lender. Selecting a great mortgage broker is essential for getting the financing approved. Choosing to work with the wrong person can be detrimental. Let me explain…
Don’t tell this to anyone else, but just because the banks have the money that you need, sometimes they may try to make it sound like they get to do anything is not always the case. At the end of the day, banks still want your business.
So if the bank’s business also depends on securing the next mortgage, then it still didn’t make sense to me why would they be so willing to drop the ball and not communicate anything back to the mortgage broker so that the buyer and seller can stay informed?
Then I remembered a conversation that I had with a good mortgage broker associate of mine - he told me that they have an excellent relationship with the underwriter of a particular lender and often they can get borderline applicants approved and faster than anyone else.
Then I had an “ahhhhh so….” moment. So if a mortgage broker can have a preferred treatment with a lender, then the opposite must also be true.
Reasons Why Banks May Have Peripheral Service
Mortgage brokers are responsible for collecting all the documents from the purchasing clients and presenting it to the lenders for approval. But because mortgage brokers are on a commission based compensation model, they may have tried to bend the truth in the past to squeeze the mortgage approval through or may have given other reasons why lenders may not like dealing with them.
If a particular bank becomes suspicious or has a reason not to trust a mortgage brokerage - then a client’s file may end up receiving subordinate attention (I am going to explain this in a bit). Hence may be the explanation why banks are not giving them the courtesy of keeping them updated on time.
The second reason why banks may prioritize one application over another could be because they probably try to provide the best service to their most appreciated clients and everyone else has to stand in line to have their files reviewed.
There are mortgage brokers who send a ton of customers to a particular bank. There are also smaller mortgage brokerages who only send a few clients to the bank, and their lack of ability to refer more business naturally means that they are positioned at the back of the queue.
Specific banks provide a designated underwriter to only handle the clients of a high volume mortgage brokerage, while others’ application may get sent to the head office’s approval centre (a.k.a. “the black hole”). If the application gets reviewed at the head-office, then it’s anybody’s guess when they will respond as the mortgage broker has no direct communication with the underwriter.
As a disclosure on my part, this is simply the best theory that I was able to come up with and I know for a fact that you won’t find a single lender that will admit to this business practice. But if you can confirm or deny this theory, I would love to hear your comments below.
Never Give Up Control of the Situation
One of the most important steps that a home buyer or their REALTOR® can do to keep the transaction on time is never to give up control of the situation.
Far too often, people like to point fingers at each other as to why things didn’t get done on time and even less often do they want to take responsibility for the negative outcome. If you want to have a positive result, then you will need to be able to control the entire buying process. Otherwise, you are at the mercy of somebody else.
From the minute you decide to purchase that property, you will need to control the terms of the agreement. It means that you will need to make it very clear to the lender that they need to have the mortgage approved before the condition's deadline rolls around.
But, if the real estate agent doesn't have any relationship with the lender or the mortgage broker, then it may be a bit difficult to exercise any leverage over them. By leverage, I mean that Mortgage Brokers love getting referrals from real estate agents and the only way they can keep those referrals coming is if they do a great job servicing the client.
How to Win Before the Bank Lets You Down?
Fortunately, there is a way of ethically “controlling” the lender and gaining the upper hand even when they let you down by requesting an extension on the property that others may be standing in line and waiting for your offer to collapse.
Most certainly everyone is under pressure at their job, and that also includes the underwriters working for the lender. Just imagine someone plugging away with their work and every time they look at their inbox tray, there is another file that they have to get to, but they have another dozen approvals to review beforehand. Underwriters always end up with more work than they can handle. On top of the overwhelming workload, they have tight deadlines that they supposed to keep. Well… sort of.
For the underwriters to juggle things and try not to miss the deadline, they either need to work first on the “most preferred file.” Or prioritize the applications based on the deadlines by which they need to have the approval in place. Prioritizing means this means that if you were to give the lender 2 weeks to get a mortgage approved, most likely it’s going to sit on their desk for another week before they actually do anything with it as they have multiple other files with higher priorities ahead of yours.
The Solution to Controlling the Bank
The solution is simpler than you may have thought. While negotiating with the seller, I always find out from the seller’s agent - “how would they like to have my client approved quickly?” The answer is always: YES.
Then I point it out, that it’s great that our interests are the same. At this time, I propose that we’ll agree on a short financing condition date (this is music to their ears). BUT in case the bank cannot complete the approval on time, then we’ll have the option to extend the financing condition deadline by a few extra days.
By getting the seller to sign off on extending the condition date at the same time when the offer is accepted, it will automatically leave you with more peace of mind in case the bank needs a few extra days. This strategy imposes more pressure on the bank to giddy up and start working on the file right away.
So the agreement may speak to a 4-day financing condition day which will ensure that the bank will keep a close eye on the file. But in case the bank drops the ball, I have already set up the expectation with the seller ahead of time by having them to agree to extend condition date.
It can be very disappointing for both the buyer and the seller when financing isn’t approved in time or all together. Although, it's not entirely possible to plan for every situation in advance. But if a home buyer is approved for a mortgage before starting their home search, then these tips above will most certainly ensure a positive outcome.
It is important to understand how lenders and mortgage brokers operate so that you can be a few steps ahead of them and detect any problems even before they occur. Before consulting with a lender or a mortgage broker, check with your real estate agent to see if they can recommend someone with whom they had a great experience working in the past.
If you had found the above information valuable, please share with your friends, and anyone that you may think would benefit from this article. Your comments are always welcome!
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I am a licensed member of the Real Estate Council of Alberta since 2005 - proudly representing CIR REALTY, Calgary’s largest real estate brokerage. I enjoy keeping my readers up to date with real estate related information that they can easily understand and use for their own benefit. I welcome feedbacks and comments equally from first-time visitors to my blog, past clients and also from my fellow REALTOR® colleagues. Thanks for stopping by!