How to Get Pre-Approved with Ease

The 4 Pieces of the Mortgage Puzzle

Buying a home is easy. Well…if you take a minute to skim through this it might be a little easier for you on the qualifying end of things. Getting a mortgage is a matter of helping the lender put together the pieces of your financial puzzle. Many times it can get what feels like overly complicated in this world of increased government regulation and lending guidelines. But it can be a lot less complicated if you do a little preparation and have realistic expectations.

So what are the pieces of the mortgage puzzle? Credit, income, assets, and property. If one piece doesn’t fit, your puzzle isn’t complete and you probably won’t get approved. Let’s take a look at those items one piece at a time.

Credit 

Your credit scores and credit history are looked at thoroughly. Each score will be verified from the three credit bureaus (experian, transunion, and equifax). If you only have 2 scores that show up that’s okay, but your lower score of the two will be used to qualify. If you have 3 scores, ideally you want to have a middle score in the mid to high 700 range. Anything below 680 can make things more complicated than what you may be looking for. The other factor that your credit report helps with is determining your monthly debt in comparison to your monthly income (debt to income ratio).

Again, the goal is to keep things simple.

When considering the history shown on your report it’s best to have 3-4 established tradelines that you have been paying on for 24 or more months. A tradeline is any obligation you’re required to pay on a monthly basis that is reported to the credit bureaus. Things like credits cards, student loans (that are not deferred), car loans, personal bank loans, and mortgages would be simple tradelines to verify and use. Cell phone bills or car insurance payments are an example of debts that are not typically on a credit report, and generally would not be used as traditional credit. For derogatory credit tips and more credit preparation see my credit page.

Income

Having a 2 year consecutive and verifiable income stream will help keep things simple for you. You want to have 2 year’s tax returns, W-2’s, and 30 day’s worth of recent pay stubs from your current employer. These items are asked for so that you have the opportunity to show stability and consistency in your income.

If you’re on a base salary or hourly (full time) that will definitely help minimize bumps in the road. Keep in mind that if you receive overtime, bonus, or commission pay it needs to be verifiable to show history and consistency. If you changed employers in the same line of work within the last 24 months, be prepared to provide proof of that employment. If you’re self employed or receive other types of income be prepared to show a consistent history (24 months) and likelihood to continue. For more in depth income tips see my income page.

Assets

There are many options when considering how much you should be putting down to buy your home. Everyone’s situation is unique. You’ll need funds for down payment, property taxes, homeowners insurance, and closing costs. Having at least 2 full months bank statements (all pages) would be something to expect to provide. If you have retirement funds or other liquid assets in a brokerage account that you’ll be using then you’ll need to provide a most recent quarterly statement, and recent activity statement on that account to show proof of funds available. You’ll need to show proof that you have transferred those funds to your bank account prior to closing.

Be prepared to provide a paper trail for everything. If there are any deposits in your accounts that you don’t have a legitimate paper trail for then you will find yourself in a difficult position as far as approval is concerned. Selling your favorite baseball card collection for cash to someone you met on craigslist might be tough to prove. For gift, grant, and other asset info see my assets page.

Property 

The home you are purchasing is the collateral that is being used to secure the financing. Your lender will get an appraisal done to get an opinion of what the fair market value is in relation to the agreed upon purchase price that you and the seller came to terms with. If the appraised value comes in high, congratulations! You technically have instant equity, but the lender will still use the purchase price as the value for qualifying purposes. If the appraisal comes in low you and the seller will need to renegotiate price or you’ll need to bring the difference to the table. The lender will also ask for any repairs noted by the appraiser to be fixed and re-inspected prior to closing. In most cases you’d insist that the current owner completes those repairs because you don’t own the home yet.

The lender doesn’t require a general inspection to be completed but it’s usually recommended. This would be a licensed inspector you would hire to tell you what you’re getting yourself into regarding condition. They will put together a detailed report including foundation issues, ventilation problems, and other things that the appraiser wouldn’t necessarily notate. For information on property types and helpful links see my property page.

Simple enough right? Look, even if you’re not a first time home buyer, it can be a bit overwhelming. The market and the guidelines are constantly changing. You will save yourself a lot of heartache and pain if you take the time to get your ducks in a row several months before you intend to buy.

A few tips to end with…

Your willingness to provide all items asked for by your lender in a timely manner is helpful to minimize the length of time it takes to close on the home.

Use a Realtor when buying or selling a home. He/she will save you time and money.

Remember that all the pieces to the puzzle have to fit. Even if you make $100k/year, buying a $50k home, and have no debt. You still need to have acceptable credit to obtain financing.

Find out if reverse mortgage is the solution for you

A Reverse Mortgage is a loan secured against the value of your home.

Unlike a loan or a regular mortgage, with CHIP you are not required to make payments. You only repay the loan when you move or sell your home.
You've worked hard to own your home, time to get your home to work hard for you:
-pay off debts
-renovate and or make your home more accessible
-handle unexpected expenses
-help your children and or grandchildren
-improve your day-to-day living standards
-make a special trip or purchase
-money to finish your "bucket list"

A CHIP Reverse Mortgage is secured by the equity in your home.

Unlike a traditional mortgage in which you make regular payments to someone else, a reverse mortgage pays you. The big advantage with the CHIP Reverse Mortgage is that you do not have to make any payments – principal or interest – for as long as you or your spouse live in your home. That’s what has made reverse mortgages such a popular solution in Canada, the U.K., the U.S., Australia and other countries. 

The CHIP Reverse Mortgage is designed exclusively for homeowners age 55 and older.

This age qualification applies to both you and your spouse.You can receive up to 50% of the value of your home. The specific amount is based on your age and that of your spouse, the location and type of home you have, and your home’s current appraised value. You can choose how you want to receive the money. CHIP gives you the option of receiving all the money you’re eligible for in one lump sum advance, or you can take some now and more later, or you can receive planned advances over a set period of time.
Wouldn’t it be nice if you had the money to do more of the things you want to do? A CHIP Reverse Mortgage could be just what you need. It’s the simple and sensible way to unlock the value in your home and turn it into cash to help you enjoy life on your terms. 

You receive the money tax-free.

It is not added to your taxable income so it doesn’t affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS) government benefits you may receive.

You can use the money any way you wish.

Maybe you want to build up your savings or cover unexpected expenses. Perhaps you want to update your home or help your family without depleting your current savings. The only condition is that any outstanding loans secured by your home must be retired with the proceeds from your CHIP Reverse Mortgage.

No payments are required while you or your spouse live in your home.

The full amount only becomes due when your home is sold, or if you move out.

You maintain ownership and control of your home.

You will never be asked to move or sell to repay your CHIP Reverse Mortgage. All that’s required is that you maintain your property and stay up-to-date with property taxes, fire insurance and condominium or maintenance fees while you live there.

You keep all the equity remaining in your home.

In many years of experience, 99 out of a 100 homeowners have money left over when their CHIP Reverse Mortgage is repaid. And on average, the amount left over is 50% of the value of the home when it is sold.
For detailed information on how to start the process, please visit our website, complete a short form and we will make sure you will be contacted and treated like a member of our family. MortgagePRO Ltd., a Calgary based mortgage brokerage that has access to all the best mortgage products, lowest rates and provide solutions.

SHOULD I GET A REVERSE MORTGAGE?

You are not sitting with this question alone. In these difficult times hundreds of thousands of Americans have seen their retirement nest eggs crash in value. Younger adults have time to reconfigure and recover before they will need those funds, but many retirees are scrambling to come up with money to pay the bills today. For those seniors who own their homes, the reverse mortgage is worth considering. 

A reverse mortgage allows you, if you are 62 or older, to receive cash advances based on the equity in your home. This means a lump sum, monthly payments, or a line of credit depending on the terms of your loan. Generally, they are set up so you do not pay anything back until you sell your home, transfer title, leave your home for an extended period, move out or die.
If you have a spouse they can stay in the home after you die, but only if that spouse is also a listed borrower. If you do discover another income source (like, have you checked under the mattress?), there is no prepayment penalty. Also, there is no way to owe more than the value of your home with a reverse mortgage so, unlike a credit card or some other traditional loan, you won’t ever have to start paying a bill. 

Another great aspect of reverse mortgages is that you can now incorporate one into the purchase of a new home. This is perfect for people who want to downsize or move closer to their relatives because it saves you from paying two sets of closing costs (one when you buy the home and another when you take out a reverse mortgage on the new home).  It’s a lesser known feature so spread the word. 

Now, here is the small print: A reverse mortgage does not work for second homes or investment property. You have to live in the home. Also, you are still required to pony up for real estate taxes, HOA fees, utilities, and hazard and flood insurance premiums. And, although origination fees are capped by federal law, they do differ from bank to bank so it might pay to shop around a bit. The origination fee can be rolled into the loan, however. 

In order to obtain a reverse mortgage you must go through a licensed lender AND get financial counseling. The lender is not allowed to accept your application for a reverse mortgage without a certificate showing you underwent counseling. Do not (and I say this with great affection for legitimate estate planners everywhere) use an unscrupulous estate planner to find a licensed lender. Anyone who charges you a fee for finding a lender is, to put it gently, scamming you and should be immediately bad-reviewed out of existence. AARP and the U.S. Department of Housing (HUD) both have free information on non-profit counseling agencies and approved lenders in your area. Also, if you signed for a reverse mortgage and regret the decision you have a right to cancel the loan within three days after closing. Be sure to check with your lender about the correct process, though, because they differ. We all know how much banks just adore creating their very own processes. 

The National Counsel on Aging has a great guide on reverse mortgages as well as other options and considerations for elders that would like to stay in their homes here. 

REVERSE MORTGAGE LOAN (RML) GUIDELINES

Introduction 

Senior Citizens are an increasing component of the Indian society and dependency in old age is increasing in the country. While on the one hand, there is significant increase in longevity and low mortality, on the other hand cost of good health care facilities is spiraling and there is little social security. Senior Citizens need a regular cash flow stream for supplementing pension/other income and addressing their financial needs. Secular increase in residential house prices has created considerable “home equity “wealth. For most Senior Citizens, the house is the largest component of their wealth. 

Conceptually, Reverse Mortgage seeks to monetize the house as an asset and specifically the owner's equity in the house. The scheme involves the Senior Citizen borrower(s) mortgaging the house property to a lender, who then makes periodic payments to the borrower(s) during the latter's lifetime. The Senior Citizen borrower is not required to service the loan during his lifetime and therefore does not make monthly repayments of principal and interest to the lender. On the borrower's death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest, through sale of the house property. The borrower(s)/heir(s) can also repay or prepay the loan with accumulated interest and have the mortgage released without resorting to sale of the property. Reverse mortgages are one product within the “Equity Release” category.

1. Reverse Mortgage Loans (RMLs) are to be extended by Primary Lending Institutions (PLIs) viz. Scheduled Banks and Housing Finance Companies (HFCs) registered with NHB. The PLIs reserve their discretion to offer Reverse Mortgage Loans. Prospective borrowers are advised to consult PLIs regarding the detailed terms of RML as may be applicable to them.

2. Eligible Borrowers:

• Should be Senior Citizen of India above 60 years of age.
• Married couples will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the PLI, subject to at least one of them being above 60 years of age. PLIs may put in place suitable safeguards keeping into view the inherent longevity risk.
• Should be the owner of a self- acquired, self occupied residential property (house or flat) located in India, with clear title indicating the prospective borrower's ownership of the property.
• The residential property should be free from any encumbrances.
• The residual life of the property should be at least 20 years.
• The prospective borrowers should use that residential property as permanent primary residence. For the purpose of determining that the residential property is the permanent primary residence of the borrower, the PLIs may rely on documentary evidence, other sources supplemented by physical inspections.

3. Determination of Eligible Amount of Loan:

• The amount of loan will depend on market value of residential property, as assessed by the PLI, age of borrower(s), and prevalent interest rate.
• The table given hereunder may serve as an indicative guide for determining loan eligibility :

Age	Loan as proportion of Assessed Value of Property
60 – 65	40%
66 – 70	50%
71 – 75	55%
Above 75	60%

• The above table is indicative and the PLIs will have the discretion to determine the eligible quantum of loan reckoning the ‘no negative equity guarantee' being provided by the PLI. The methodology adopted for determining the quantum of loan including the detailed tables of calculations, the rate of interest and assumptions (if any), shall be clearly disclosed to the borrower.
• The PLI may consider ensuring that the equity of the borrower in the residential property (Equity to Value Ratio - EVR) does not at any time during the tenor of the loan fall below 10%.
• The PLIs will need to re-value the property mortgaged to them at intervals that may be fixed by the PLI depending upon the location of the property, its physical state etc. Such revaluation may be done at least once every five years; the quantum of loan may undergo revisions based on such re-valuation of property at the discretion of the lender.
4. Nature of Payment:
Any or a combination of the following:
• Periodic payments (monthly, quarterly, half-yearly, annual) to be decided mutually between the PLI and the borrower upfront
• Lump-sum payments in one or more tranches
• Committed Line of Credit, with an availability period agreed upon mutually, to be drawn down by the borrower
Lump-sum payments may be made conditional and limited to special requirements such as medical exigencies, home improvement, maintenance, up-gradation, renovation, extension of residential property etc.The PLIs may be selective in considering lump-sum payments option and may frame their internal policy guidelines, particularly the eligibility and end-use criteria. However, these conditions shall be fully disclosed to potential borrowers upfront. 
It is important that nature of payments be decided in advance as part of the RML covenants. PLI at their discretion may consider providing for options to the borrower to change.5. Eligible End use of funds
The loan amount can be used for the following purposes:
• Up gradation, renovation and extension of residential property.
• For uses associated with home improvement, maintenance/insurance of residential property
• Medical, emergency expenditure for maintenance of family
• For supplementing pension/other income
• Repayment of an existing loan taken for the residential property to be mortgaged
• Meeting any other genuine need
Use of RML for speculative, trading and business purposes shall not be permitted
6. Period of Loan: Maximum 15 years.
7. Interest Rate: The interest rate (including the periodic rest) to be charged on the RML to be extended to the borrower(s) may be fixed by PLI in the usual manner based on risk perception, the loan pricing policy etc. and specified to the prospective borrowers. Fixed and floating rate of interest may be offered by the PLIs subject to disclosure of the terms and conditions in a transparent manner, upfront to the borrower.
8. Security:
• The RML shall be secured by way of mortgage of residential property, in a suitable form, in favour of PLI.
• Commercial property will not be eligible for RML.
9. Valuation of Residential Property:
• The residential property should comply with the local residential land-use and building bye laws stipulated by local authorities, with duly approved lay-out and building plans.
• The PLI shall determine the Market Value of the residential property through their external approved valuer(s). In-house professional valuers may also be used subject to adequate disclosure of the methodology.
• The valuation of the residential property is required to be done at such frequency and intervals as decided by the PLI, which in any case shall be at least once every five years. The methodology of the revaluation process and the frequency/schedule of such revaluations shall be clearly specified to the borrowers upfront.
• PLIs are advised not to reckon expected future increase in property value in determining the amount of RML. Should the PLIs do so in their best commercial judgement, they may do so under a well defined Policy approved by their Board and based on professional advice regarding property prices.
10. Provision for Right to Rescission: 
As a customer-friendly gesture and in keeping with international best practices, after the documents have been executed and loan transaction finalized, Senior Citizen borrowers may be given up to three business days to cancel the transaction, the “right of rescission,”. If the loan amount has been disbursed, the entire loan amount will need to be repaid by the Senior Citizen borrower within this three day period. However, interest for the period may be waived at the discretion of the PLI.
11. Loan Disbursement by Lender to Borrower:
• The PLI will pay all loan proceeds directly to the borrower, except in cases pertaining to retirement of existing debt, payments to contractor(s) for the repairs of borrower's property, or payment of property taxes or hazard insurance premiums from the borrower's account set aside for the purpose.
• In case the residential property is already mortgaged to any other institution, the PLI may, at its discretion, consider permitting use of part proceeds of RML to prepay/repay the existing housing loan. The loan amount will be paid directly to that institution to the extent of the loan outstanding with that institution with a view to release the mortgage.
• Periodicity: The loan will be extended as regular monthly, quarterly, half-yearly or annual periodic cash advances or as a line of credit to be drawn down in time of need or in lumpsum.
• The PLI will have the discretion to decide the mode of payment of the loan including fixation of loan tenor, depending on the state and market value of the property, age of the borrower and other factors. The rationale behind the decision of mode of payment and fixation of the loan tenor shall be clearly disclosed to the borrowers.
12. Closing: 
The PLIs will provide in writing, a fair and complete package of reverse mortgage loan material and specimen documents, covering inter-alia, the benefits and obligations of the product. They may also consider making available a tool kit to illustrate the potential effect of future house values, interest rates and the capitalization of interest on the loan.
The closing costs may include the customary and reasonable fees and charges that may be collected by the PLIs from the borrower. The cost for any item charged to the borrower shall not normally exceed the cost paid by the lender or charged to the lender by the provider of such service(s). Such items may include:
• Origination, Appraisal and Inspection Fees. The borrower may be charged pro-rata origination, appraisal and inspection fees by the PLI /appraiser.
• Verification Charges of external firms
• Title Examination Fees
• Legal Charges/ Fees
• Stamp Duty and Registration Charges
• Property Survey and Valuation charges
A detailed schedule of all such costs will clearly be specified and provided to the prospective borrowers upfront by the PLIs.
13. Settlement of Loan
• The loan shall become due and payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out of the home for aged care to an institution or to relatives. Typically, a "permanent move" may generally mean that neither the borrower nor any other co-borrower has lived in the house continuously for one year or do not intend to live continuously. PLIs may obtain such documentary evidence as may be deemed appropriate for the purpose.
• Settlement of loan along with accumulated interest is to be met by the proceeds received out of Sale of Residential Property.
• The borrower(s) or his/her/their estate shall be provided with the first right to settle the loan along with accumulated interest, without sale of property.
• A reasonable amount of time, say up to 2 months may be provided when RML repayment is triggered, for house to be sold.
• The balance surplus (if any) remaining after settlement of the loan with accrued interest, shall be passed on to the estate of the borrower.
14. Prepayment of Loan by Borrower(s)
• The borrower(s) will have option to prepay the loan at any time during the loan tenor.
• There will not be any prepayment levy/penalty/charge for such prepayments.
15. Loan Covenants:
• The borrower(s) will continue to use the residential property as his/her/their primary residence till he/she/they is/are alive, or permanently move out of the property, or cease to use the property as permanent primary residence.
• Non-Recourse Guarantee: The PLIs shall ensure that all reverse mortgage loan products carry a clear and transparent ‘no negative equity' or ‘non-recourse' guarantee. That is, the Borrower(s) will never owe more than the net realizable value of their property, provided the terms and conditions of the loan have been met.
• Loan Agreement: The PLIs shall enter into a detailed loan agreement setting out therein the salient features of the loan mortgage security and other terms and conditions, including disbursement and repayment of the loan, in addition to the usual provisions, which are ordinarily incorporated in a mortgage loan document.
• The loan agreement may also include a provision that the borrower shall not make any testamentary disposition of the property to be mortgaged and even if it does so, it would be subject to the mortgage created in favour of the lending institution. In such a case, the borrower shall make a testamentary disposition of the mortgaged property in favour of any of his/her relatives, subject to the discharge of the mortgage debt by such legatee and a statement that the heirs shall not be entitled to challenge the validity of the mortgage as also the right of the mortgagee to enforce the mortgage in the event of death of the borrower unless the legal representative is willing to undertake the responsibility for discharging in full the amount of loan and accrued interest thereof.
• In addition, the PLI may also consider obtaining a Registered Will from the borrower stating, inter-alia, that he/she has availed of RML from the PLI on security by way of mortgage of the residential property in favour of the PLI, meaning thereby that in the event of death of the borrower (and co-borrower, if any), the mortgagee is entitled to enforce the mortgage and recover the loan from the sale proceeds on enforcement of security of the mortgage. The surplus, if any, has to be returned to the heirs of the deceased borrower(s).
• The PLIs may consider taking an undertaking from the prospective borrower that the “Registered Will” given to the PLI is the last “Will”, prepared by him/her at the time of availment of RML facility as per which the property will vest in his/her spouse name after his/her demise. The borrower will also undertake not to make any other ‘Will' during the currency of the loan which shall have any adverse impact on the rights created by the borrower in the PLI's favour by way of creation of mortgage on the immoveable property mentioned under the loan documentation for covering loan to be allowed to his/her spouse and interest thereon, even after the borrower's death.
• The PLI will ensure that the borrower(s) has insured the property against fire, earthquake, and other calamities.
• The PLI will ensure that borrower(s) pay all taxes, electricity charges, water charges and statutory payments.
• The PLIs will ensure that borrower(s) are maintaining the residential property in good and saleable condition.
• The PLI may reserve the option to pay for insurance premium, taxes or repairs by reducing the homeowner loan advances and using the difference to meet the obligations/expenditures.
• The PLI reserves the right to inspect the residential property/premises or arrange to have the residential property/premises inspected by its representatives any time before the loan is repaid and borrower(s) shall render his/her/their cooperation in respect of such inspections.
16. Title Indemnity/Insurance
• The PLI shall obtain legal opinion for ensuring clarity on the title of the residential property.
• The PLI shall also endeavour to obtain indemnity on title related risks, as and when such indemnity products are available in India.
17. FORECLOSURE:
• The loan shall be liable for foreclosure due to occurrence of the following events of default.
• If the borrower has not stayed in the property for a continuous period of one year
• If the borrower(s) fail(s) to pay property taxes or maintain and repair the residential property or fail(s) to keep the home insured, the PLI reserves the right to insist on repayment of loan by bringing the residential property to sale and utilizing the sale proceeds to meet the outstanding balance of principal and interest.
• If borrower(s) declare himself/herself/themselves bankrupt.
• If the residential property so mortgaged to the PLI is donated or abandoned by the borrower(s).
• If the borrower(s) effect changes in the residential property that affect the security of the loan for the lender. For example: renting out part or all of the house; adding a new owner to the house's title; changing the house's zoning classification; or creating further encumbrance on the property either by way taking out new debt against the residential property or alienating the interest by way of a gift or will.
• Due to perpetration of fraud or misrepresentation by the borrower(s).
• If the government under statutory provisions, seeks to acquiring the residential property for public use.
• If the government condemns the residential property (for example, for health or safety reasons).
18. Option for PLI to Adjust Payments:
• The PLI shall have the option to revise the periodic/lump-sum amount at such frequency or intervals based on revaluation of property, which in any case shall be at least once every five years.
• Borrower shall be provided with an option to accept such revised terms and conditions for furtherance of the loan.
• If the Borrower does not accept the revised terms, no further payments will be effected by the Lender. Interest at the rate agreed before the review will continue to accrue on the outstanding amount of the loan. The accumulated principal and interest shall become due and payable as mentioned in clauses (13) and (17).
19. Counseling and Information to Borrowers:
• The PLIs will observe and maintain high standards of conduct in dealing with the Senior Citizens and their families and treat them with special care.
• The PLIs shall clearly and accurately disclose the terms of the RML without any ambiguity.
• The PLIs should clearly explain to the prospective borrowers the terms and conditions of RML, the methodology followed for valuation of the residential property, the method of determination of eligible quantum of loan, the frequency of re-valuation and review of terms and all related aspects of the RML.
• The PLIs may suggest to the Senior Citizens to nominate their ‘personal representatives' usually a close relative who the PLI can contact in the event of any potentialities.
• The PLIs may counsel the prospective borrowers about the possible impacts to the borrowers due to adverse movements in interest rates and property price fluctuations.
• The PLIs shall clearly specify all the costs to the Borrower(s) that are associated with the transaction.
• The PLIs shall in no way assert or imply to the borrower(s) that the borrower(s) is/are obligated to purchase any other product or service offered by the PLI or any other associated institution in order to obtain a reverse mortgage loan.
• Take reasonable steps to check out the background and procedures of third parties before accepting referrals of business from them, and refuse to accept referrals from those that are found unacceptable. Members shall disclose to clients any third party with a financial interest in the reverse mortgage transaction.
• Overall, the PLIs shall treat the Senior Citizen borrower fairly.