I never knew that a mortgage could be denied simply (or not so simply) because of the condition of a home. That is, until Aaron and I purchased ours and we had to learn the hard way.
I’ve worked in real estate as a business manager for over a year with a brokerage that mainly focuses on renovation projects. I know real estate paperwork inside and out. What I don’t know anything about, I’ve found out, are mortgages and how intricate they are. In this competitive market, it’s extremely difficult to submit an offer on a home with conditions. When we purchased 21 Millbrook, I decided to submit a condition-free offer firstly because I wanted to have a competitive advantage, and secondly because I never assumed financing could be an issue if it’s not related to financing. I hate the be the one to break it to you, but take this as a warning if you’re ever to find a fixer-upper. It may not be as simple as it seems.
I’ve been saving since I was 2. More specifically, I’ve been saving for my first home since I can remember. There’s not much more that I want in life than a husband, a family and a home. When I submitted my initial mortgage application to a Schedule A bank and found out that it was 90% approved, I was over the moon. What I’ve always wanted was right at my fingertips! That is, until the bank sent in an appraiser and the property got appraised at 90% land value…and that same mortgage application got stamped a big, fat, disappointing DENIED.
Appraisals are completed as a protective measure by the bank in order to access the risk of providing you with a mortgage. Should you ever default, the bank can foreclose on your property and sell the home for the amount that you owe on it. Most banks have a difficult time lending more than 80% of the appraised value. With 20% down, and only 10% in home value, we were in trouble.
We hopped from broker to broker, from Schedule A to Schedule B bank, with no luck and little time to rectify the problem at hand. Our closing date passed, and we were forced to get an extension, incurring extra costs to cover the seller’s expenses. We switched brokers yet again, and we were lead to believe that our mortgage would finally be approved at a higher interest rate. With no other options in sight, we agreed. To our dismay, we were rejected, yet again, solely based on the condition of the home.
We were forced to explore the avenue of private lenders, who, at the time, were hiking up interest rates astronomically due to the the fact that Home Trust, the largest Schedule B banking institution, was in financial difficulty, leaving home buyers with little to no other options and private lenders with little grace. With a one-million dollar property on our hands, and an offer of a 12% interest rate, not inclusive of the lender’s fee, I ran out of hope and prayed God would somehow save me from financial ruin.
I again, with faith as little as a mustard seed, applied, on my own, to a Schedule A bank, and increased our down payment. If you’ve read my post before, my God is in the miracle working business and somehow, after much stress, phone calls, applications, paperwork and time, the mortgage got approved and we got the keys.
Here’s a few tips on tricky mortgage approvals:
- Pray about it. If it’s God’s will, there’s a way.
- Ever heard that two heads are better than one? Well, sometimes two names are better than one as well. If you haven’t considered it already, find a co-signer.
- Don’t leave your mortgage application until the last minute. Even if your home doesn’t close for a few months, always ensure to secure the funds early on. That way, if financing falls through, you’ll have time to explore other options.
- Try your best to go with a Schedule A or B bank. Explore your options and do your research on banks that not only offer the best interest rates, but fit your needs in the future. Buying to sell? Be careful of fees incurred to break your mortgage early. A higher interest rate with an open mortgage may be more financially feasible than a lower interest rate with a high penalty.
- Keep your debts low and pay your bills on time. Get a handle on your finances. It pays off in the long run when you have collateral.
- Be responsible and start saving now. You never know when having extra funds in the bank will come in handy.
Though it was a two-month process filled with stress, discouragement and at times, fear, our hard work, dedication and trust in God paid off in the end. I encourage you to do your research. One of our failures was truly understanding how mortgages work and what we were potentially getting ourselves into. Don’t be afraid to ask questions before your purchase and during your application. Find a reputable agent and mortgage broker who will help you out along the way. Pray about it. And don’t take no for an answer.
“As for the rich in this present age, charge them not to be haughty, nor to set their hopes on the uncertainty of riches, but on God, who richly provides us with everything to enjoy.”
1 Timothy 6:17