High Ratio Borrower Tool Kit

Real estate seems to be under constant scrutiny any more. The decline of the sub-prime mortgage market has sent a crushing blow to markets in North America. Lenders have tightened their purse strings and are resistant of the risk associated with high-ratio borrowers. It seems like we are about to enter a period of increased observation and scrutiny in the mortgage market.

Like the bursting of the tech bubble of the 90s, real estate is likely to suffer a similar fate. So like the tech recovery that has taken place in the last few years, real estate and the mortgage markets will recover as well. However the increased scrutiny will make it harder than ever for first-time homebuyers to finance the purchase of a home.

As a potential homebuyer you will need to be more aware of market conditions, personal finance and your employment security. Lenders are in the business of making money and don’t want to give anything away. Foreclosures are bad business for financing companies, as they tend to make more money from regular payments than they would from reselling the property in question.

Here are some helpful tips to get you prepared to deal with some of the more stringent mortgage guidelines.

1. Get pre-approved not pre-qualified. Pre-approved means that the financial institution checked your finances and credit history prior to telling you what you can borrow. If the lender fails to check this information upfront, then sometimes you’ll find the financing process in jeopardy.
2. Be aware of the homes available in your price range, along with the features that are important to you. This process will also allow you to eliminate potential properties that do not meet your criteria as well as giving you appropriate comparables to base your decision on.
3. Be ready to jump through a few hoops. Have your pay stubs, tax returns, and any other sources of income ready for inspection.
4. You’ll likely need to provide loan documentation for vehicle, education etc. This is required in the event you need a high ratio loan (a loan of 75% of the value of the home or more). In this instance the lender will want to ensure the value of the home does not exceed what you are paying for the home. Expect to pay a professional appraiser to prepare a report for the lender.

If all goes well with the lender then you’ll receive a mortgage commitment. This means that lender has made a commitment to provide funds for the purchase of the property. Once this has been completed the financial terms will be set and locked in until the sale is final.

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