When a lending underwriter looks at a mortgage application, they are viewing it like a chair – it has four legs that that holds it up reliably- employment, credit, downpayment and the property itself. Ideally, on a chair, all of the legs are good and solid and the same can be said for a mortgage application.
However, if one leg were a little wobbly on our chair, we wouldn’t immediately cut it up for firewood. We’d probably fix it up with a little wood glue and keep it at the dining room table. The same can usually be said for a mortgage application where one of the four key areas is a little on the weaker side. For instance, let’s say an applicant has a job that they have been working at for five years for which they are being paid a stable, regular salary, they have two established credit lines showing on their credit bureau and they’ve been paying them properly, as agreed. Lastly, the house they are looking at is a nice little bungalow that is well priced and in pleasant area in Edmonton. However, the applicant hasn’t been able to save very much of a downpayment as they’ve had several large expenses over the past few years, like perhaps a student loan and a wedding. In this case, the downpayment is coming from the applicants parents as a gift. While the lender would like to see that applicants save up their own downpayment, they do understand that it can be hard to save up a downpayment when first starting out and they would most likely allow for this slightly wobbly “leg”. The lender will ensure that the gifted funds won’t have to be paid back so it doesn’t interfere with the applicants ability to repay the mortgage and if that is the case, they are usually willing to proceed.
In an another example, perhaps the applicant was able to save up the full 5% downpayment themselves, they have the appropriate amount of credit history and a good credit rating, same little bungalow on Pleasant Street as in the first example, but perhaps our applicant is still on probation in his new job as a salaried Accountant. Ideally, a lender would prefer applicants to be past the probation period but if the applicant has been in the same employment field previously or has recently completed their education in this area, they are often willing to waive the requirement for the probation period to be completed.
To complete the metaphor, although we would prefer to sit on a good stable, four legged chair, it is possible to sit comfortably on a chair with one wobbly leg. However, two wobbly legs becomes a risky venture and we probably wouldn’t take many chances on those unless they were reinforced with a liberal amount of good quality wood glue. Again, the same can be said for a lender looking at an application with two questionable areas. They are reluctant to make more than one exception on any single application but sometimes an allowance will be made provided some strength is added from co-signers or perhaps a larger downpayment.
If you have any questions about the strength of your application, contact one of our Mortgage Brokers today.