“There is no problem you can’t solve if you understand your business from A to Z.” – Sam “The Banana King” Zemurray
Whatever software your firm is using for mortgage applica- tions, the blank fields are all there for a reason, and it is not for them to remain blank. A mortgage application is meant to be filled out completely, in detail.
I am absolutely amazed that virtually no client resists giving me their detailed personal information after just a few min- utes of conversation. No doubt a large part of the reason is that my clients are all warm referrals. We often have the same financial planner, accountant or Realtor, or they are a referral from a past client. This creates a transfer of trust between the common connection and myself. Admittedly this makes my process much more straightforward than it would for some- body working with random leads from Google for instance.
Start by making sure that Mr., Ms., Mrs. or Dr. are used accord- ingly. Doctors (and there are lots of people who earned the title “Doctor”) are always Dr., not Mr. or Mrs.—Dr. Respect that effort they made.
Always be certain you enter formal given birth names, such as Anthony, not Tony. Some people go by their middle names too; first names are not always obvious. Phrase the question as either “your given first name” or “your legal first name.”
When you ask for the home address, you want to clarify whether it’s their current address and ask them whether they currently own, rent or live with parents. Repeat the ownership question: “Is your name on the title of any other property in Canada?” as on occasion they are on title to their parents’ or grandparents’ home, and then of course your next step is to pull title to confirm there is in fact no mortgage or line of credit registered that you need to debt service. Trust but verify.
If they own a property already, then you have that many more key questions to ask, such as existing financing details, are they selling that property or retaining it as a rental, do they want to access equity from that property to put towards the new purchase, and so on.
Take careful note of their current lender. If you don’t have access to that lender, this could be an issue. You don’t want to criticize the client’s current or previous mortgage financing.
You do want to be complimentary whenever possible.
Their prior financing decisions tell a story you need to pay attention to. Are they happy they went fixed, variable, long term or short term?
Are they happy they went with that specific lender?
If they are financed with a lender that is only available to Brokers, you need to ask the most important question of all: what has happened to their original Broker?
Is that Broker still in the picture? If not, why not? These are all very valuable bits of data that will help you understand how best to work with this client. Perhaps you know the other Broker—not that you can call them up and ask about the client without breaching the client’s privacy. But you do want to understand clearly why the client is not working with that same Broker again.
Short version: was the other Broker the difficult party in the equation, or are these clients going to become full-on crazy- town to work with? This is a topic on which clarity is nice to have in advance.
As you work through the application, it’s perfectly acceptable to mention that you noticed the employer from the client’s email address. Then ask how many years they have worked for the company. Most lenders want to see a three-year his- tory of employment. And you need to fill the application in properly.
Arguably the most important number in the entire application is the income figure. And I phrase the question very specifi- cally and usually wind up repeating it and breaking it down.
“Can you recall your line 150 gross personal taxable income?”
“It is listed on both the Notice of Assessment and on your T1 General personal tax return, around page two or so ofeither document.”
“Ideally, we want to know what the figure was for the pasttwo tax years.”
“This figure will include commission income, bonuses, carallowances and so on.”
Clients are just as apt to understate their income—thinking bonus or car allowance cannot be used—as they are to overstate their income, thinking that a single year’s bonus defines income. You simply need to drill down to the accu- rate figure in print. Avoid taking the client’s word alone on income when pressing the Submit button on a file. Always try to have income documents in hand before pressing said Submit button. Your underwriters will thank you.
After they tell you the number of years they have been employed, you might suggest you have the address, postal code and phone number via Google. You are striking a balance between asking too many questions and already knowing too many answers. The goal is always to try to keep the process moving smoothly and feeling light and easy for the client. Light and easy, not creepy.
Often, people do not know their own work address, and your Googling it is avoiding the dreaded dead air of clients look- ing it up themselves. Always do what you can to take on the tasks you are able to, while keeping the application and the conversation flowing.
Practice Makes Perfect
You can practice these skills with another Broker in your office, taking mock applications from each other periodically and honing your scripts and techniques. You could, but you likely will not. Few among us will ever do this.
Instead, we foolishly choose to practice with live clients. This is, of course, madness, but for some reason, we are almost more comfortable fumbling a call with a prospective client— whom we may never meet or speak to again—than we are tripping over our words with a co-worker we have to face daily. Keep in mind, your co-worker is the better one to screw up with. They are not an actual client, and they, too, will likely stumble.
But I know humans, and I know you and I know your co-worker. There is only a 0.001% chance that you will practice taking apps by phone with each other. If I am wrong about you, email me and tell me so. I like meeting people who are the excep- tions to the rule.
Connecting and Clarity
The next section of the application concerns assets. You’ll ask your clients where they conduct their day-to-day banking and whether they bank with multiple institutions.
In Canada, nearly every client will have an account with one of the six major national chartered banks. We currently have access to two of these major banks. The other four don’t work with Brokers—yet.
If the clients bank with an institution with whom we work, always remind clients that we can be their independent rep- resentative to their own financial institution. We can keep the process streamlined and simple and still work with their own lender if that is the best solution, but we will also keep them informed of any other options that exist.
Defuse the notion of an adversarial relationship between you and their lender. Take the high road. You love their lender, you work with them regularly, and the lender is A-OK with your using a Broker to access them. Keep in mind that the clients may have a 20-year relationship with that lender, whereas they have only a 20-minute relationship with you.
This is not Broker versus banker. It is Broker working with the client, maybe the client’s banker, too, all in harmony for the best possible solution for the client.
If the solution includes their existing bank, great, we all work together. It’ll be a great little tea party. At least this is the vibe you are striving for. As a Broker, the last outcome you want is to lose the mortgage transaction to the client’s own bank, which you had access to. If clients want to place their mortgage with their own bank, that’s no problem. You should assist them in doing that.
Brokers advise; clients instruct.
Next on the list are rrsps, tfsas and other stocks, bonds and investments. All you really need here is a ballpark value for the client’s investments, within a few thousand is great. Usually, the number off the top of the client’s head is fine on the initial application.
In the past we rarely required account statements to prove net worth; this is changing. When the account statements are being used for down payment then we need detailed accuracy 100% of the time. Keep in mind that whichever institution is holding those rrsps will be going after the client like a barra- cuda for the mortgage business when the client goes into the branch to withdraw from the rrsps for down payment monies.
You want to prepare the client accordingly. Give the client some language to use to keep things simple such as, “Our Broker already has our mortgage approved with your institution, and we are very happy with their services at this time. Thank you.”
The section about motor vehicles is next. Ask the make and model and the year. A newer car may mean a lease: pay- ments—uh-oh. The amount of the payments will come up when you pull the credit report, but getting a general idea in advance is a good move.
A payment of $400.00 per month will reduce a mortgage approval amount by up to $100,000.00. However, if the remaining balance is only a couple of thousand dollars, it might not be a showstopper at all—just pay out the remain- ing balance in advance. Always look at not just the payment amount but the remaining balance, this is again an oppor- tunity to increase a client’s pre-approval by as much as $100,000, which is for many the difference of moving forward or not. More than once I have had this scenario with a cli- ent’s file, and the branch rep completely missed the obvious solution of paying out a few thousand dollars on a car loan with a large monthly payment. When we get the client where they need to be, we gain a client for life.
If the client owns a 15-year-old car, I like to comment that this is my favourite kind of car, the kind with no payments. And I offer them the same math above to ensure they do not take on a car payment during the process.
Few clients realize the impact of car payments on mort- gage qualification. Amazingly, the salesperson at the local car lot encourages clients to take on a car payment as it “helps them build credit”—not exactly a fair statement as clients can build credit without incurring long-term debt.
This is one more example of why you should question eve- rything that anyone ever tells you. What is their motivation?
The other reason I always insert this little mathematical equa- tion ($400.00 per month lease payment cancels out $100,000 of mortgage money) into the conversation around cars is to remind the clients that they had best not finance or lease a new vehicle before the completion date of their new home purchase. This could well upset a delicate financing balance, resulting in potentially serious problems.
A lender can, in fact, pull up a second credit report at any time, and if they find new debt, the lender can cancel the approval. This can happen just days before completion—not a good situation. Trust me on this.
That leads us to the remaining liabilities, the last main piece of the application puzzle. Clients do not need to provide account numbers, limits and current balances on each and every credit card or line of credit. That is the needless torture that Brokers sending out paper applications are putting their clients through.
An utterly pointless exercise for all involved. There is no significant conversation to have around liabilities without a complete credit report pulled up. It is at this point that we are emailing the client agreement to the applicant. And if they are able to sign and return it quickly, then we are able to pull up a credit report that contains all the pertinent details of their outstanding liabilities.
Clients are very happy to hear this as it means significantly less work for them.
I like to explain that for every $13,000.00 of credit card or unsecured line-of-credit debt, we again cancel out ~$100,000 of mortgage money that they would otherwise qualify for.
Again, this is where you can get proactive. Perhaps the clients suggested they had 10% to put down, but with 5% down and the balance of monies paying out their consumer debt, they now qualify for the mortgage amount they were seeking.
It is amazing how many clients will have been through this process with another Broker or a banker who was not vision- ary enough to apply some simple math and get the clients into the mortgage approval zone they want to be in, with all their consumer debt eliminated as well.
Always be looking at debts as an opportunity for pay down; the power of each $100.00 monthly payment you can eliminate is another $25,000.00 in mortgage money at today’s rates.
The Final Numbers
At this point, we have enough data to work out maximum mortgage approval—and thus maximum purchase price— along with calculations showing clients their theoretical payments based on current interest rates and projected property taxes and strata fees. You’ve more or less got a complete application.
The next step is to email the client a copy of the “client agree- ment” (if not yet done) along with a detailed documents list. I stress that the client agreement is a non-binding document; it does not list any specific lenders, it does not commit them to me, nor does it trigger any expenses at all. It is essentially a permission slip. It is the client giving me permission to send their data off to a lender for the purpose of mortgage financing.
I also caution clients not to freak out when they open my very detailed “documents list,” especially on a mobile device. Yes, it will look like I wrote them a book. I advise them not to worry, as it is typically only seven or eight simple items. But I like to provide a detailed explanation as to why we need what we need and explain the simplest way to access and forward said documents.
The complete documents list is provided in Chapter 74 (of the physical book, don’t worry, it coming your way in a month or so)
chapter tip: Do not be an order taker; be a creative thinker. Always look at how much capital the clients have to work with and how much debt they have incurred. Do not hesitate to suggest things like pre-paying the final eight months’ payments on a lease to eliminate the monthly lia- bility, or reducing a student loan payment to its minimum.
These are the things most other bankers and Brokers will overlook. Take a step back and look for the opportunities, but first master the flow of the application conversation.
chapter tip: Clients concerned about car loan ∕ lease pay- ments being a problem? Look at the total outstanding balance and consider whether the balance can be paid out in full. You can in fact prepay a lease to end of term, which eliminates the payment from debt servicing. We recently had a client pay out $3,240.00 remaining on a car loan with an $800.00 monthly payment. That $3,240.00 payout increased their qualification by $200,000.00s worth of mortgage money.
chapter tip: Never pull a joint CB; if you need to delete one applicant, this can make the process clunky. And always select “copy liabilities” as this saves you significant time as well. Don’t forget to delete duplicate liabilities, and also to put in balances of $1.00 where there are zeros and then click to have a $0.03 payment created.