Friday, July 27, 2012

Chocolate, Cheese, Wine, and Bacon: How to Survive a Mortgage

Fifteen years ago when we bought our house in Campbell River, it was easy.  John found a house he thought I'd like, and within about 48 hours the deal was done both with the seller and the bank.  The house was ours and all I had to worry about was packing up the enormous house we were living in back in Richmond, BC with a new baby, surviving getting chicken pox at the last minute, and getting everything there on Kevin's first birthday in the middle of a snow storm that shut down the Lower Mainland.

Life is always an adventure.  Especially the last few weeks.

John and I have been wanting to move from where we live for a variety of reasons.  Sechelt, while beautiful, is isolated.  We are tired of riding ferries, and the cost of living is high.  There is more opportunity in the city for Kevin, where he can be closer to the school where he takes courses in computer programming, and eventually attend university.  When we moved to Sechelt we rented, knowing that we didn't want to buy with house prices so high.  Now that we're done renting, we want to buy.

Finding the house was easy.  We did that in one day of looking at properties.  The mortgage, on the other hand, has honestly been the most stressful, hellish experience I have had since I had to advocate for Kevin with unreasonable people years ago.   There have been copious amounts of cheese, chocolate, bacon, and red wine consumed over the past two weeks, along with wailing and gnashing of teeth on Twitter.

For my entire life, I've been the one who is scared of money and finances, and thought it was better to ignore it than actually deal with it.  That? Stupid.

After meeting Gail Vaz-Oxlade in person at Blissdom Canada last year, I began watching her show and realized that my attitude was really not helping things.  John and I need to be on the same page and establish budgets and goals, and if anything, our experience trying to get a mortgage was an extreme wake up call.  I'd like to call it financial bootcamp, if you will!

Five Lessons from Financial Bootcamp (okay, make it six):

Photo Credit: The Consumerist
1.  Don't even THINK about looking at houses until you march off to your bank and find out what your debt ratio is, and if you need to restructure things.  Just... DON'T.  Don't even look at Pinterest.

John and I had separate credit cards, and mine was that dirty little secret I never talked about. Ever. That was a mistake.

Banks and mortgage companies talk a lot about debt ratio, meaning how much of your income is going to paying off debt (credit cards, loans, lines of credit, etc).  If your debt ratio is too high, you will have trouble getting a mortgage.  Banks can help you lower your debt ratio by helping you consolidate your debt into one loan with a lower interest rate than your credit cards will offer.  Some people may suggest that you get your line of credit switched to interest only payments.  Some banks may let you, some may act as though you are asking them to change the curvature of the Earth and turn into snarling beasts.

With a consolidation loan you may have to work really hard for a couple of years to pay it off, but in the end, your debt ratio will be lower and you'll be in a better position to get a mortgage.  Short term pain = long term gain.  We should have done this YEARS ago.  Don't keep a dirty little secret.  You're in it together.

Photo credit: VividImageInc
2. Have at least a 5% down payment.  The end.

Nobody will look at you if you don't at the very least have the 5% to put down.  We were told that no portion of this can be 'gifted' to you from friends, either.  Only immediate family can gift you money towards a down payment and if they do, they will need to sign a form stating so.  For those who don't have immediate family this can be really distressing, and I don't believe that it's fair, personally.  They say it's to protect you from those who could actually be 'loaning' you the money and then expect it back at a hugely high interest rate.  We were also told it was to prevent people from using laundered money to buy a house.   Be prepared that the mortgage underwriters may want proof of where that money came from.  If you are a blogger and use money from selling ad space or free lance writing jobs, save your invoices just in case you need them.

My response when we were a bit short and had no other way at the time to get it?  I joked that I could go stand on a street corner somewhere.  Thankfully, Twitter came to my rescue and started to plan #kitchenforKaren, ready to swoop in and help me sell e-books of recipes if I had to.  Fortunately, I didn't have to stand on a street corner (not that I would've) OR write an e-book.

3.  Gather together your documentation

You will need recent pay stubs, T-4 slips, and sometimes a letter from your employer stating how long you have worked for them and your pay, or other documents.  If you are like me and completely unorganized when it comes to these things, get your butt in gear and gather it all up.  It also helps to have your tax returns done on time, and the latest statement from your line of credit, credit cards, etc.   Don't be a paper squirrel like me, stashing bits here and there all over the house with no rhyme or reason.  Buy files, and actually USE them.  Just don't ask me in a year if we have kept it up.  It's my biggest weakness, next to losing my car on a daily basis.

Also-if you currently rent your home, have documented proof in the form of a written agreement because those mortgage underwriters may insist that you prove you don't own secretly own the house you live in and are buying another to have rental income.  Fortunately, I had solved my squirrely ways after days and days of waiting on pins and needles, and had our lease agreement handy enough to just scan and send over.  Who wants to call their landlord and say, "Oh, by the way, I'm buying a house. Can you call my mortgage underwriter dude and tell him YOU own the house?"

Yes, I rent.  I'm not ashamed about it.  We owned a house years ago and sold it to send Hubs back to school so he could get a decent job, then the house prices went insane after the 2010 Olympics were announced and we didn't want to over pay for a house.  If renting makes me a second class citizen, you can BITE ME.

4. A pre-approved mortgage?  Don't let that woo you.  They may as well just hand you a cupcake.  It means nothing.

We made the mistake of thinking that a pre-approved mortgage meant smooth sailing.  What does it REALLY mean?  Not much.  It's a hugely superficial look at your finances to see if on the surface you even remotely qualify.  Think of it like the American Idol auditions:  just because you get an audition does NOT mean you're getting past Simon.  They may take a closer look and laugh, telling you that you dress funny and have bad hair.

Photo credit: Kjarrett

WE thought it mean the mortgage company loved us! We were in! No problem! Let the house hunting begin!   Later we were like those people on Idol who had a bad audition and cry in the streets, screaming "Fuck Simon!"  Don't let that tiny bit of approval go to your head.

Mortgage companies have different levels of approval.  Sure, you may get past Simon, but then there's voting America to worry about.    The bank may approve your loan, but they have insurance companies that also have to approve it.  Weirdly enough, you can have a mortgage that is approved by the bank, but the insurance company may be sticky about your debt ratio and refuse to approve it until you fix that.  Which is why I highly recommend you do #1 before you do ANYTHING else.

As for us?  We got through Simon.  America, so far, isn't liking us so much.  We've been in the bottom 3 a lot, but we still have time to make a comeback!

5. If your bank is not being helpful, don't be shy about going elsewhere

We have had all our finances with one particular bank for the last twenty years.  We went to them for ONE thing, and it had to be done FAST.  Which was explained to the person who needed to submit some forms.  When we didn't hear anything the next day, I called her at 3pm to find out what was going on.  What did she do?  She LIED and claimed that our broker told her the form didn't need to be in until Friday when she was clearly told it needed to be in Thursday morning.

Later she called back and claimed to have talked to someone in Toronto (at 7pm? Seriously?) and then when I asked what he said, her response was the verbal equivalent of an eye roll.

"Well.  I SUPPOSE I'll TRY to say this so that YOU can actually understand it."

(cue the banker speak.  With no real English involved.)

When I asked her to explain, she just repeated herself, then snorted and said that our broker obviously didn't have our best interests at heart, and we should just come into the branch and she could help us get a mortgage no problem and what she would've done differently because, you know, she's done mortgages for twenty years.  The issue?  The branch is in Campbell River.  We live in Sechelt, which is 2 ferries and FIVE HOURS away.

Not ones to take no for an answer, we called up the Royal Bank of Canada and booked an appointment for the next day, where we were told exactly what our original bank had suggested, but the woman explained things so throughly and was so helpful that we left wanting to switch all our finances over based solely on that experience, mortgage or not.  I like banks that treat me with respect, not like a child with my bowl out Oliver Twist style asking for more.  Also preferably ones that don't badmouth my broker behind her back and outright lie to me.

I needed more, all right.  I cracked open the bottle of wine I'd bought to celebrate our new house just to get through the ridiculous mortgage process. 

Photo Credit: Robert S. Donovan

Banks want your business.  You aren't at their mercy, and don't be afraid to shop around.  Or complain, which is what's going to happen once we are through with this.  (Edited to add:  If our bank had instead said, "This is what you need to do.  Call your local branch, set up an appointment, talk to the bank manager, explain your situation.  They will help you."  We would have gone straight to our local bank.  Instead, we were so put off by the rudeness we went elsewhere-and the detriment of that is without a relationship with the new bank, they may not do what we need either, and we're running out of time.)

6.    Stock up on chocolate, cheese, bacon, and wine.   You may need it.

Buying a house, moving, and talking finances is stressful.  It was much easier keeping my head buried in the sand, just motoring along day after day and not thinking about it.  Finding out everything we did wrong the hard way, all with the deadline of the closing dates and sale of THE house that we found that we love and desperately want hanging over our head, has made it unbearably stressful. Our poor mortgage broker has seen us get testy and irritable, break down into tears, took verbal lashings from the unhelpful lady at the bank, and has worked like crazy to get this through, but we have all fought for it inch by inch.

At the time of this writing, we are STILL doing our best to get everything aligned to make it through that ONE LAST level of approval.  If we can in time, we get the house we fell in love with.  If not, we run out of time next Tuesday.

You'll have to watch this space to find out what happens.  Fingers crossed and while you are at it, pour me some more wine, will ya?

PS... I'm not a financial whiz or mortgage broker.  All of this is based on my personal experience.  If you want real financial/mortgage advice, talk to a professional.

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