Mortgage Matters: Borrowing Money in 2008 - By Bob Quinlan

Bob Quinlan, a great Mortgage Alliance Broker from Prince George wrote this very relevant article and it pretty much summarizes 2008 changes in mortgage industry and great advice for people as lending is getting tougher.

By Bob Quinlan

A lot has happened in the financial world over the past couple of months. Although media have been reporting the declining stock markets and the failure or near failure of many institutions with a great amount of severity, most of the people on the street don’t realize how we might be affected here in Prince George. Many people think that this all happened south of the 49th parallel and we are all insulated from everything here in Canada.

Wrong.

Although we do have a stronger banking system and more sound lending practices, many of the banks prospective investors are reluctant to invest in mortgages unless they know their money is safe. And the banks need investors to stay in business. The investors will invest where their return is greatest and safest. Understand that the Canadian Banks are regulated by the government. They can only lend a percentage of the assets they hold for security. The security they have is now a much lesser value. So, they can’t lend as much money as they could before. But, they have to make as much money as possible in order to keep the shareholders happy…otherwise the shareholders will pull their money out to invest somewhere else. Without investors (capital) it’s difficult to run a business. Jobs get cut.

So, now the banks have to get more from less. How do they do it? Simple, they pull back the credit that is not making money for them and place it where it will make money. That means, and many have already found out, the banks are re-evaluating a lot of clients’ credit. Companies who rely on operating lines of credit are finding they are cut back or cancelled entirely. No cash, no supplies, no payroll. No jobs, no mortgage payments being made. Houses go into foreclosure bringing the prices and overall value of the market down.On the personal side, many people have lines of credit and credit card limits that they are not using. These are unsecured debts (no property to cover the debt). Many of these will be decreased or again closed altogether. Now, as far as qualifying for a mortgage, if your credit is good (doesn’t have to be excellent…just good), your employer will provide a letter stating that your income is assured, you have at least 5% down payment, 1.5% for legal and closing costs and the home you are interested in is decent (finished, habitable, on a property that is properly serviced and less than 5 acres) then you should be easily approved. The people who are going to have difficulty in getting approved are the ones who have poor credit or a history of some late payments or collections. Note, I said difficult, not impossible. If your employment is such that your earnings come from self-employment, commissions, on –call and you don’t have a two-year history of income then your application will be more challenging, not impossible. If you are at all wondering what you might qualify for (purchase price, down payment, interest rate, payments, etc.)

I recommend you sit down with someone who can advise you on your situation. You can get information on your credit rating from: http://www.equifax.ca/ I highly recommend this for anyone who hasn’t checked on their credit lately. From time to time I do come across reports that have incorrect information. This can be very difficult, time consuming and frustrating to repair. It’s best to know this now rather than finding about it when you are faced with a deadline of getting an approval.I can’t stress enough how important it is to understand your credit rating and how it is being interpreted by various creditors. The ability to provide for your family’s future depends greatly on how responsibly you manage your credit. It is the first item of information a potential creditor will look at to determine your credit worthiness.

Bob Quinlan is a Mortgage Broker with Mortgage Alliance Prince George, you can reach him by email :bob@pgmortgages.ca or by calling the office at 250-564-9161