Think like a Banker to Get the Mortgage You Want
So what happened? Well, bankers happened. Bankers are risk averse people.
If they lend you money, they want to be 200% sure you are going to pay it
back. Unlike the sales person you speak to at the bank, the analyst who
studies your application is normally paid a bonus to minimize the number of
defaulted loans.
If you look like a risk, you’re guaranteed to get offered a higher interest
rate – if they offer you a loan at all. The best way to get the mortgage you
want under optimal conditions is to think like a banker when filling out
your application.
Here is a brief summary of what they ask for, and why.
Your Revenue
What: last 3 months pay slips, last income tax statement, (or
last 3 years balance sheets and income statements for the
self-employed)
Why : stability of incoming revenue throughout the mortgage
term
The ideal client has been employed a long time with the same company,
or at least in the same industry. If you are self-employed, the
banks want to see three years of profitable business.
Your Expenses
What : payment schedules for all existing loans, last 3 months
bank statements for all accounts
Why : how you pay for where you live today, how responsibly you
spend and your ability to reimburse your existing debt.
Every client is assumed to have housing expenses, either rental or
ownership. You need to show the amount of your mortgage, proof that your
mortgage is paid or your rent payment. If you stay with friends or family
for free, the banker may add a hypothetical rent amount to your expenses. In
addition to your housing expense, the bank wants to know what other legal
debt obligations you have: credit cards, car, student or personal
loans. They take a close look at the amount you spend each month
versus the amount you earn to be sure that you are living within your
means.
Your Debt Ratio
What : your total monthly expenses (as above) plus the monthly
payment for your new loan, divided by your net monthly income (gross income
– social charges).
Why: Your debt ratio indicates your ability to pay. Depending on
the bank and type of mortgage you request, this ratio must not exceed 30 to
35%.
Your Property
What : Location location location.
Why: The banker always prepares for the worst. If you are not
able to keep up your mortgage payments, the bank wants to know that they can
sell your property quickly to get back the money lent. For example,
Parisian apartments and houses on the Cote d’Azur are easy to sell
quickly. There is much more demand than supply. It’s much harder
to find a buyer for a farm house in the Normandy countryside two hours drive
from a major city with renovation that has not been completed.
So what do you do if you don’t fit this profile?
Don’t panic, it’s all in the preparation and presentation.
You must always provide truthful and accurate information with your
mortgage application, but how you package and present that information is
what counts.
Put your banker hat on and think: if you don’t have the ideal profile,
provide additional information to make your application stronger, including
a letter from your banker, an accountant or other logical explanations for
oddities in your paperwork. Putting your best foot forward at the beginning
reassures the bank and is much more effective when done in anticipation of
the banker’s questions than in response.
If the explanations won’t do it, other options may be available. For example, renegotiating your existing loans or finding a different mortgage product to reduce your new loan payment and make your numbers work.
It’s always a good strategy to take an in-depth look at mortgage products from multiple banks to give you the most flexibility and best chance of getting a mortgage on the terms you want. By doing so, you enjoy a much stronger position, since you are asking for a loan you know you are eligible for from the start, rather than getting rejected and having to change your application.
Now you are ready, put on your banker hat and write that winning mortgage application!