Underwriting mortgage is very different depending on whether you are putting together a purchase mortgage vs a refinance mortgage.
When arranging a purchase mortgage, a great deal of your due diligence will relate to verifying down payment, down payment source, income and value. While the property being financed is a factor, there isn’t nearly as much due diligence required as when you are negotiating a refinance mortgage.
Refinance mortgages are unique because you are negotiating financing on an existing property owned by your client and so title related factors can really impact your deal. The most common reasons that deals are delayed or fail to close as it relates to title related factors are other people on title, inaccurately disclosure mortgages, and discrepancies in value.
- Other people on title – It is very common for individuals to have a co-signor on their original mortgage. Some applicants don’t realize that by having someone co-sign on their original purchase means that they may also be on title to the property. They may apply to refinance their home, only for you to learn on closing that others are on title.
- Inaccurate disclosure of mortgages – Probably the most common cause of issues arising is this. An undisclosed or inaccurately disclosed mortgage can throw a huge wrench in your deal, especially if the equity positioning is already tight. It can happen a number of ways:
- They think that they owe less on their mortgage than they actually do
- They took out of a line of credit or other financing not realizing it was registered against the home
- A mortgage that was previously paid off wasn’t discharged
- Discrepancies in value – Especially in urban centres where the market is hot, applicants sometimes think that their home is worth more than it actually is. Even if they recently purchased a home, they may think that the value has increased considerably.
So how can you, as a broker, protect yourself from these very common occurrences which can have big cost implications in time and expense when a deal goes south? By independently verifying the information provided in the application and not waiting for the real estate lawyer to uncover issues when the deal is partway through the underwriting process. This is easily achieved by investing in technology that can enable you to verify who owns the home, what mortgages are registered against the home and the purchase history.
Armed with this information, if something seems off you can take extra steps to verify balances with existing mortgage holders, investigate property values more in-depth and speak to your client to see if there is a way to overcome these challenges.
Whether you are working a purchase deal or refinance, due diligence is critical and gives you the ability to offer a better, more thorough, service to your clients.
For more information about how you can validate who the legal homeowners of a property is, review registered mortgages and estimate property values, please Purview today at http://purview.ca/.