Mortgage 101 – Approved vs. Affordable

Clinton Wilkins and Dan Ahlstrand discuss the importance of hiring professionals for home renovations and obtaining a pre-approval for mortgages.

Dan Ahlstrand
Welcome back to Mortgage 101. I’m Dan Ahlstrand, and he’s Clinton Wilkins. That was pretty informative. That was awesome.

Clinton Wilkins
I love having guests on, it brings a different perspective. Sometimes those are facts, and I kind of joked about it, but I usually say, in my opinion, or I think, but it’s nice to hear from someone else. And I learned a couple of things. I honestly did not know that the number one return on investment is a fresh coat of paint.

Dan Ahlstrand
And most people hate it.

Clinton Wilkins
They hate painting. But like, I think what Alex said was, hire a professional. Don’t do the DIY. I’m not a great painter, not a good taper. I just don’t think I have the patience for that fine detail. And, to talk about a little painting story, and I know this is a little segue through Mortgage Professionals Canada. And I am a director. I’m actually on the executives as well. It’s I represent all of Atlanta, Canada, on this national board. We area charitable arm that donates to Habitat for Humanity. I mean, that’s very tied to your mortgage lending and how you’re mortgage lending. And we built a home in Fredericton last year. And guess what? I was painting.

Dan Ahlstrand
Did you have the tool belt on and everything?

Clinton Wilkins
We had was a we had the t-shirt, the tool belt, all the safety gear and work boots. Let me tell you, I’m not a great painter. I was good at the rolling, just not so good at the edging, and the ceiling had already been painted. Hire a professional.

Dan Ahlstrand
Clinton, we’ve been talking about springing into home ownership this edition of Mortgage 101. So I know there are people out there who are in their cars, or maybe they’re sitting around their kitchen tables this morning listening to the show, and they’re going. Maybe it’s something that we should consider, but there’s a lot to do. What’s, what’s the best way, in your opinion, to get started if you’re planning to either get into the market or sell your home?

Clinton Wilkins
The first thing is, again, don’t DIY it. Don’t try to broker your own mortgage. Go to a professional if you’re looking to buy a home. I think getting a really good, solid pre-approval is what you need to do. So there are kind of two ways to think about it. There’s a pre-qualification. What can you afford? Some basic information, and then there’s a really good pre-approval. And to do a really good pre-approval, a broker is going to look at your income, they’re going to look at your assets, and they’re going to look at your credit; they’re going to do a full application, almost really what you would normally do if you were going to do an approval. And then there are no surprises. We know where your assets are coming from. We know where your down payments are coming from. We’re going to tell you not to move any money around if you’re making an offer, because we need to get 30 or 90 days’ worth of history on the funds and where the funds are going to come from. But we’re also getting your income documents. So many times I see clients come in and say, I make $60,000 a year. Well, no, you made $60,000 last year because you had a bunch of overtime and had a bonus, but you only made $50,000 the year before. Well, guess what? I can only use $55,000 as their income, and going through a really good formal pre-approval process. It’s going to do a credit check. It’s going to review, , the incoming assets and the credit,t but it’s also going to get a pre-approval from a lender with a rate hold. So if you’re doing a variable rate, or a three-year fixed or a five-year fixed, and that’s contingent on the lender liking that property, and if it’s high-ratio insured, the insurer, CMHC, sage and Arcana, guarantee giving you an approval. That your file is going to be approved. You can make an offer, with confidence, a pre qualifications, not the same. And some of these big banks, big five banks, I see them advertising, evenon billboards. Get a pre get a get a pre approval or pre-qualification in 60 seconds. Let me tell you, 60 seconds, I’m not sure you’re gonna get a mortgage at the end of the day. And so many times I see these preapprovals fall apart, and then the clients come in to see them. Before we started our call, someone was, we were talking about doing transactions with a lender, and this was friction, and that was friction. I said, what? This is why we have a job, and this is why I love what I do more today than I did 20 years ago, because there is friction. People do need advice. By and large, customers are not brokering their own mortgages. They’re coming to me. They’re being trusted, and we have the relationship, and we’re in business with them oftentimes for 25 years. I mean, I’ve been doing this for 20 years, and there’s clients that I probably did that first couple of years that are still still clients, because about 60% of our clients are repeat but the more the story is, get your ducks in a row, have your paperwork, monitor your credit with Equifax and TransUnion, whether that’s on borrow well or Credit Karma.

Dan Ahlstrand
When you get a pre-approval, you go through the process, and it comes to you, and you go through all that stuff, and you. Do all the paperwork, and you come back, and you’re pre-approved for, I’m just picking a number for $680,000, is it smart for me to go out and fall in love with a $680,000 house? Or should I take a, or is there a percentage I should be looking under my maximum for my pre-approval when you buy at the max.

Clinton Wilkins
If you want to improve your property, if you want to do Purchase Plus Improvements, you can, because you’re already at plus improvements, you can’t, because you’re already at the max, right? We can sometimes finance up to 40,000 sometimes up to $100,000 of improvements on a property when you buy at the max, too. I am always concerned about not what we can get you approved for. What is the real, true affordability? Do you want to be sitting in that home that you can’t furnish, and you need to eat Kraft dinner? Personally, I like Kraft Dinner, but I don’t want to be forced to eat Kraft Dinner. And you need to think about things like this. So what you can afford versus what I can get you approved for sometimes don’t align, and I think that’s something that you really, really need to think about. For me, I never want to be at the very max. But it’s funny. If, as funny as that is, sometimes we give people free approval. Let’s say it’s for 680, then suddenly I get an offer in for $700,000, and people kind of ignore what the max is. And then I say, okay, we can do this. We can get this approved, but we need to make this concession, or you need to pay this caoffut prior, or you need to go to the bank of mother, father, brother, sister, and get a gift to be able to increase your down payment. And I’m really willing to work with people because I’m in the type of business where I don’t get paid if we don’t lend you money. So, I think that’s the biggest difference between someone who works at the bank and us. We are motivated in the sense that I’m on commission. We get paid when we lend people. We lend people money. We want our clients to come back to us, so I want to ensure that we’re giving them good advice and that we have a good relationship with them. It’s a small business, so, for us, we want to make sure that we are wrapping our arms around the client, especially since these are huge transactions.

Dan Ahlstrand
Clinton, it’s, is the process is important. It’s, it’s, it’s imperative that you get pre-approved before you start shopping. Because if you find a house and you fall in love with it and then you get pre-approved for money under it, then there’s a problem, correct?

Clinton Wilkins
I think it’s the same. If you own a home and you’re selling it and you’re buying another home, get a pre-approval even if you already own a home, even if this is not your first home, even if you’re not selling something, get a pre-approval before you start doing a real estate transaction. And I would say, he didn’t ask Alex this, but I can guarantee you, 99%, and the good realtors will make sure that their clients are pre-approved before they start opening doors, because otherwise we’re really kind of wasting everybody’s time. And, I think everyone has good intentions, but sometimes you don’t know what you don’t know, and that’s why I think a pre-approval is so powerful. And I always hear the advice from the uncle or the advice from the parents, well, they haven’t had a mortgage for 20 years. And I’m not saying that mortgage lending is any more challenging now or any easier now. It’s probably just different, and we’re staying on the trends. I can give the advice, and I think we’re more so in the relationship business versus the transaction business. I kind of joked, I’m like, Okay, we did 1500 transactions last year. It’s a lot of transactions, but we’re in a relationship with 10s of 1000s of customers over the last 20 plus years.

Dan Ahlstrand
Also process when it comes to dealing with particularly for that that first home buyer is, is that you’re gonna you’re gonna read all kinds of things. You’re gonna see all kinds of mortgage calculators. You’re gonna see all kinds of things. You must have a conversation with a broker like yourself, so that you can work your way through the weeds, but B, you might be able to afford more than you think.

Clinton Wilkins
Oftentimes it is. I have these conversations with people, and I’m doing a pre-approval. I’m like, Okay, I know you only want to be pre approved for $600,000 but let’s figure out what your real, true max is, because I’d rather tell someone their max now than them worry to be like, Oh, I found this house that I’m that I’ve absolutely fell in love with, but it’s over what my pre approval limit is. Well, let me tell you what the max is. So then you already know going into this. Yes, you might want to try to keep the budget at $600,000 or $680,000 or $700,000, but you can actually afford to buy a home up to $900,000. I think that is valuable. And I always like to empower my customers to know, here’s what I can approve you for. Here’s what I think is good from an affordability standpoint. Here’ss what you were originally coming to see me because I want to look at the income, I want to look at the assets, and I want to look at the credit, and we do it the same way. Dan, every single time, as much as I think that I’m a robot. Yes, I do have emotions. I’m still a person, but I’m going through that same process every time.

Dan Ahlstrand
We know we’ve talked about the 2% ad nauseam, 5% is is the minimum. Elsewhere, you recommend as much as you can afford.

Clinton Wilkins
The absolute max you can afford to put down, if you have an option to put down 5% or 20% 20% is always the answer. Yes, the interest rate is not as good if you put down 20% because you’re not getting a high-ratio insured mortgage. So the minimum. Down payment in Canada, we’ll call it, is 5,% and you would get insurance from the Canadian Mortgage Housing Corporation, or Canada Mortgage and Housing Corporation. But if you do a conventional mortgage, it’s a minimum of 20% down.

Dan Ahlstrand
Another episode in the books!

Clinton Wilkins
If anybody wants to reach out to us or learn more about getting pre approved the spring market mortgage lending, you can visit us online at TeamClinton.ca/radio.

Dan Ahlstrand
Thanks for listening. We’ll talk to you next month.