This is the first in a two-part piece exploring some of the pitfalls to avoid when applying for a residential mortgage.

APPLYING for a mortgage can be a stressful experience, and it’s only made worse when missteps are made at any point during the process.

Some errors may be corrected relatively easily but others may result in lengthy delays that can prolong a purchase or even derail it entirely.

Victoria Mutual Property Services CEO Allison Morgan, who has more than two decades of experience in the mortgage sector and is also a member of the Realtors Association of Jamaica’s advocacy and lobbying committee, recently gave her fellow realtors valuable advice on pitfalls to help clients avoid when applying for a residential mortgage.

Read on for errors clients make at the application stage:

Spelling errors

Morgan gave examples of commonly used names being spelt differently on documents such as the tax registration number (TRN), driver’s licence and birth certificate.

“It makes a difference, because the financial institution is looking to enter into a legally binding contract with a named individual who exists, who they have identified. [Three different spellings imply three different people] so the transaction is not going to go through.”

Inconsistencies with date of birth

In some cases numbers are transposed in error, for example: 02/03/1950 should be 03/02/1950 and the applicant may assume it is a minor detail. Morgan said it is not.

“The bank is going to pick this up. The credit union is going to pick this up…Do you know what you’re going to have to go through to go and change that on the driver’s licence?… In our field, the best defence is a good offence. Let’s just fix it from the get-go.”

Married name drama

Morgan explained that while individuals assume that presenting a marriage certificate will clear up any confusion, having issues such as a double-barrelled name on one document and a maiden name alone on others will cause a setback.

“It’s still a problem because the TRN office needs to validate the authenticity of the marriage certificate that you’ve presented before they can change the name. When you present those documents to TRN office, and they validate and change it on the TRN, then the financial institution is comforted that this is you and it’s one and the same, so you can go ahead and use your maiden name. So let’s make sure that we sort out these things.”

Assignment of private life insurance

Having life insurance is usually a requirement when applying for a mortgage. As Morgan noted, getting private life insurance, instead of the one offered with the application, may tack on additional time to the process. There are several steps involved, for example, if a mortgage applicant wishes to use an existing policy.

“They’re going to have to find the original policy documents. They’re going to have to remove their beneficiaries from it… They’re going to have to pay to get that done, and they’re also going to have to ensure that this information is communicated directly from the insurance company to the lending institution. That is going to take about three to four weeks.

“When you have a sale agreement and you are asking for a letter of undertaking in 45 days, and you can’t get a mortgage application to move from application to adjudication, our 45 days has just gone and we are now at risk of losing the sale, and the customer is now at risk of losing the property.

“It [using private life insurance] can be done; but what is important here is awareness and enough information so that our clients can make sound decisions.”

Unresolved credit issues

This includes getting new loans or credit cards, anything that may impact your credit score.

“For the love of God, please tell our clients that once they have gotten a pre-qualification or pre-approval, stand still. Pretend they’re in front of the burning bush and don’t move. Do not take out a car loan. Do not co-sign a loan for anybody. Don’t go to [the furniture store] and take out a stove, or a fridge. Don’t go take out light for your cousin who doesn’t have ID. Do not do anything that is going to impact either your credit or your debt-service ratio; no new credit facilities at all, especially credit cards.

“Please caution our clients, ‘Do not move!’ If your focus is the house and getting that property, then you have to be laser-focused on this and just hold strain wherever you are.’”

Adding minors to the application

Under contract law, minors do not have the capacity to enter into a valid contract. Morgan advises realtors to urge clients to do estate planning if they attempt to go that route.

“Try not to put minors on the mortgage application. It’s a nightmare, and you will get a lot of pushback from the financial institutions. Some of them just outright say, ‘No!’.”

Adding nominees after the signed sale agreement

Morgan noted some applicants’ penchant to try and get more favourable terms by waiting until after a financial institution provides a letter of undertaking before trying to add other players to the application. She stressed that this does not usually end well. She cited the example of trying to add someone with a bad credit score by invoking the nominee clause.

“Financial institutions are getting in bed with the clients. They need to know
all the clients. The documents that would have been sent over to the registration attorney specifically will say who are the names, and when you go there to sign and you decide to add on the person — whether with good or bad credit score — the bank is going to have to get back the documents and, in essence, restart. You pressed the button all over again. So be transparent, be upfront, and get the guidance from the get-go.

“If the person has a bad credit score and you want to put them on there, put them on there. If you qualify, you can make a declaration to say, ‘I am doing this for estate planning purposes. The person will have no financial contribution to the application. See, I am capable of applying; my DSR [debt-service ratio] is good.’ The bank will likely say, ‘No problem’.

“But do not allow these things to come on the back end because… our clients cannot trick the system.”

Withdrawing closing costS from the account

A purchaser is expected to have funds ready to go, in liquid form, preferably at the financial institution from which he or she is seeking mortgage financing. But as Morgan noted, some clients dip into the funds once their application clears the initial hurdles.

“Why would you put the money in there when you’re doing the pre-qualification round, and then you go and take out the money when the loan application is being processed? If our clients have earmarked these funds for the purchase of the real estate, it needs to stay in the account so that it doesn’t delay the process. Sometimes the customers won’t come back to us as realtors and say this, and because of banker/client privilege, we can’t get this detailed information. So we end up saying the financial institution is the problem when, in truth and in fact, our customers aren’t listening to the guidance and doing what the professionals are telling them to do. They are not having the half-cost funds available.

“Then the process is delayed again.

“We have to make sure that our customers are in a state of readiness, because it’s not just a pre-qualification, it’s not just a pre-approval, it’s an entire slew of requirements and they have to make sure they check the boxes properly.”

MORGAN… the best defence is a good offence

If the aim is to access a residential mortgage for a new home, some errors may result in lengthy delays that can prolong a purchase or even derail it entirely.