For most people, their largest investment is in their primary residence, and the largest check they write each month is their mortgage payment. Putting together a down payment can take months and even years of saving. Over the last decade, taking out a mortgage has become more difficult, thanks to rules and regulations instituted by the Canadian government since the financial collapse of 2008. There are times when it could be tempting to provide data that is false about your financial picture so that you can gain mortgage approval – but if you do this, and it can be proven that you did it knowingly, you can go through severe consequences. Here are some common mistakes that people make – whether potential home buyers or mortgage agents looking to build business – that you should watch to avoid.
When you go in to qualify for a mortgage, your broker or lender will ask you for paperwork that verifies your place of employment, your current assets and any debts that you have. Any information that you leave out – and any information that you concoct – would be considered fraud, no matter who does it. Examples of this include:
Changing, creating or falsifying employment letters, pay stubs or other related documents;
Providing misleading data about your tenure in your job or your current income;
Representing your status at work falsely (full or part time, hourly or salaried, etc.)
Failing to disclose all present debts
Backdating employment verification letters
Skipping or misrepresenting property details to inflate its value improperly
Misrepresenting the purpose for purchasing the property, such as indicating it as your primary residence when you plan to rent it for income
It is important for you to read your whole mortgage application carefully, as well as any accompanying documentation. Even if you have not made any misrepresentations, there are unscrupulous mortgage brokers who will do the same thing in order to make money from your loan. If you find any inaccuracies, you should not sign the paperwork. You can always stop the process to talk to a solicitor.
Applicants who are self-employed, contract workers or seasonal workers who do not receive regular pay stubs, Notices of Assessments from the Canada Revenue Agency suffice. If you doctor a Notice of Assessment to look more favorable, that is a crime in Canada, so make sure that you provide accurate and correct information.
Terms that seem unrealistically beneficial to you
Examples of this would include a cash payment that someone offers you to help you get loan approval from a particular lender, even when you have had a hard time finding approval. There are deals that pop up at what seems like just the right time, but buried deep in the paperwork are unexpected charges and fees, and terms changing the interest rates, and once you sign, you have no recourse. Do not blindly accept offers that seem much better than what you were expecting.
Poor communication from your broker or lender
If you send questions to your realtor, broker or lender, via email, you should expect an answer within a day or two, and you should have all of your paperwork lined up at least two weeks ahead of closing. This includes satisfying all of the lender conditions on the commitment letter; if they have not been met, closing could be delayed. After you sign the mortgage contract, you should continue to hear from the broker or agent between signing and the closing. A lack of communication can indicate that something unethical may be taking place, so you should contact the principal broker at the institution providing the lending to find out what is happening.
Mortgage brokerages have to provide you with specific information to help you make the right decisions. This includes written disclosures that tell you:
Fees they plan to charge, as well as estimates of fees from third parties
The mortgage rate and term
Any relationship between the mortgage brokerage and the lending institution
Material risks that come with taking out the mortgage
Possible conflicts of interest with respect to the mortgage
Any fees or other incentives that the brokerage or broker receives from parties interested in the purchase of the home
Referral fees that the mortgage brokerage receives from sending a borrower, investor or lender to a third party, and the relationship between the brokerage and that third party
Total cost of the mortgage, including all fees and charges, at a minimum of two business days before you enter the agreement
Missing letter of commitment
Once a mortgage lender has agreed to provide funding for a mortgage, the broker should discuss that offer with you. You will get an official “Letter of Commitment” with the lender’s stamp, and it will have a list of conditions that you have to satisfy before the loan gains approval. Common conditions include a specific deadline for property appraisal or proof of homeowner’s insurance. Even if your mortgage broker has connected you with a private lender, you should receive this letter. Without this letter, you do not have funding for the home purchase.
Fees payable in cash
Mortgage lending involves many fees – but these fees are in the paperwork that you sign when you take the lender’s commitment. Your lawyer collects the fees from you in trust, and then he or she sends the money directly to the lender or broker. Even your appraisal fees should not be payable in cash; you should write a check or use another method to settle the invoice.
Applications you make by word of mouth
Do not rely on verbal transactions when it comes to a mortgage, even if you shake hands. If you do make a verbal commitment, you should get the signed pre-approval or letter of commitment in writing. If you do not get it, ask the broker to give you a copy. Without that copy, your funding is not binding. If a broker or lender stalls on providing written documentation, it may be time to walk away from the deal.
Suggestions that you forego the “cooling off” period
Canadian law gives you 48 hours between coming to an agreement about your mortgage and signing the actual contract, so that you can give the decision some more thought – and walk away from it if the terms do not make a lot of sense.
What happens if you commit mortgage fraud?
If the lender identifies the fraud before closing, the lender could walk away from the deal, leaving you with no funding. Then the seller could sue you. So you could lose your deposit and end up with a verdict against you in court. If you have already sold your previous dwelling or moved out of your rental, you could have no place to live.
If the lender does not find out about the fraud until after closing, the lender can “call in” the loan, meaning that the full amount is immediately due. If you do not have those funds on hand, you could find yourself in foreclosure – and possibly face criminal charges as well.
If your employer finds out that you provided false information about your current job, they could suspend you or fire you – and sue you.
So the best advice we can give you would be these steps:
Read everything carefully before you sign it, and ask for copies of everything that you sign before you leave the office.
Have independent legal representation prior to finalizing the transaction at the lawyers. Do not use the lender’s lawyer just to save money.
Make sure that your broker has the appropriate provincial license to transact mortgage business.
Research your mortgage broker and/or brokerage to see if any enforcement actions have happened against them.