Great Rate, With A Terrible Headache
OPINIONImagine my client’s glee when he received pre-approval for a loan to buy his first home. The broker had found him a low rate – he hadn’t been able to borrow enough from the major lenders – and had promised the world.
Fast forward three months, and he’d missed several days of work to satisfy the banks requirements, and was at risk of losing the property twice due to the broker’s lack of knowledge, adequate explanation and inability to deliver on what they had promised. Settlement happened on time but only after firm words and welcome intervention from the bank after they were informed of the broker’s incompetence.
With a bit of research and a lot more in terms of customer service this could have been a far less stressful process. In general, non-major lenders can offer a cheaper interest rate, but the price consumers pay are the extra hurdles to leap before the bank will provide funds at settlement. A great deal is yours as long as you know what to expect and how to avoid mini-catastrophes.
So where did my client go wrong and how can it be avoided?
You could borrow with a major lender, but that is not always an option. You could choose your own loan and willingly wade into the research required. Or, you can choose a broker from the pack when skill levels can vary greatly.
Word of mouth can be a safer way to pick a broker, sometimes the only way to judge is after they have successfully guided a client through the frustrating buying process.
The first drama was over the deposit. As a result of the broker’s actions my client, let’s call him George, was in default of the contract and in turn at risk of losing the property. The deposit was ‘paid’ via a deposit bond, and was issued days after the due date. Both were opportunities for the vendor to end the contract due to George being in default.
My client was admittedly naive and minus the funds for a deposit. So when the broker advised him that they would use a deposit bond George thought that he was paying with actual money. You see if you don’t have a deposit, unless you have a line of credit with the bank, you have to give the vendor a deposit bond which is only an insurance policy that promises the money if the sale falls through. It is a piece of paper. This must be stated in the contract. It wasn’t. And the broker,
- having been given a full copy of the contract should have known this, and
- should have known the implications of issuing a deposit bond without the vendor’s prior knowledge;
- and at least explained what a deposit bond was and the risks involved to George since it turned out to be his only option
The lesson? Save up for a deposit or ensure the contract states that the deposit will be paid by way of a deposit bond.
After some explanation of the situation George was furious and scared of losing the property. But this was only a glimpse of the frustration to come.
Another hassle was satisfying the banks requirements. When you get a loan, amidst the paper warfare that you endure you must treasure the document that states your banks requirements. If you don’t have it; ask for one. And if you have any questions; ask.
George, learning about the process as he went had to go to unheard lengths to satisfy these requirements. He provided a copy of his ID and pay-slips. Weeks later the broker requested them again, but this time they needed a certified copy of his ID. A copy of the contract was supplied at least three times by George, the agent and myself. George had to come into the office again, and into the city three times. Once for no reason at all; George headed into the city to sign mortgage documents on the brokers arrangements only to find they weren’t ready when he got there. And on it went.
This mess could have been avoided with a broker able and willing to manage problems, and with the knowledge and experience that comes from a professional working relationship with their lenders. But that is not to say that things can’t go wrong even with an experienced broker.
There were mystifying moments in the process; the broker had the wrong settlement date on record, at one point I provided the broker with a copy of their own bank’s requirements, with settlement days away they were going to send me the mortgage documents by mail – we worked out what they were doing and arranged for the documents to be couriered directly to George’s work – and my favourite was when the bank asked me to fax them a document directly because the broker probably wouldn’t know where to send it.
Some tips that help smooth the settlement process;
- Stay in regular contact with your broker or banker, know what is happening. If they say that something will be done, make a follow-up call to check
- If you don’t like the answer make it their responsibility to satisfy your concerns
- Know and covet the important documents; your copy of the contract and mortgage documents, the list of the banks requirements, and your contract with your broker
- Fill-out and return documents as soon as possible – If you are unsure ask questions
- Get your broker or banker to check your mortgage documents before they are sent off for processing as mistakes can cost you precious time and sanity
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