I talk about this often but it’s always good to repeat valuable pieces of information – especially if it saves someone from wasting their time. One of the biggest misconceptions people have is that their bank has their interests in mind. I am not saying that banks do not care about their clients but I do think it is important for people to know that banks are businesses not charities. As such they have a business plan, target customer types, sales goals, profit margins, etc. which all attribute to their ability to help someone looking to borrow money. Many people think that just because they know their banker they can ask for whatever they want and if the bank says no that they have no other options. Here is how it really works.
Since the financial crises from a few years ago it has become harder to get approved. But the basic criteria hasn’t really changed. Banks want to know you have enough income, equity (cash) and history to prove you will be able to repay the money they lend to you. What has changed significantly is the process by which banks operate. Banks managers can rarely approve a transaction without having to interact with a credit department that is located somewhere outside of the branch and who doesn’t know the customer like the bank manager. To compound the problem, banks constantly rotate staff so it can be hard to get someone to champion your request through the credit department. And lastly, banks do not have unlimited resources to spend on educating their clients about the process and rules associated with a mortgage or loan. Every business needs to focus on its margins and banks are no different – they just haven’t figured out how to watch their margins AND service their clients.
As a borrower, here is what you can do to prepare yourself before making an application for a mortgage or loan.
1. Understand the basic approval criteria
How much down payment or equity do you need? How much income will you need to prove? Will banks even consider your application based on the type of mortgage or loan I am seeking?
2. Ensure your information and documents are ready
By far the most important step after you understand the basic criteria. As I always say “there is no point giving a bank a 200 page business plan if you don’t meet the basic criteria”. This is not only true of business loans or commercial mortgages. If you are looking to purchase a new home and you don’t know your credit score or how much income you have available to make a mortgage payment, take some time to figure this out so that you don’t waste your time at the bank.
3. Know the answers to the questions you are going to be asked
Banks don’t have an unending list of questions for you (although that’s how it can feel sometimes). Do you know what a mortgage is? Do you know the difference between term and amortization? Do you know the difference between a fixed rate and a variable rate mortgage? Knowing these answers will not only save you time but you will find a banker much easier to interact with if they know that you are prepared.
Over the past 13 years Bridge Capital has been working to try and help clients do all of the above. Last summer we launched an online platform (www.mlenow.ca) to make it even easier for borrowers to get prepared to be approved. We realize that people are busy and don’t want to waste their time – neither do we. Since we launched the platform we have been able to interact with our clients on a much more specific basis and in a manner that is comfortable for them. Their questions are more direct, their need for our help is more specific and they are more engaged in what is required of them to get approved.
Why weren’t you approved? My guess is that there is a high probability you weren’t prepared to be approved. Take the time to get prepared or use a resource like www.mlenow.ca to learn what your options are and the information you will need to provide.
“Knowledge is power.” – Francis Bacon
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