There's nothing quite like working with the banking industry to make something special, like purchasing a new home, about as fun as a root canal.
I'm not sure what the process is like in other countries, but here in Canada, it begins with something called the “pre-approval.” Before you go house shopping, you're meant to talk to your local bank to find out how much house you can afford.
You can't just present your financial situation to the bank and then say, “How much would you be willing to give me?” because that would be entirely too simple. No, first you have to tell them how much you'd like to try for, and that means you have to guess the appropriate figure. I'm sure this is strictly so that bankers can post the applications in the lunch room for entertainment purposes, i.e., “And look at this one! Did he honestly think we'd even consider that number? Bwa ha ha ha ha!” or “Check out this poor sap! She's only asked for enough for a trailer and she could have afforded my house! Hee hee hee!”
Next, the bank reviews your finances. If you work for someone else, I expect this is a relatively painless process. If you are a self-employed business owner, I can tell you that only childbirth is more painful. This is because the bank will not review what the business makes; it will only consider your declared personal income, which, if you've got any kind of a decent tax accountant, will be low.
Indeed, I think that's the first time I've ever had a banker laugh, hand me some loose change, and tell me to go buy myself a nourishing meal.
If you persist, the bank will demand all your tax returns dating back to 1932, every single bank statement you've ever received, your dental records and the receipts from the paper route you had when you were twelve. After you have turned all of this in your banker will call you and say: “We don't have enough information.” At this point, it might be easier to get one of those moving dollies and wheel your entire filing cabinet in for photocopying. Eventually, however, you will get a pre-approval. Armed with this, you confidently make an offer on your dream house. It's accepted, and you call up your banker who says, “Whoops! We'd based that pre-approval on a 15% down payment, not the industry standard 10%.” This presents you with what economists call a major hole in your budget.
Assuming you can work this out, the next step is to give the bank more information. They will want to know things about the property like the assessed value, the lot size, the exact number of shingles on the garage, and the Pantone number describing the hue of the bricks. They will also want to know more about your credit history, which you will have to get for them yourself, in spite of there being umpteen dozen credit bureaus in the nation that are supposed to be keeping tabs on this sort of thing.
Meanwhile, just when you thought your mortgage pre-approval meant it was, um, pre-approved, you may have to apply for something called mortgage insurance. In Canada, if you have less than 25% of the house value in cash for the down payment, the bank wants you to get an insurance policy covering the mortgage. This is so that if you default on your payments, the bank gets to take your house and gets the money for the mortgage. This makes sense, because if you ever actually pay off your mortgage, you've paid for the house twice over in interest.
Next week: A scary, horror-filled treat just in time for Halloween a mortgage terms glossary.
To read more of Chandra's work, visit www.ChandraKClarke.com.