Susan wants desperately to buy a home, although her credit is rated fair to poor.  There is someone
in the background who will help with the finances, but who wishes to stay out of the “visible”
picture for the time being.  Susan asked if I could issue her a pre-approval so she could go shopping
for a home.  I looked at her credit and agreed to finance her, provided she had between 15% and
25% cash down payment.  She is getting a loan/gift from her parents.

She goes out to see houses in the outskirts and puts in an offer.  The Real Estate Agent tells me the
house has had many renovations and that it is in great shape.  She manages to buy it for $91,000.
We apply to and get approval from our “equity” lender for 75% financing, subject to an appraisal
and a visit from the Lender, apart from the appraisal.  The appraiser must submit in his report that
the estimated marketing time to re-sell the unit would be 90-120 days due to its location.  The
Lender is not satisfied with the comment on marketing time so cuts back the value of the unit (for
their purposes) by $5000 and agrees to lend 75% of the lower figure.  It now means that Susan will
be saddled with a first mortgage of $64,500 (instead of $68250) and a second mortgage for $3750
at a much higher rate.  Susan is not a happy camper.  Notwithstanding the presence of the conditions
within the mortgage commitment, she feels she has been blind sided by the lender.

Under normal conditions, this housing deal would have gone through without any hassle.  Susan’s
deal, however, is not normal.  Even though she has a great job, with adequate income, her credit
ratings were poor.   As a result, we had to approach the equity lenders.  These lenders rarely give a
hoot about credit ratings, but decide the viability of the loan based upon the marketing value of the
housing unit.  If the lender must support a house for longer than 90 days, in a default situation, a
loss situation is in the offing.  These lenders will not tolerate losing money; and since Susan’s
previous credit is poor, the marketing time becomes crucial.  Susan feels victimized.

A similar situation has Gloria looking to buy a rundown house in the country.  She is a stay-at-home
mother.  Her boyfriend, for good reason, cannot lend his name to the deal.  He is a jack of all trades
and has full intentions of fixing the place to make it livable.  Gloria has inheritance money to act as
a down payment, while the boyfriend (Tony) has some cash available to fix the place up.  Since she
does not work, getting a mortgage in her name proves to be difficult, not only because of her lack of
a paying job, but also because the housing unit she is buying is in such poor shape.  Even the equity
lenders want to pass on this deal.  We had to go salvage “private” financing to get this deal done.
Gloria wasn’t really happy about the rate of interest (13%), but they bought this single family house
for $60,000.  Even though the rate is double what she was expecting, the payment of $661/mo. is
$300 cheaper than what she is paying in rent.  Tony will fix up the place, and next year we will be
able to approach an institutional first mortgagee (still an equity lender) at a much more favourable
rate.

Deals like this rarely pay commissions from lending institutions therefore, both Susan and Gloria
had to pay lender fees and broker fees to get the money to complete the sales.  Even with fees, both
people can now enjoy home ownership rather than paying rent.  In either situation, a change in
information could have bettered the rate and terms.  Had Susan’s credit been good, or Gloria’s house
been “prime,” better rates and fewer fees would have been the case.