Here are four things that can derail your mortgage financing even if you’ve been pre-approved by your bank or a mortgage broker. If you can avoid these types of issues, you’ll be more likely to receive a “final approval” green light from the mortgage lender.
1. You have insufficient documentation.
Mortgage lenders request a variety of financial documents when approving borrowers for mortgages. You can reduce the chance of document-related problems by rounding up your documents in advance. This is why as your mortgage broker I always try to anticipate the documents that a mortgage lender is going to request and work with you to gather them before you have found your dream home.
2. You don’t have enough funds for your closing costs.
These days, many mortgage lenders and all mortgage insurers are requiring borrowers to have additional “cash reserves” in the bank, prior to closing to cover the closing costs. Borrowers can be denied a mortgage after being pre-approved if you can’t provide documentation confirming you have these funds available.
3. You made a large purchase, or purchases and have taken on additional debt since pre-approval.
Being pre-approved for a mortgage, or even approved if you are at that stage, doesn’t mean you can go out and make large purchases.
Debt-to-income ratios are very important during the mortgage process. This ratio is basically a comparison between the amount of money you earn and the amount you spend to cover your monthly debts. Having too much debt can hurt your chances of getting mortgage financing.
To prevent these types of problems after pre-approval, avoid making major purchases or opening new lines of credit. Keep those credit cards in your wallet until you receive a final approval and until after you have moved into your new home.
4. Your income or employment situation has changed.
The mortgage lender will pre-approve you based on your current income and employment situation. However, if your status changes sometime during the underwriting process, it could cause you to be denied the mortgage. Just do everything within your power to keep your income and employment situation static until after you have found a home and moved in.
Here’s what you need to take away from this:
- A pre-approval can be a helpful step in the mortgage process. It allows you to narrow your search to homes that fit your budget and secure an interest rate. But it’s not a guarantee of financing.
- A pre-approval is not a mortgage commitment. It is the lender’s way of saying they will likely give you a mortgage for a certain amount, as long as your financial situation doesn’t change prior to closing and they like the property you are purchasing.
- Even having a pre-approval letter does not mean you are home free. Things can still go wrong before the final closing causing the mortgage to be denied.
My role as your mortgage broker is to reduce the possibility of any of the above happening to you during the mortgage process and endeavour to make the process go as smoothly as possible. A mortgage pre-approval is the first step to home ownership. If you would like to get pre-approved for a mortgage the right way, please give me a call at 250-826-3543