Even if you’ve been pre-approved by your bank or a mortgage broker, you could unwittingly derail your mortgage financing.
Here are four items that could go wrong. If you can avoid these types of issues, you’ll be more likely to receive a final approval and the green light from the mortgage lender.
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 a lender is going to request and work with you to gather them before you have found your dream home.
You don’t have enough funds for your closing costs
All mortgage lenders and the mortgage insurers require 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 they can’t provide documentation confirming they have these funds available.
Generally the rule is you must be able to prove you have 1.5% of the purchase price available for closing costs over and above your down payment funds.
You made a large purchase, or purchases, and took 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.
Your income or employment situation has changed
As your mortgage broker, I 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.
Do everything within your power to keep your income and employment situation static until after you have found a home and moved in.
Many lenders will re-confirm your current employment status prior to funding your mortgage particularly right now as we are in the midst of the pandemic.
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. Most lenders will not even review your application until a property has been found and you have an accepted offer. As your mortgage broker, I will confirm that a lender will likely give you a mortgage for a certain amount, as long as your financial situation doesn’t change prior to closing and the lender also likes 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 I will endeavour to make the process go as smoothly as possible.
It may seem like I’m asking many questions and requesting too many documents but that is what is required to ensure you are in the very best position to start your house hunting with confidence.
A mortgage pre-approval is the first step to home ownership.
If you would like to start your journey to home ownership, please visit here to get started or give me a call at 1-888-561-2679.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.