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10 guidelines of financing

You’ve written an offer on a home, and gone through the nail-biting process of being approved for your mortgage.

You’ve jumped through hoops and provided all of the documents necessary to demonstrate that you qualify for your mortgage. You did the happy dance and told everyone you know that you are buying your dream home.

A week before you are supposed to get your keys you find out there’s a problem.

You went shopping for new furniture to put in your home, and your car died unexpectedly. You started a new job with a higher salary. Not a big deal, right? You signed loan documents and were on your way in a new vehicle and your furniture is scheduled to be delivered the day after you get your keys.

What many people don’t realize is that during the mortgage process, significant changes to their finances can affect their approval. Lenders can cancel a mortgage any time before it closes if the client’s situation changes.

This list has been floating around for a long time. I’ve seen it in a few different places under the heading “The Ten Commandments of Buying a Home." It might be more accurately called “Ten Things Not to do Before Your Mortgage is Finalized."

I initially felt it was a bit condescending, but now feel that properly explained these points are important for home buyers to know.

Here is the list, along with a brief explanation of why these points are important:

  • Thou shalt not change jobs, become self-employed, or quit your job. You qualified for your mortgage based on your employment history. If an incredible job offer comes along, hold off until after your mortgage is finalized. Your new job most likely has a probation period which could mean you no longer qualify with your particular lender.
  • Thou shalt not buy a car, truck, or van (or you may end up living in it). In some cases this may not be an issue, but if your new mortgage payment puts you at the top of your debt servicing, an additional payment may make you ineligible for the mortgage you need. A general rule of thumb is that every $500 in loan payments reduces your home buying power by about $100,000. It’s a lot easier to buy a vehicle after you buy a home than the other way around.
  • Thou shalt not use credit cards excessively or let them fall behind. When your application is submitted, a payment of three per cent of the outstanding balance on your credit cards is factored in for qualification purposes. If your mortgage lender checks your credit report shortly before closing, a dramatic increase in balances could affect your approval.
  •  Thou shalt not spend money you have set aside for closing. As part of the approval process you need to demonstrate that you have your down payment set aside, as well as funds to cover your closing costs. About a week before your mortgage finalizes you will need to provide those funds to your lawyer. If you suddenly don’t have the money available, your mortgage may not close as scheduled.
  • Thou shalt not omit debts or liabilities from your mortgage application. Early on in my career I worked with a co-signor that told me his house was mortgage-free. Three days before closing the lender discovered there was a large credit line secured by his house. This meant that we had to re-work the entire application and my clients almost lost out on their purchase.
  • Thou shalt not buy furniture. It's tempting, on the home stretch to owning a new home, to take advantage of offers like zero percent financing or no payments for a year, but if you do and your lender discovers this, a payment needs to be added to your application. Best to wait until you have the keys to go shopping.
  • Thou shalt not let new creditors pull your credit report. Your mortgage lender may be concerned that you have a new payment they are unaware of.
  • Thou shalt not make large deposits without making your mortgage broker aware. Your lender will ask to confirm the source of any large deposits. They need to know that you have not borrowed money (another payment) or that the funds are not from an illegal source.
  • Thou shalt not change bank accounts. Not necessarily a big issue, but it may mean more paperwork required to confirm your down payment is adequate and available.
  • Thou shalt not co-sign a loan for anyone. You may trust the person you are co-signing for completely, but as a co-signor you are legally responsible for any payments due should they not be made. It goes without saying that this could affect your ability to make your mortgage payment.

These points also apply if you have been pre-approved for a mortgage but have not yet made an offer. It’s a good idea to touch base with your mortgage broker (or banker) to let them know you are considering making a change.

They can look at your particular situation and let you know how it might impact your buying power. A five-minute phone call may save you a great deal of stress down the road.

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About the Author

Laurie Baird and Tracy Head are mortgage brokers with Verico Complete Mortgage Services. Together they have over 45 years of experience in the mortgage industry.

As mortgage brokers, Laurie and Tracy spend time getting to know the people they work with and help them understand the mortgage process. They support their clients before, during, and after a home purchase.

Laurie and Tracy are able to offer their clients advice and options. With access to over 40 different lenders, Laurie and Tracy are able to match the needs of their clients with the right mortgage package. They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit:
http://www.okanaganmortgages.com

Visit Laurie's blog at: https://www.okanaganmortgages.com/blog



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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