So you’ve decided you’re ready to take the big step to purchase a new home or you want to refinance your existing property. Here are 5 mortgage approval roadblocks to avoid along your mortgage journey.
Whether you are a first-time homebuyer or an experienced buyer/seller, the journey from shopping to closing can be an adventure. At times, it’s an exciting and thrilling adventure. Other times, there are disappointments and even roadblocks along the way. Since we do this every day, our mortgage process will ensure a successful mortgage transaction. Here is a quick link to “things not to do before your mortgage closes”.
Imagine this scenario. Your bank or mortgage broker or lawyer calls and says “there’s a problem”! You have found your dream home and negotiated a fair purchase price, and you have supplied all the documentation to your bank or lender. You probably assume everything is fine.
The reality is that your mortgage approval is based on the information the lender was provided at the time of your application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval. To ensure that you don’t encounter any last-minute roadblocks on your home buying journey, there are five major things you must avoid for a smooth transaction:
1. Changes to Your Employment
When securing a loan or mortgage, lenders are always focused on your employment status. Lenders have strict requirements concerning evidence of continuous full-time and well paying work you will be able to sustain in the future. Hence, if you have recently switched companies, even if the salary is comparable, they will typically demand documents from your new employer. Likewise, if you decide to switch industries entirely, additional materials may be required as proof that you are able to keep the job. Furthermore, banks also often request an average of two years of overtime or bonus earnings; however this can be difficult when applying for a loan after swapping positions. Last but not least, a change from employee to self-employed contractor could hurt approval chances due to added risk considerations. The takeaway here is that one should refrain from making significant career shifts until their financing request has been approved.
2. Down Payment Source
As mortgage financing is based on the initial information provided, you will most likely need to do a final verification of the down payment source. If it is different from what the lender has approved, it could spell trouble for your financing approval. Even if you said that your down payment was coming from savings and, at the last minute, mom and dad offer you the funds as a gift, it could affect your approval. This is an acceptable source of down payment, but only if the lender knows about it in advance and has included this in their risk assessment.
3. Existing Debt
A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Since mortgage approval is based on how much you owed on that particular date, it is important not to increase your debt before the deal is finalized. Buying a new car or items for the new home must be postponed until after possession; even if they are “do not pay for 12 months” campaigns because you will need to fulfil those payments, regardless of when they start.
4. Bad Credit
One of the biggest roadblocks to mortgage approvals is credit card payments. When you are in the process of getting financing or waiting to take possession of your home, it is important that your credit score remains positive. If your credit score falls due to late payments, this can cause major issues with your financing. Even if you have a high ratio mortgage in place which requires CMHC insurance, a lower credit score could mean a withdrawal of the insurance and removal of any financing approval.
5. Missing Identity Documents
Before a mortgage is finalized, the lawyer is required to verify your identity documents and see that they match the mortgage documents therefore it is important to use your legal name when you apply for a mortgage. Even if you go by your middle name or a nickname, all legal documents should match.
To help avoid last-minute roadblocks and catastrophes with your mortgage application, be sure to keep in touch with me at all times during the mortgage process. If there are any changes from your initial mortgage application, it is important to advise us well in advance and to run those changes by us to ensure they will not affect your application.