Here is where you are currently sitting.
You have successfully found your dream home. Negotiated like a true champion and kept your calm through the back and forth with the seller. Provided the endless supply of paperwork required by your lender to meet the financing condition. Set up all the things required for the big day like scheduling the myriad of people to come and move your furniture and get your Internet and make sure your home is warm and toasty.
And then you get a call from your mortgage specialist to the effect of ‘Houston, we have a problem.’
This week we are going to look at the most common ways people unwittingly kill their mortgage approval and leave themselves in a lurch.
First thing to note is this, your financing approval is based on the information the lender was provided at the time of the application. Any, and I do mean any, changes to your financial picture are grounds for the cancellation of the approval. It’s actually in the commitment you have signed.
1. Employment – not all employment is considered equal by the lender and the insurers like CMHC. Self Employed, commissioned, part time, overtime and bonus are all examples of income types where we must have a two-year average to satisfy everyone involved that you will have enough income to support the mortgage.
For example, Bob accepts a position with a new company after his financing condition is met. He has negotiated well and knows that the income will exceed what he made previously.
The problem is that now Bob will be paid a base plus a bonus component where he was previously salaried. Until there is a two-year history, the bonus income cannot be used and the mortgage approval is cancelled.
The other consideration is that most new employment comes with a probationary period which can be up to one year. Lenders will not use probationary employment which will likely lead to a cancellation as well.
A really important thing to note here is that lenders are calling at the time of approval and again just before funding to verify the employment information provided.
2. Debt – again, the approval is based on the debt load you had on the day of the mortgage application. Any changes can cause a cancellation. The following are the most common:
• New vehicle – often comes with a large monthly obligation.
• Do not pay for 12 months – we know you are eager to fill your new home with furniture and that you don’t have to pay for 12 months but this is a new debt obligation and the lenders have to include a payment for it.
• Increase to credit card balances – can change your affordability ratios too much.
3. Down payment source – and yet again I reiterate that the approval is based on the initial information you have provided. You will be asked at the lawyer’s office to verify the source of the down payment and if it is different than what the lender has approved then you may be in trouble.
For example, there are lenders who will allow you to use a line of credit for the down payment. Not all of them do and even if yours is one of them then the lender is still obligated to inform the mortgage insurer and their investors of the change to the source. This leaves you at risk at the last minute of your mortgage being declined.
4. Credit – even if you do not increase your debt load, you also need to make sure you keep your credit as strong as it was when you were approved. Make all payments on time. This includes cell phones. And be careful about allowing anyone to pull your credit. Too many inquires can be an indication of money troubles as you search for new credit facilities. You could see a substantial drop to your credit score which can? – you know the answer – kill your mortgage approval.
There you have it.
You are now fully aware that your mortgage approval is a delicate thing which requires proper care and keeping during that period between approval and funding. Make sure you take good care of yours. Have a great week everyone.
Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.