Everyone knows that one of the first steps in the home buying process is getting pre-approved for a mortgage. But you probably don’t realise that some of your decisions during this time could negatively affect your final approval, or chances of having your preapproval renewed.
A preapproval letter is typically valid for 90 days – and comes with the disclaimer that if anything changes with your finances it could impact your preapproval. If you haven’t found a home you wish to buy after these three months, a renewal letter can be issued after a recheck of your credit and income. If you were lucky enough to find your next home the first time around, it’s now time to be approved for the mortgage. Mortgage approval is based on the specific details of the actual house you wish to purchase, such as price and property taxes. Just like in the case of having your preapproval renewed, your credit and income will be checked again at this time. If your mortgage provider gives you their approval, you can waive the financing conditions on your offer and finalize the sale. However, if there have been certain changes to your finances, your settlement could be delayed or even cancelled.
Be careful not to get too caught up in the excitement of house hunting and hurt your chances of landing a new home. Follow these do’s and don’ts to ensure you seal the deal on your mortgage approval.
- Don’t apply for any new credit. This includes opening a new credit card account or taking on a new loan or line of credit. Doing so could change your credit score which in turn could require your interest rate be adjusted.
- Don’t co-sign any loans. This is considered a debt for both parties, especially when it’s a new loan. If you can prove the loan has been paid by the original holder for at least a year, you should be ok. But any less than 12 months and the loan could be calculated as part of your debt-to-income ratio.
- Don’t make any major purchases. If you were to buy a new couch or washer and dryer with credit, these payments will again be factored into your debt-to-income ratio. If you pay cash, you’ll have fewer cash reserves to use for a down payment.
- Don’t pay off all your debt. Again, this shows a reduction in cash reserves and lessens your available credit if you’re closing any credit card accounts. You will also need to prove where the money came from to pay your debt off.
- Don’t change jobs…if possible. Your employment and salary will need to be verified which could result in a delay in settlement.
- Do stay up to date on all current accounts. Continue to make payments at the same time and with the same method as you previously did.
- Do keep a detailed record of all deposits. Complete documentation is required for any deposits other than your usual paycheque. If you receive any gift funds, a gift letter from your donor must be provided.
- Do report seller concessions. If the seller agrees to pay any portion of closing costs, this will be factored into the loan approval.
You want to ensure your finances remain as similar to the time when you received your pre-approval letter as possible. Keep in contact with your lender and discuss any possible changes to your finances before you act on them.