Buying a place you love? Avoid these common mortgage mistakes

About to put an offer to purchase together?  Make sure you will be able to buy that place you fall in love with! You can lose your mortgage financing if you make the following common mortgage mistakes:

1.  Assuming your pre-approval is all you need

Be aware of the “non pre-approval”.  This is one of the most common mortgage mistakes. I’ve had clients come to me after they had a pre-approval and waived their financing clause, and the bank backed out when their full financial picture was finally reviewed.  

A full mortgage approval means your credit’s been checked and every condition on your mortgage commitment contract has been satisfied.  This includes reviewing the type of income you have, and where your down payment is coming from. If you don’t have that, or you’re not sure, ASK.  

Don’t be afraid of full disclosure, either.  I always tell my clients that I want to know the good, the bad, and the ugly.  That way we can select the most appropriate lender and  make sure there are no surprises down the road.  Surprises are nice when we’re talking about birthdays, not mortgages!

2. Going nuts with your credit

This is another common mortgage mistake. Do not add any new debt, unless it’s already been discussed and okayed by your mortgage broker.  The reason?  Your mortgage was approved based on your original set of monthly obligations and the credit rating you presented your application with.  If the monthly costs increase – such as through a “buy now, pay later” plan for buying furniture or appliances, or a car loan – or if the credit score drops because you’ve had a bunch of new credit inquiries for department store cards and the like, your lender can decide NOT to give you the mortgage.  Read the fine print! All mortgage contracts have a clause that give the lender an “out” if anything material changes in your financial picture.

3. Messing around with your down payment

In reviewing your down payment, lenders will go through the last 90 days of statements for the account or accounts your money is coming from, as part of the approval process. You’ll need to explain, and prove the source of, any sizeable deposits.  Lenders need to comply with Canadian anti-money-laundering regulations. As well, they need to know that your down payment isn’t borrowed; otherwise they worry that you will have additional monthly payments they need to account for.

So, if part or all of your down payment is a gift, you’ll need to document that, and provide a paper trail showing where the money came from.  Any money coming into Canada from elsewhere in the world will be carefully scrutinized, and must be on deposit with a Canadian financial institution at least 30 days before your closing date. A 90 day history is preferable.

4. Skipping bill payments

Saving up for closing costs and down payment, not to mention all the little details you need to handle before a home purchase, means you’re going to have a lot on your mind.  Make sure you remember to maintain your bill payments – from mortgages to cell phone bills – on time.  As noted in point # 2, the lender reserves the right to back out of giving you your mortgage if anything material changes in your finances.  This includes your credit rating.  The lender can and usually will re-check your credit right before closing.  A late payment can really wreak havoc with your credit score, and jeopardize your mortgage agreement.

5.  Start a business, change employers, or quit your job

Obviously, some job changes are out of our control and unavoidable.  But if you can, wait to change jobs or quit to start a business until AFTER you’ve closed on the mortgage.  Lenders want to see predictable, consistent income, and your mortgage approval is based on them being comfortable with the income you indicated at that time.  You need to give your mortgage broker a heads up as soon as you even think there might be a change in the offing, so you can come up with a game plan to handle it.

The bottom line:

Avoid changing pretty much anything that has the slightest impact on your finances between the time you make your offer to purchase until your closing date.   Once a lender provides you with a full approval, your end of the bargain is to just keep them happy with nice predictable consistency.   Doing that ensures you’ll end up with your dream home at the end of the process.

Feel free to get in touch to chat about your plans!

Photo [c] Suwaree Tangbovornpichet for vecteezy.com