Mortgage pre-approval mistakes (the don’ts)

The path to ruin is paved with good intentions, but it’s also paved with silly mistakes. Here are four rules that, if you stick to them, will help you achieve pre-approval success.

1. Don’t get pre-approved over your budget

Don’t make the upper ceiling of your mortgage pre-approval your maximum purchase price. Do your own calculations, figure out how much you can afford monthly (don’t forget the other costs associated with homeownership, not just the mortgage) and go from there.

When I recently sought pre-approval for a mortgage, it was because I was looking at a specific home well below my budget. I requested a mortgage pre-approval for the amount I’d need: $250,000. To my surprise, my mortgage broker told me they’d upped the amount to $300,000, and that there was “lots of wiggle room above that.”

Even though I’d requested a smaller pre-approval amount, I was pre-approved for much more. While this suited me because my final budget was actually $300,000, you should know that the mortgage you’re pre-approved for could be more than what you can actually afford. I could have been pre-approved for much more and been tempted to use it to buy a more expensive home, even if I couldn’t afford it.

2. Hold off on major purchases

Once you’ve submitted your documentation to your loan officer, your financial situation shouldn’t change from pre-approval to loan finalization. Changes to your financial situation could ultimately result in loan rejection, even if you were initially pre-approved. To avoid rejection, don’t make any major purchases that change your debt service ratios.

You also shouldn’t apply for new forms of credit, like a personal loan or credit card, and don’t co-sign a loan for a friend or family member. Your debt level and available credit are both factors in mortgage approval, so increasing them may risk your pre-approval.

4. Don’t quit or change jobs

Finally, avoid changes to your employment status after you’ve been pre-approved. Steady and predictable income is crucial to most mortgage applications. Changing jobs or becoming self-employed will definitely throw a wrench into the mortgage approval process. Instead, hold off changing employers or starting a company until after you have the keys to your new place.

If the worst should happen, and you are fired or made redundant, it’s probably a good idea to delay buying a home until you regain financial stability.

The bottom line
As with many things in life, planning ahead makes all the difference. After all, getting a mortgage pre-approval is its own form of forward planning! Take the time to get your finances in order before you apply for a mortgage pre-approval, shop around for the best rate, and keep your finances consistent. Achieve that and you should expect a seamless transition from pre-approval to your move-in date.

HAVE READY FOR THE MORTAGE BROKER

-       Completion of the attached New Account Form by both – 1 per person

-       Permission to pull credit for both – this can be acknowledged in the email you send containing your income documents

-       2 years of tax returns - and a current paystub 

-       Most recent Notice of Assessment

-       Current rent amount

-       Down Payment information

-       How much have you saved?

-       Where are these funds held?

-       List of assets including:

         Registered Savings Plans balances : 

         TFSA, RRSP - where are these held/invested

-        Non-registered Savings/Investment balances – 

          -where are these held/invested. 

-    Vehicle info (year/make/model) include an approximate value

-     Recreational vehicles (trailer, quad, sled) include an approximate value