Mortgage Approval Roadblocks occurs when in the process of buying a home, we encounter an issue before closing. There is nothing worse than having your mortgage broker or lawyer call and say “there is a problem”.
Once you find your dream home, negotiate an accepted fair price and then supply all the documentation to your broker. We then assume everything is fine. Your financing approval is based on the information the lender provided at the time of the application. Should there be any material changes to your financial situation, the lender is within their rights to cancel your mortgage approval.
In order to ensure that you don’t encounter any last-minute issues on your purchase, here are five major mortgage approval roadblocks to avoid and be aware of for a smooth transaction:
When we submit a request for financing, one of the most important aspects the lender considers is employment. i.e. You work at Company X for five years at $50,000 a year. As the approval is finalized – you change jobs, the lender will now require proof from the new job. This can include proof that probation for this new job is waived, or new job letters and pay stubs. The lender often requests a two-year average for any employment involving overtime or bonuses. Being in a new role, you would not be able to provide this assurance. Lastly, another change that could hurt your approval is if you decide to move to a self-employed contractor.
A key point, is it’s best to wait to make any major employment or life changes until after the closing.
DOWN PAYMENT SOURCE
Given mortgage financing is based on the initial information provided at initial application. The lender often will do a final verification of the down payment source. If it is different than what the lender has approved, it could spell trouble for your financing approval. If you said that your down payment was from savings and, at the last minute, the funds are a gift, it may affect your approval. This is an acceptable source of down payment. However, only if the lender knows about it in advance and has included this in their risk assessment.
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 may owe at the initial application submission, it is important not to increase your debt before closing. Buying a new car or items for the new home must be postponed until after closing; even if they are “do not pay for 12 months” campaigns in place, you will need to complete those payments, regardless of when they start.
One of the biggest roadblocks to mortgage approvals is credit card payments. Entering the financing process, your credit score must be positive. If your credit score falls due to late payments, this can cause issues with your financing. With a CMHC in place, a lower credit score could mean a withdrawal of the insurance and losing financing approval.
MISSING IDENTITY DOCUMENTS
Ahead of final signing, your lawyer must verify your identity documents. You may not think it needs to be said, but it is important to have current government issued identification.
Keep in touch with your mortgage expert right up to possession day. Making this a happy experience rather than a difficult one.