10 great things to keep in mind when you are looking into being approved for a mortgage!
Whether it is your first house or you’re moving to a new neighborhood, getting approved for a mortgage is exciting! However, even if you have been approved and are simply waiting to close, there are still some things to keep in mind to ensure your efforts are successful.
Many homeowners believe that if you have been approved for a mortgage, you are good to go. However, your lender or mortgage insurance provider will often run a final credit report before completion to ensure that nothing has changed. Changes in your credit usage and score could affect what you qualify for – or whether or not you get your mortgage at all.
To avoid having your mortgage approval status reversed or jeopardizing your financing, be sure to stay away from these 10 mortgage mistakes:
1. BEEFING UP YOUR APPLICATION
This is not a time to try and ‘beef up’ your financials; you must be honest on your mortgage application. This is especially true when seeking the advice of a mortgage professional, as their main goal is to assist you in your home buying journey. Providing accurate information surrounding your income, properties owned, debts, assets and your financial past is critical. If you have been through a foreclosure, bankruptcy or consumer proposal, disclose this right away as well. We are here to help!
2. GETTING PRE-APPROVED
With all the changes and qualifying requirements surrounding mortgages, it is a mistake to assume that you will be approved. Many things can influence whether or not you qualify for financing such as unknown changes to your credit report, mortgage product updates or rate changes. Getting pre-approved is the first step to ensuring you are on the right track and securing that mortgage! Most banks consider pre-approval to be valid for four months. So, even if you aren’t house-hunting tomorrow, getting pre-approved NOW will come in handy if a new home is in your near future.
3. SHOPPING AROUND
One of the biggest mistakes people make when signing for a mortgage is not shopping around. It is easy to simply sign up with your existing bank, but you could be paying thousands more than you need to, without even knowing it! This is where a mortgage broker can help! With access to hundreds of lenders and financial institutions, a mortgage professional can help you find a mortgage with the best rate and terms to suit YOUR needs.
4. NOT SAVING FOR A DOWN PAYMENT
Your down payment is a critical part of homeownership and a useful financial tool that you should utilize when purchasing a home. A down payment reduces the overall amount of financing you need and increases the amount of equity right from the start. Down payments also show the bank you are serious. In Canada, the minimum down payment is 5% (with mortgage insurance), with the recommended being 20% if possible.
5. CHANGING EMPLOYERS OR JOBS
As employment is one of the most important factors that determines whether or not you qualify for financing, it is important not to change employers if you are in the middle of the approval process. Banks prefer to see a long tenure with your employer, as it indicates financial stability. It is best to wait for any major career changes until after your mortgage has been approved and you have the keys to your new home!
6. APPLYING OR CO-SIGNING FOR OTHER LOANS
Applying for additional loans or financing while you are currently in the midst of finalizing a mortgage contract can drastically affect what you qualify for – it can even jeopardize your credit rating! Save any big purchases, such as a new car, until after your mortgage has been finalized.
Also, just as applying for new loans can wreak havoc on a mortgage application, so can co-signing for other loans. Co-signing signifies that you can handle the full responsibility of the debt if the other individual defaults. As a result, this will show up on your credit report and can become a liability on your application, potentially lowering your borrowing power.
7. AVOIDING CREDIT MISSTEPS
As mortgage financing is contingent on your credit score and your current debt, it is important to keep these things healthy during the course of mortgage approval. Do not go over any limits on your cards or lines of credit, or miss any payment dates during the time your finances are being reviewed. This will affect whether or not the lender sees you as a responsible borrower.
Also, although you might think an application with less debt available to use would be something a bank would favor, credit scores actually increase the longer a card is open and in good standing. Having unused available credit and cards open for a long duration with a good history of repayment is a good thing! In fact, if you lower the level of your available credit (especially in the midst of an application) it could lower your credit score.
8. HAVING TOO MUCH DEBT
Credit card debt is on the rise and overuse of lines of credit can put you at risk for debt overload. Large purchases such as new truck or boat can push your total debt servicing ratio over the limit (how much you owe versus how much you make), making it impossible to receive financing. Some homeowners have so much consumer debt that they aren’t even able to refinance their home to consolidate that debt. Before you start considering a new home, make sure your current debt is under control.
9. LARGE DEPOSITS
Just as now is not the time for new loans, it is also not the time for large deposits or “mattress money” to come into your account. The bank requires a three-month history of all down payments and funds for the mortgage when purchasing property. Any deposits outside of your employment or pension income will need to be verified with a paper trail – such as a bill of sale for a vehicle, or income tax credit receipts. Unexplained deposits can delay your mortgage financing, or put it in jeopardy if they cannot be explained.
10. MARRYING INTO POOR CREDIT
Having the financial talk before getting hitched continues to be critical for your financial future. Your partner’s credit can affect your ability to get approved for a mortgage. If there are unexpected financial issues with your partner’s credit history, make sure to have a discussion with your mortgage broker before you start shopping for a new home.
If you are currently in the midst of a mortgage application, or are looking to start the process, don’t hesitate to reach out to a Dominion Lending Centres Mortgage Professional today to ensure that you do things the RIGHT way to succeed with your home purchase.