You got pre-approved for a mortgage, you found your dream home and put in an offer. While you are doing your own due diligence on your future home, your lender is doing the same on your initial application.
It comes as a surprise to many people, but a mortgage pre-approval is not a final approval.
A pre-approval is a maximum amount and interest rate a lender agrees to for a certain period of time. It is based on a basic assessment of your income, debt, credit score and proposed down payment. It gives home-buyers an idea of what they can afford and what their mortgage payment will be.
Once you have made an offer, the lender will do a more thorough and detailed check of your application and the property you want to buy. As long as you haven’t signed the mortgage documents, do not:
- change jobs or become self-employed: lenders are looking for your ability to repay the biggest loan ever made to you. Stability in both employment and income is key. Most lenders want you to have been in your current position for as long as possible, and out of probation period. A change in your income also means a change in the amount you qualify for. If you become self-employed, it is unlikely that you will qualify for your mortgage anymore, as the criteria are very different.
- Open new credit accounts: whether it is a new credit card, a line of credit or car loan, hold off for the time being. It is very likely your lender will do another credit check to have your most recent information. New credit inquiries impact your credit score and your debt to income ratio. A car payment may mean you don’t qualify for the same amount anymore.
- Close old credit accounts: this actually has the same effect as the above.
- Make large deposits or withdrawals from your bank accounts: most lenders check that your down payment and closing costs are covered by your own money. If a large deposit suddenly appears in your account, it could be interpreted as being a gift or a loan, triggering additional questions and paperwork.
Obtaining a mortgage is definitely not as easy as it seems. Actually, the Government of Canada has made it more difficult over the last 5 years. Don’t let a foolish mistake derail your dream of home ownership.