There have been many changes to the mortgage rules over the last few years and the most recent change within the last month. These changes can affect your mortgage pre approval results. Also, if you have an older mortgage pre approval, some of the changes may make your pre approval no longer valid. With that, if you don’t have a pre approval in place or some time has passed since your last mortgage pre approval in Ottawa, now is the time to get pre approved.
Mortgage pre approval Ottawa
Benchmark qualifying rate and your mortgage pre approval in Ottawa
A recent change that will affect a pre approval results in a positive way is the benchmark qualifying rate change in the fall of 2019. It was at 5.34% and now it is at 5.19%. This means you can now qualify for more.
For the benchmark rates, regardless of your actual rate, you are qualified on the benchmark rate. This is to protect mortgage applicants against possible future rate increases.
Mortgage rates are currently at an all time low and it’s a great time to have a rate held while you are looking for a home. Rates can be held, with no cost or obligation, for up to 120 days.
If you have a rate held already and it is expiring soon, now is a good time to have a new rate held.
Documents and credit bureau
It’s important to be sure that your credit history and income documents are reviewed at the pre approval stage. It’s best to have them reviewed by an Ottawa mortgage broker. Mortgage brokers in Ottawa will invest more time upfront with you to assure all is in order. The reason for this is that many banks and lenders are only scanning the application’s basic information when reviewing pre approvals. Plus, they are typically not reviewing documents at the pre approval stage. Also, at the pre approval stage, some lenders only hold a rate. With that, you will see on your pre approval a note saying rate hold only. Also, it may say subject to full underwriting review and approval at time of purchase.
Unfortunately this leaves a lot of room for the pre approval to fall through once the income and credit history are reviewed.
Even those who feel they have excellent credit can fall victim to credit fraud. Or, have a few forgotten payments on a credit card or phone bill for example.
For income, for those with non-salaried income or salary plus other such as those self-employed, a lender will typically use a two year average of your income. This can affect an applicant if the average is lower.
Having an in-depth review upfront will assure the most accurate mortgage pre approval in Ottawa possible.
Top three things to avoid once you have your mortgage pre approval in Ottawa
When looking to take the right steps to not only get pre approved, but to stay approved for a mortgage in Ottawa, here are top three things to avoid.
Late payments on debts
Paying your debts late, whether $5 or $500, will have the same negative impact on your credit. Also, more phone and internet companies’ bills are showing up on your credit. So, it is important to pay them on time too. If your score decreases below a lender’s allowable limit during your approved or pre approved stage, this can affect your application.
Starting a new job
Changing or advancing employment can be a great thing in many cases. However, if you are moving from salary to hourly, bonus, contract, commission or self employment, it is important to know that most lenders will need to see two year’s tenure in your new role for a mortgage. Especially if in an industry that is new to you. Also, if moving to a new job, it is important to know that lenders cannot use your income while on probation. With that, it’s important to have your closing date for after your probationary period is over, if the income is needed in the application.
Taking on more debt
Buying furniture/appliances for a new home, a car, camper or boat for example can be a great enjoyment. However one should check with their Ottawa mortgage broker before taking on this new debt if financing the purchase. The debt payments can dramatically change your application. Plus, it may come with new credit inquiries, which can lower your credit score. For every $100 in monthly debt payments you bring on, this lowers your approval amount by approximately $10,000. Therefore, a $400 a month car payment can reduce your home price approval amount by approximately $40,000.
Documents for a mortgage pre approval in Ottawa
When looking for a home, getting a pre approval is a very important step. The quality or thoroughness of a pre approval review can range from completing an online pre approval calculator to at the other end, having a lender review and approve an application. As well as, having your documents reviewed and accepted by your mortgage broker in Ottawa. Here are the documents you need for a mortgage pre approval in Ottawa.
Buying a house and getting a mortgage is a large step in one’s life. The more detailed the pre approval review, the better the chances there will be no surprises that rise during the process.
Typically an underwriter at bank or lender will not review documents at the pre approval stage so working with an Ottawa mortgage broker to apply for a mortgage in Ottawa can be an extra line of defence. An Ottawa mortgage broker can review your documents upfront and let you know if there will be any challenges.
I am routinely called by very stressed and panicked clients as their bank is not able to approve them for their mortgage, even after being pre approved with their bank originally.
Often in these cases, documents were not verified at time of pre approval. For example, a client who says they earn $50,000 a year, may be hourly, on contract, self employed, including their bonus, on probation, and so on. In all these examples the lender will not be using your current $50,000. The lender will be looking to a two year average of your taxable income or not able to use your income due to being on probation.
Learn more: Self employed mortgage
Learn more: How does your employment affect your mortgage application?
If your average income is lower, this can dramatically affect your pre approval amount when applying for a mortgage. Or if your most recent income is less than your previous year, a lender may only use the lower, most recent, amount.
Therefore, to avoid problems, having your documents reviewed upfront is crucial to assure an accurate pre approval when applying for a mortgage. The best documents to confirm upfront are income and down payment. These are the two most common areas where things can go wrong.
Below is a list of documents that should be reviewed upfront.
- If you are salaried:
- a pay stub
- For all other incomes that are not base salary only:
- a pay stub (if applicable)
- a letter from your employer (if applicable)
- your last two years Notice of Assessments
- your last two years T1 Generals
- last year T4 (if newer to your current employment)
- If you are salaried:
Down payment verification:
- If from the sale of a property:
- the MLS listing
- a mortgage statement
- the sale agreement
- If from savings:
- 3 months of account statements showing the funds history
- If a gift:
- nothing needed at the pre approval stage
- If from the sale of a property:
If you feel you cannot provide any of these documents during the mortgage process, it is better to let your mortgage broker know early in the process. Knowing the documents for a mortgage pre approval upfront will also allow you more time, while home hunting, to be collecting the documents.
Five reasons your realtor wants you to have a pre approval in Ottawa
You’ve decided it’s now time to buy a house and you have come across a listing you list. You call a realtor to go look at it and they ask you, “Have you been pre approved for a mortgage yet?”
Realtors will typically want you to be pre approved before heading out to view homes.
To know how much you can afford
People generally know the price range of house they want to be in however many are not sure how much they can afford. Unfortunately there are a lot of people who desire a larger house then their income can support. A great rule of thumb is a person can qualify for a house about 4.5 times their annual income however condo fees, support payments, your current debt obligations such as a vehicle loan and more can reduce the price.
Seriousness to make an offer
Having a pre approval is like training for a big game or studying for a major test. It shows you are ready and serious about making offer once the time comes.
Surprises with your finances
You may feel very strongly about your finances however there can be unexpected items that can arise once an application is done. Examples are, you:
- were a victim of credit fraud without knowing and it damaged your credit score
- are hourly or contact with great income but you do not have two years of tenure
- are on probation
- have a car loan with a larger payment
- do not have two years worth of favourable credit
- had a few late payments on your cable or internet bill that you didn’t think mattered much
It’s great to know that everything’s in order before looking at a house. If there are some bumps in your finances, whether your fault or not, they can take months or years to fix or grow from.
A strong realtor is one that has all their details in line when going to make an offer. If negotiating a lower price over the course of days or weeks only to have the deal fall through on financing hinders that agent the next time they would like to negotiate with the other agent. Realtors trust that they other realtor has done their due diligence.
Strength when negotiating
If your absolute maximum is $400,000 and you are looking at a $415,000 home, it’s important to know that maximum. This will help you negotiate the offer accordingly and not offer above your limit. Also, you will know upfront the payments you will have for your mortgage based on different house prices. Also, to know if the house is without your monthly budget. Plus, when there are competing offers, having reduced conditions, shorter condition time requests or no conditions can assist in making your offer more competitive.
If you are thinking of buying a home and are not pre approved yet or you would like a second opinion to your current pre approval, I invite you to contact me anytime.