A mortgage approval is based on the favourable combination of your current debts, income, credit score and more. As some time can pass from when you receive an approval for a mortgage, to when you close on your home purchase, many things can arise during that time. Some examples are, buying furniture for your new home, a new car, a new job opportunity, closing or consolidating debts and so on. Once you are approved for a mortgage it is important that your finances stay constant.
If there are potential changes to your financial situation, it’s important to review them with your mortgage broker first. Many mortgage lenders, when closing in over 120 days, will want updated documents at the 120 day mark and some will check your credit again 30 days prior to closing.
Top five things to avoid once you are approved for a mortgage:
1) Having your credit pulled again by another bank or mortgage broker
If a lender checks your credit again prior to closing and sees that other mortgage brokers or banks have pulled your credit this could be seen by the lender as credit seeking. This could jeopardize your approval. Also, your credit score is an important part of being approved and there are minimum score requirements. Each time someone pulls your credit, it lowers your score.
2) Applying for more credit or spending large amounts on credit
The more debt you have, the higher your debt to income ratio is. Lenders and mortgage insurers (i.e. CMHC) have strict maximums to these ratios and it’s important to have them in line.
3) Closing or consolidating debt
Not all debts are bad. They can help maintain or increase your credit score and show a history of favourable payments. Plus, many lenders and mortgage insurers will want to see at least two revolving credit items successfully being paid on time.
Learn more: How to build your credit score
4) Moving funds around accounts or to/from other people
Having a paper tail of all the funds being used for the down payment is important. Lenders want to see a 90 day history of the funds used for the down payment and closing costs. If there are any large deposits such as cash deposits, e-transfers, wires, etc. a lender will want to see the history of those funds. Also, if lending funds to anyone or getting funds back that were lent to you, it’s important to have a paper trail for this.
5) Changing employers, roles within the same employer, or type of employment
Having stable, secure, tenured employment is important. Moving to consulting, contract, self employment, hourly and so on, may affect your application.
For non-salaried employment, lenders will want to two years of tenure and they will use an average income of these two years.
Also lenders cannot use the income from an applicant that is currently on probation. With that, a completion of the probationary period before closing is important.
Learn more: Self employed mortgage