An approval is based on the favourable combination of your current debts, income, credit score and more.
Once you are approved for a mortgage it is important that your finances stay constant and if there are potential changes to your financial situation, it’s important to review them with your mortgage professional first.
As some time can pass from when you are approved for a mortgage, to when you close on your home purchase, many things can arise during that time, such as buying furniture for your new home, a new car, a new job opportunity, closing or consolidating debts, and so on.
Many 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.
Here are some things that can affect your approval:
1) Having your credit pulled again by another bank or broker. If a lender checks your credit again prior to closing and sees that other brokers or banks have pulled your credit this could be seen by the lender as credit seeking and could jeopardize your approval. Also, your credit score is an important part of the approval and there are minimum score amounts that need to be met. Each time your credit is pulled, 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 (ie 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.
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 your type of employment. Have stable, secure, tenured employment is important. Moving to consulting, contract, self employment, hourly and so on, this may affect your application.
For non-salaried employment, lenders will want to two years 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, so the probationary period would have to be completed before closing.