In a city like Toronto, obtaining a mortgage pre-approval is considered a major achievement, especially when it comes to buying a home (whether it’s a house, a loft, an apartment or a condo). The current condition of the city’s housing market is a drop-in supply due to high prices and a slowdown in construction.
However, reaching this point does not mean the buyer is in the safe zone. Between the moment they are pre-approved and the day they close in on the property they buy, changes in their finances and financial situation can significantly affect their mortgage approval status.
That’s right! Changes in financial status and situations can make or break the mortgage pre-approval.
What Should Prospective Buyers Do During The Mortgage Pre-Approval Process?
Fortunately, for buyers, there is a way to safeguard their financial status as well as other factors that can safeguard their mortgage pre-approval. For this to happen, there are some moves they should avoid during this crucial stage so they can have a smooth home purchase without any hurdles.
A Job Switch Can Be Tricky
Leaving one job for another for improved pay, moving up the career ladder and for improved development is a good thing in life. However, in terms of mortgage pre-approval, it is seen differently. Why? Because this depends in part on your employment history, employment consistency and income.
If buyers make a prominent change in their employment, then it can cause lenders to reevaluate their qualifications. Some transitions have a likelihood of mattering more than others, like leaving a stable job for an unstable, commission-based job and the like.
Forgetting To Make Important Payments Is A Sign On Defaulting On A Loan
What makes a prospective home buyer credible to a lender? Simple; they can pay down their loans and debts in time. In comparison, if a buyer forgets to make even one crucial payment, then the lender will not take that kindly as it signals the risk of them defaulting on their mortgage.
To prevent this from happening, all prospective home buyers should complete their monthly obligations. That will keep their credit scores intact and consistent.
Making An Expensive Purchase Can Topple The Approval
If buyers are looking to make an expensive purchase, such as buying a sports car, a whole new set of living room furniture, a hot tub or a first-class vacation package to Bora Bora; they need to consider putting it aside while their loan application is in process.
Why? Because such purchases can put a buyer in more debt than they already have. This is among the major factors’ lenders look at when they think of whether or not to grant the prospective home buyer a mortgage pre-approval.
Unless and until buyers qualify by a considerably large margin, a slight shift in finances can have a major effect on their mortgage’s status (and approval obviously).
Do Not Switch Banking From One Bank To Another
At times, banks can anger and disappoint their customers. Sometimes, a competing bank can offer great offers and services no one can even think of overlooking. However, prospective homebuyers should not switch their banks. Their banking history and status are part of the process that leads them to get their mortgage pre-approved.
Avoid Depositing Large Sums Of Cash In The Bank Account
Lenders often feel uneasy when they see a large amount of money coming out of nowhere, in the account of mortgage applicants. They often prefer applicants having the money going to their down payment from the same bank account for some time.
This is what lenders refer to as seasoning. This exhibits the applicant’s ability and stability in covering loan payments. If mortgage applicants make a large deposit of cash in their account and make unexpected purchases with it, then lenders will scrutinize the loan and even cancel the mortgage application.
Even the bank will scrutinize the finances and might result in the account getting temporarily frozen, especially if the transactions are unverified and never happened before.
Do Not Apply For A New Credit Card
Any move hurting the buyer’s credit will overturn the mortgage pre-approval and approval. Hence, buyers should avoid applying for new credit cards. These applications also evaluate the applicant’s credit and it can reduce their score when it comes to applying for a housing mortgage.
It is wise that buyers avoid taking unnecessary credit risks and wait until the mortgage is approved. Then they can think about applying for a new card.
Avoid Being Another Person’s Loan Endorsers
Helping out a family member, sibling, cousin, relative, friend, partner or another loved one is not a bad thing, even if the buyer endorses for their loan. However, they should not do this before they have finalized the purchase of their home.
If they decide to do so, this will appear on their credit report and they could be held liable for them defaulting on their loan.
Avoid Depleting Cash Savings By Paying Off All Debts
Paying off all debts on time is not a bad thing. However, in the process of buying a home from a listing of luxurious Toronto Condos and applying for a mortgage in this matter; it can have unintended outcomes.
Why? Because it reduces the buyer’s cash reserves, and this affects the credit. At times, such a change in cash reserves may not make an issue but explaining the source of income for paying off the mortgage might become tough. Buyers should be prepared for such.
Conclusion
It is always easy to dream about a new home and imagining oneself in it. When the mortgage is pre-approved, it becomes easy to decide a home from listings available. But prospective home buyers must be alert about their finances.
Before buyers make any changes that can affect their finances, they should always keep a check on existing debt and loan payments. They should also talk to the lenders as well in this regard.
Saving money to buy a home in Toronto is becoming a distant and expensive reality these days. Its time that prospective home buyers see for themselves the mistakes that are commonly made by most buyers (especially the ones mentioned above) and take remedial steps to overcome it. Eventually, they won’t face heartbreak when it comes to a mortgage pre-approval getting approved.