Did you know that when are pre-approved for a mortgage you can mess it up? What’s more, even if you have a signed approval there are ways you can mess it up too? The most obvious example is if you lost your job. Income from employment is super important. However, there are other facts too that can impair the mortgage to close properly.
Every situation has is uniquely different. What’s more, there are altative solutions such as private financing that can provide relief. However, for the sake of this article, here 8 tips you can follow to ensure a smooth mortgage closing.
1. Avoid applying for new credit or loans
Applying for new credit cards may lower your credit bureau score. This matters more if your credit score is close to an important lending threshold. Certain lending programs have minimum credit score requirements that can change an approval decision or interest rate. When shopping for a home it might be tempting to open a Home Depot credit card and buy some new power tools. Resist the urge!
2. Leave your existing debt accounts alone
Closing your existing debt accounts can lower your credit score. Cleaning up the accounts might seem like a good idea but the credit bureau report considers the usage of your debt compared to your limit on one credit card. Also, it looks at overall credit availability. Like the Beatles would say… let it be.
3. Keep a paper trail if moving money around
Confirming the down payment is required because of Federal anti-money laundering laws. The way this is done is through 90-day history of the money in bank/investment accounts. Moving money around too much makes down payment confirmation more difficult. Furthermore, moving money around without a paper trail will make it impossible to meet the requirements for confirming down payment. You’re not a money launderer are you?
4. Avoid raising your debt levels
The amount of mortgage you can be approved for is calculated through the debt servicing ratios. Unsecured revolving debt, such as credit cards, have a more punitive effect on the ratios. When your pre-approval was done at on a certain date, it’s quite common for a lender to ask for a refreshed credit bureau report. If the debt that is carried month to month increases then it may push the ratios outside acceptable limits.
5. Keep making your other payments on time
Missing a payment on a phone or internet bill is reported to the credit bureaus. Missing a payment might can have a detrimental impact on your score. Stay on top of your mail and open those envelopes!
6. Resist buying a new car
Cha-ching! Purchasing a car with a loan or lease can again throw off your debt servicing ratios. What was once approvable may not be any more. Furthermore, if you are depleting savings, you may not have enough for the down payment or closing costs. Cars are a big cost with large monthly payments.
7.Don’t change jobs, especially if there is a probation period
A change in employment might be a positive such as a raise. While intuitively, it seems like a great idea, your lender will need to verify your employment. Depending on how you are employed, it may require two years of history before it’s possible. Furthermore, a probation period is a no-no for lenders. If you switch, definitely make sure you speak to your mortgage broker again.
8.Keep your savings intact
Closing a home requires money for a down payment and closing costs. A lender may require you to verify your cash reserves again.
Fixed Rate Update
Fixed rate mortgages are heavily driven by the yields in Government of Canada (GoC) bonds. The bond yield of the 5 year (GoC) bond stayed the same from last week at 1.02%. The rates offered vary from lender to lender and depend upon the factors such as transaction type, product features, insurability, amortization, LTV, credit score, closing period, etc. Today, I’m seeing a range in 5 year rates from 2.24% to 2.94% in the marketplace.
Variable Rate Update
Variable rate mortgages are based on the prime rate of the lender. The common prime rate with lenders is 2.70% and the Bank of Canada has a decidedly neutral bias towards raising or lowering. The discount to the prime rate varies from lender to lender and are impacted by many of the same factors as fixed rate. The rates offered on variable rates can be had for as low as 1.90% to 2.40%.
About the Author:
Ian Mucignat, CFA, is an independent mortgage agent at TMG The Mortgage Group. He graduated from Wilfrid Laurier University with a Bachelor of Business Administration, minoring in Economics and is a CFA Charterholder. Ian has worked in the mortgage industry since 2000 at lenders, banks, and brokerages. If you are purchasing, renewing, or refinancing your mortgage don’t hesitate to contact Ian directly for a free consultation.