Whether you are a first time homebuyer, or someone who has been through the process many times before, purchasing a new home can be an exciting experience. The excitement can however turn into a nightmare, so it’s important that you have an understanding of how the mortgage approval process works.

This can help prevent any potential complications along the way, which will lead to a smoother mortgage closing and better overall experience with the mortgage process. And providing you with a better mortgage experience is what we’re all about!

Let’s start off by discussing what it means to have an ‘approved’ mortgage.

 

The Mortgage Commitment

When your mortgage is approved, the lender will issue a mortgage commitment. This is a conditional approval based on satisfying certain conditions, such as income, down payment, etc. We’ll request the main documents from you prior to submitting your application for approval, however mortgage lenders do not generally review them until they have received the signed commitment back from you.

In other words, they will often issue the commitment without looking at a single document.

This is why accuracy on the application is paramount.

If we’re handling your mortgage for you, we’ll ensure that your application is 100% accurate before submitting it for approval, which is why we’ll ask you for all the documents up front. When we receive the commitment from the lender, you can be assured that the approval is solid. While receiving a mortgage commitment is worthy of celebration, it still doesn’t mean that you’re ‘fully approved’.  

 

When Is Your Mortgage Fully Approved?

Once the lender has confirmed that all conditions have been satisfied, we’ll advise you that your file is now complete, meaning nothing else is required from you. This is as close to a full approval as you can get, however mortgage lenders do not issue any formal documentation stating this.

Regardless of whether you’re dealing with a major bank, monoline lender, trust company, or credit union, you’re not fully approved until you’ve signed the final documents at your lawyer’s office before closing. Things can and do pop up, which is one of the reasons why I’m always stressing the importance of choosing the right person to handle your mortgage for you. This can prove to be a costly decision. 

If anything changes with your situation prior to closing, then mortgage lenders may need to revisit your approval. This can be done right up until closing date, which is why this is so important. The lender has issued the commitment based on the information provided to them on your application. Should any of that that information change prior to closing, then the lender may need to re-assess your approved status based on the changes.

As long as there are no significant changes to your situation, then there should be no need for concern. A lender is not going to pull your approval unless they have a valid reason. It still might be okay to make changes prior to the closing of your new purchase, but make sure you run them by us to ensure that they won’t have any negative effect on the status of your mortgage approval.

 

Changes That Can Negatively Affect Your Mortgage Approval

Some of the changes people make that can affect their mortgage approval are most commonly around the following three points:

  • Employment
  • Debt
  • Applying for new credit 
  • Closing credit accounts 
  • Down payment

 

Employment

Sometimes better employment opportunities may come up that you simply cannot ignore. However, changing employers can create complications with your mortgage approval if done before your closing date. It doesn’t matter if it’s for a higher salary, has a better benefit package, or has more potential for advancement. The lender has approved your application based on your current employment, not on your new employment.

A change of employer means the terms of your original mortgage approval has also changed. This means that the lender will need to re-approve your application based on the new job.

If you are thinking of changing your employer prior to your closing, then I would strongly recommend speaking to us first to ensure that you won’t have any issues, regardless of how good the opportunity is.

It may be okay, but it’s also possible that it might not be. Every situation can be a bit different, so be sure you come to us prior to finalizing your decision.

The lender will usually call your employer to verbally verify the information on your job letter. We always aim to get this done as soon into the process as we can, however some lenders may wait until closer to closing.

Always check with us before making any changes to your employment to ensure that it won’t negatively affect your mortgage approval.

 

Debt

Your application was approved based on the debt reporting on your credit bureau at the time of application. If you’re planning on leasing or financing a new car, boat, or even furnishings for the new home, then it’s best to consult with us first.

Never assume that the lender won’t find out about it.

While it’s unlikely that they’ll do another credit check, there is no guarantee they won’t. They have every right to do so, and don’t need your approval to do it. They have an active mortgage application from you, which automatically gives them this right, regardless of which lender you’re dealing with.

If you take on additional debt, and your debt-to-income ratios are no longer within qualifying limits, then this would create an issue with your approval. Always make sure you check with us before signing the lease agreement on that new Porsche you’ve been salivating over.

 

Applying for New Credit 

It’s not just taking on new debt that you have to be cautious of, but the mere application for the new credit itself can be an issue. Anytime you apply for a new credit account, your score will drop. Not only from the credit check required, but it will also drop when the new credit is issued and starts reporting on your credit bureau.  Sometimes you may not even know your score is being checked. For example, if you take a new car for a test drive. The car dealer will generally require you to leave your credit card. This gives the dealer all the information they need to check your credit, and quite possibly will. This allows the dealer to present you with your financing options when you return. 

If your credit score was already on the border, the additional credit check combined with the issuing of the new credit can result in a double drop to your score. For most people with solid credit, this would not have an impact on your mortgage approval. But if you’re credit is on the fence, then this could be all it takes to move your score from a qualifying one, to one resulting in the mortgage lender pulling your approval. Just as they have every right to pull your credit again before your new mortgage closes, they also have every right to pull your approval should your credit score drop below what they lender requires to approve you. 

Your credit bureau will also indicate who pulled the credit. If the lender says that you have a credit check from Ford Credit, for example, that tips them off that you could be taking on a new loan, which could lead to additional questions before your new mortgage closes. 

 

Closing Credit Accounts 

Many are not aware that closing credit accounts can also hurt your credit score. Even if it’s a car loan that you’re about to pay off in full. Whether the payoff is from a lump sum payment, or whether you pay it off by reaching the end of your scheduled payments, it would be viewed as a closed account which would then lower your score. 

Closing credit cards that are newer, or dormant will not have the same impact as closing those that are older and/or used more frequently. It’s best to close newer credit than it is older credit. The longer a credit card has been reporting on your bureau, the stronger your credit appears.  Closing these older accounts would also result in a larger hit to your credit score. 

If you are planning on closing any credit accounts, it’s highly recommended that you wait until after your new mortgage closes before doing so. It likely won’t have any impact on you either way, but it’s best not to take that chance. The combination of adding new credit while closing old credit, however, can result in a more sizeable drop to your score. 

 

Spending Your Down Payment

I know it may sound obvious, but you’d be surprised some of the things we see. Just because a lender has approved and signed off on your source of down payment, it doesn’t mean that you’re free to do what you want with the money. Remember, you still need to bring the funds into your lawyer’s office prior to closing.

Make sure you have a detailed discussion with your lawyer about closing costs, so you’ll have a solid idea of how much you’ll need. Mortgage lenders will need to confirm that you have 1.5% of the purchase price to put towards closing costs, however the actual cost can be much higher.  

Land transfer tax in particular can be a significant expense, especially if purchasing in Toronto. This can catch some off guard, so it’s best not to go on a spending spree until you have confirmed your exact closing costs. You can check out the Land Transfer Tax Calculator which will let you know what to expect. You’ll still want to confirm this with your lawyer to ensure everything is accurate, and that there are no surprises at closing.

 

Conclusion

There are many things that can go wrong with a mortgage approval, whether you’re at the preapproval stage, or after your offer has been accepted. Having a seasoned, reputable professional handling your mortgage can help to eliminate potential issues with your approval.

Regardless of who’s handling your mortgage, unforeseen issues can pop up. You’ll want to ensure you’re dealing with someone who will be there for you when you need them, and who isn’t going to disappear on you at the first sign of a challenge. Nothing will create more anxiety than having an issue and your broker is nowhere to be found. This applies equally to brokers as well as mortgage specialists at the big banks.

A mortgage is a huge financial decision, and there is a lot of money at stake, so I can’t stress this enough. Choosing the right person to handle your mortgage for you is one of the most important considerations to make. You can have a great experience with your mortgage, or it can be a nightmare, which is why you should never choose someone to work with based on rate alone.