DO NOT make this mistake when applying for a mortgage!
I see it time and time again. A client comes in to get pre-approved, hears some great news (you can buy a house!), and then they make the ultimate mortgage mistake… From the time that they got pre-approved to the time that they made an offer on a place, the client went out and made a separate financial decision.
Keep reading to find out what NOT to do!
If something changes before you buy a home, this could negatively impact the size of a mortgage that you can afford. When you get pre-approved, it is based off of your current income, debts, and credit. A pre-approval DOES NOT mean that you can do whatever you want and still get the same mortgage amount. Here are some things that can change your pre-approval:
- Buying a car with a new car payment
- More credit card debt
- Taking on new loans or lines of credit**
- Quitting your job
- Moving down payment money around
- Missing a debt payment (credit card, mortgage, loan, etc)
I put in asterisks next to “taking on a new line of credit debt” because a lot of people think this won’t affect them much because their minimum payment is only “interest only”. However, the Government of Canada made it mandatory a few years ago to start using a minimum payment of 3% of all revolving debt (credit cards and lines of credit) when qualifying for a mortgage. So even though you are only required to pay the interest every month, we still need to factor in a minimum payment of 3%. So if you took on $10,000 on your line of credit, we have to use a minimum payment of $300/month. And if you were planning on buying at the maximum of your original pre-approval (prior to that new debt), you will no longer qualify for that mortgage.
“What do I do if I am considering adding more debt or quitting my job??”
If you have been pre-approved, check with your broker if you are planning on making a financial change, and they can let you know how that will affect your pre-approval! If you still think you need to make that change, at least you will know how it will affect you. Then you can create a new mortgage plan with your broker to get you into that home!
If you haven’t been pre-approved, contact me ASAP!! It is never too early to be pre-approved. It is best to get pre-approved for a mortgage sooner than later, even if you are still a year or so out from actually buying. If something comes up during the pre-approval (low credit score, job probation, self-employed, collections, etc.) and we catch it early, we can put together a strategy to have everything in place for when you are ready to buy.
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