There is a common myth that once you completed all your mortgage paperwork and you’ve been approved by a lender it’s all done. Yes, a lot of the hard work within the mortgage approval process has been done, but remember, the process is still in play until the closing date, and there still are risks which can impact your financing.
In a nutshell, a lender approves you based on a snapshot of your financial situation, including your income, credit, assets and liabilities. With your application at the time of submission you are saying to the lender that you promise this does not change before closing. The lender does have a prerogative to re-check the situation prior to closing. Common example include closer to closing pulling credit again, verifying employment or requesting updated documents. This in particular can occur if the closing is much farther out from the time you submit the application.
Here’s a short list of changes that could potentially impact your financing prior to closing. All this can be avoided with a proper conversation with a mortgage broker. It’s best to be upfront so there are no surprises to your financing situation and a proper plan can be formulated.
Don’t have your credit pulled by another broker or lender. The lender will often pull your credit again right before financing. If the lender sees that other brokers or lenders have pulled your credit the lender views this a credit seeking and can put your funding in jeopardy.
Don’t apply for new credit. This includes getting a new furniture store credit card (‘no payments until x years’). The lender calculates your debt based on the amount of credit you have. If you are applying for new credit, the obvious assumption is that you are planning on using it. Don’t get any new credit until the closing date is passed.
Don’t increase your debts. This includes financing or leasing a car. The lender always looks at your debt to income ratio. If you increase your debt, you can risk going over the maximum amount of debt compared to your income. Car payments can be particularly impactful to debt ratios.
For investors, don’t purchase another property in the meantime. This means having a signed back offer, even if this other property closes after the subject property. The lender has underwritten your application with the understanding of your current entire rental portfolio and your particular debt ratios. Now you are adding one more, which is a material change.
Don’t close any old credit accounts. Credit is not a bad thing…. unless you are having a hard time managing it. Old credit shows a long history of being able to handle credit. Lenders like that.
Don’t change your job situation. The lender assumes you are producing income the way you presented it at the time of application. Losing or changing your job is a material change.
Don’t wait until last minute to have lawyer review the condo status certificate and then report any discrepancies. Any issues need to be addressed upfront, during the financing condition. If unresolvable, the financing condition protects you and you can walk away.
With proper planning and communication, the mortgage process can be manageable and predictable. Ultimately it’s in your hands. You have to take responsibility and use common sense when you are in the closing process.