The pre-approval stage is a necessary step before you can secure a mortgage. This is why homeowners shopping for different lenders get pre-approved for numerous loans before settling down on the right one for them. While the pre-approval period can last from 90 to 120 days, it’s important to remember that you can still lose your current loan terms under specific conditions.
Losing Your Mortgage During the Pre-Approval Phase
Pre-approval is a necessary agreement between you and your chosen lender on the mortgage you’ll sign. This sets the rates, conditions, and other terms in your contract as you enter an arrangement as a borrower.
Although some homeowners see this stage as a guarantee of their purchase, they can still be denied their loan under specific conditions. Since scouting for a new loan after being denied can be a more challenging feat, you must be wary of the variables that can compromise your value as a borrower.
While you’re in the pre-approval stage of securing your loan, here are three things you need to watch out for:
1. Incurring New Debt
A recurring reason lenders can deny borrowers in the pre-approval phase is to notice a higher degree of debt. This is because having other financial commitments will compromise a borrower’s risk of paying their dues on time. Even a small increase in debt can make your lending company cautious about pushing through with your contract. This is why you need to minimize your credit usage before finalizing your loan.
Keep in mind that securing your loan isn’t an excuse to take up new debt right away. It’s a whole different matter to /project your future financial expenses than actually paying them. Give yourself time to adjust to your new monthly dues before making any significant purchases.
2. Changing Employment Status
Mortgage companies consider your capacity to pay debt consistently by seeing if you have a sustainable income. It’s one of the most important variables when they take in a borrower. If you change jobs mid-way through a loan application, you can be at risk of losing your current deal and terms.
Changes to your employment don’t always reflect negatively on your current mortgage terms. In fact, getting a job with higher pay won’t benefit you in any way. However, it’s best to consult your mortgage broker before you commit to these career choices or if you should finalize your mortgage first.
3. Altered Credit Score Standings
The changes above can greatly impact your current credit score, depending on your financial situation. Small changes to your credit score won’t disqualify you from securing your current loan terms. However, a considerable drop can cause your mortgage lenders to pull away from the current terms.
Besides losing your current mortgage terms, you will find it much harder to apply for a loan in the market. Since your credit score is significantly lower, you will have to settle for loans with low credit score eligibility with considerably higher mortgage rates. This is why it’s best to maintain your credit score standing at least four months until your mortgage finalization.
Consistency is the key to earning the trust of your lenders. It’s a principle that will remain true from the start of your loan application till the end of your mortgage’s term. This is why you should always be sure about the financial choice you make. Thankfully, you can get a second opinion from credible professionals to back up your decisions.
At Ottawa Mortgage Services, we understand that securing a mortgage is a major milestone in every Canadian’s life. For this reason, it’s our goal to provide the right financial strategies with adequate options in the market. Contact us now for a free consultation!