{"id":20696,"date":"2023-08-29T08:00:00","date_gmt":"2023-08-29T12:00:00","guid":{"rendered":"https:\/\/www.zolo.ca\/blog\/?p=20696"},"modified":"2024-09-18T10:14:18","modified_gmt":"2024-09-18T14:14:18","slug":"derail-mortgage-pre-approval","status":"publish","type":"post","link":"https:\/\/www.zolo.ca\/blog\/derail-mortgage-pre-approval","title":{"rendered":"5 Factors That Can Derail Your Mortgage Pre-Approval"},"content":{"rendered":"\n\n\n<p>Buying a home is a big step for most Canadians. It&#8217;s exciting and new, and while you can get lots of help along the way, it&#8217;s still a stressful process.&nbsp;One option that can help reduce some of the stress is to complete a <a href=\"https:\/\/www.zolo.ca\/blog\/mortgage-pre-approval\">mortgage pre-approval<\/a>. Getting preapproved helps solidify your budget and gives you more confidence during the buying process.&nbsp;But how do you actually get pre-approved for a mortgage?<\/p>\n\n\n\n<section class=\"wp-block-zolo-related flex items-center py-6 leading-tight border-t border-b border-blacklight undefined\"><p class=\"font-serif pr-6 md:pr-12 mr-6 md:flex-shrink-0 border-r border-blacklight\">Related content<\/p><p class=\"related-link w-full my-0\"><a href=\"https:\/\/www.zolo.ca\/blog\/canada-first-time-home-buyer\">A Resource Guide for the First-Time Home Buyer<\/a><\/p><\/section>\n\n\n\n<p>To get the maximum benefit from a mortgage pre-approval, it pays to learn and understand the process and what does and doesn&#8217;t help.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-what-is-a-mortgage-pre-approval\">What Is a Mortgage Pre-approval?<\/h3>\n\n\n\n<p>A mortgage pre-approval is an initial step that allows you to lock in a specific mortgage rate and terms while giving you an estimate of how much you can borrow.&nbsp;<\/p>\n\n\n\n<section class=\"wp-block-zolo-related flex items-center py-6 leading-tight border-t border-b border-blacklight undefined\"><p class=\"font-serif pr-6 md:pr-12 mr-6 md:flex-shrink-0 border-r border-blacklight\">Related content<\/p><p class=\"related-link w-full my-0\"><a href=\"https:\/\/www.zolo.ca\/blog\/how-much-mortgage-can-you-afford\">How Much Mortgage Can You Afford?<\/a><\/p><\/section>\n\n\n\n<p>A pre-approved mortgage does not guarantee the exact mortgage loan amount you may borrow, but it does provide a reasonable estimate\u2014and this can help&nbsp;guide you in your home-buying process.<\/p>\n\n\n\n<p>While a mortgage pre-approval is optional, it does offer a few significant benefits, including:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Locking in a <a href=\"https:\/\/www.nerdwallet.com\/ca\/mortgages\/current-mortgage-rates-in-canada\">mortgage rate<\/a> (and preventing rate hikes during the locked-in period);&nbsp;<\/li><li>A solid home-buying budget (based on your down payment and the estimated mortgage loan);&nbsp;<\/li><li>Ability to <a href=\"https:\/\/www.zolo.ca\/blog\/how-do-mortgage-payments-work\">calculate your monthly mortgage payments<\/a> based on the home-buying budget;&nbsp;<\/li><li>Shows sellers you are a serious buyer (which may increase your negotiating power).&nbsp;<\/li><\/ul>\n\n\n\n<p>To use your mortgage pre-approval as part of your home buying toolkit you&#8217;ll first need to avoid these five mistakes:&nbsp; &nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"5-factors-that-can-derail-your-mortgage\">5 Factors That Can Derail Your Mortgage<\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"683\" loading=\"lazy\" src=\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2022\/03\/Couple-trying-to-get-pre-approved-for-a-mortgage-1024x683.jpg\" alt=\"Couple handshake mortgage officer, accepting bank loan terms and rates\" class=\"wp-image-20755\"\/><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-1-don-t-exaggerate-your-finances\">1. Don&#8217;t Exaggerate Your Finances<\/h3>\n\n\n\n<p>To get pre-approval, you must provide an overview of what you earn, own and owe. Quite often, a mortgage application ends up coming off the rails because the mortgage pre-approval was based on information that wasn&#8217;t accurate. Hiding or exaggerating your financial situation to get pre-approved only hurts you. If you get pre-approved for one amount but can only get a mortgage for a lesser sum, you could threaten your chances of buying a home. Instead, be clear and honest about what you earn, what you own and what you owe.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-2-don-t-apply-for-new-credit-or-new-credit-cards\">2. Don&#8217;t Apply for New Credit or New Credit Cards<\/h3>\n\n\n\n<p>Whenever you apply to open a new credit account\u2014whether it&#8217;s a new credit card, store account or personal loan\u2014your credit score takes a hit. Your credit score is a critical factor in the mortgage pre-approval and your final mortgage application. The lower your credit score, the harder it is to maximize your borrowing amount and get the best mortgage rates. (If your credit score drops low enough, you won&#8217;t <a href=\"https:\/\/www.zolo.ca\/blog\/credit-score-for-mortgage\">qualify for a mortgage<\/a>.)&nbsp;<\/p>\n\n\n\n<p>To avoid lowering your credit score, pass on the opportunity to apply for new credit, at least for a short period of time, right before the mortgage pre-approval right up until your final closing date. That&#8217;s because you want to avoid <a href=\"https:\/\/www.zolo.ca\/blog\/canada-credit-score\">hits that will lower your credit score<\/a>. Plus, you don&#8217;t want to alter the balance between your debt levels and your available credit levels\u2014both of which are significant factors in your final mortgage approval.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-3-don-t-change-jobs-or-start-a-new-business\">3. Don&#8217;t Change Jobs or Start a New Business<\/h3>\n\n\n\n<p>When shopping for a home and a mortgage, avoid any changes to your employment status. Remember, your pre-approval and your mortgage application are both significantly influenced by steady and predictable income. If you change jobs or opt to become self-employed, you could end up derailing your chances of qualifying for a mortgage\u2014and buying a home.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-4-don-t-make-any-major-purchases\">4. Don&#8217;t Make Any Major Purchases<\/h3>\n\n\n\n<p>There are always hot deals on big-ticket items you want, but when you&#8217;re shopping for a home and looking to borrow for the purchase be sure to avoid making any major purchases. Most major purchases require you to shell out a significant amount of money or to use a large amount of credit\u2014both situations that can significantly alter your debt ratios and the mortgage pre-approval terms. To avoid this situation, it&#8217;s best to avoid any major purchases until after your closing date when additional credit charges or money out of your savings account won&#8217;t impact debt-to-income ratios that are used to determine borrowing terms and rates.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-5-don-t-close-any-old-or-unused-credit-accounts\">5. Don\u2019t Close Any Old or Unused Credit Accounts<\/h3>\n\n\n\n<p>Quite often we&#8217;ll end up looking to clean up our finances when we start the mortgage pre-approval process, which can lead to <a href=\"https:\/\/www.zolo.ca\/blog\/free-credit-report\">big credit mistakes<\/a> that can cost you.<\/p>\n\n\n\n<p>For instance, closing old credit card accounts that are no longer in use can actually hurt your chances of being pre-approved for a mortgage. Closing old accounts will negatively impact your credit history in two ways. First, it decreases the average age of all your credit accounts. This isn&#8217;t good since a longer average account means a higher credit score. <\/p>\n\n\n\n<p>Second, it reduces the amount of credit you have access to, which messes with your credit utilization ratio\u2014a mathematical calculation that compares the amount of credit you have access to with the amount of credit you use. The lower your credit utilization ratio, the better. Closing an old account removes the credit you had access to and alters the ratio.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"what-to-avoid-doing-between-pre-approval-and-mortgage-application\">What to Avoid Doing Between Pre-approval and Mortgage Application<\/h2>\n\n\n\n<p>Getting a mortgage pre-approval helps you gain a better appreciation of how much home you can afford. However, a mortgage pre-approval is only a preliminary step\u2014it&#8217;s not a full mortgage application. <\/p>\n\n\n\n<p>A mortgage pre-approval does not guarantee you&#8217;ll get a mortgage\u2014only an approved mortgage application will guarantee you a mortgage loan. That means if situations in your life change between when you get pre-approved and when you officially apply for a mortgage, you may find the lender less receptive to loaning you the money. <\/p>\n\n\n\n<p>To prevent any sudden shocks to your homebuying process, be sure to get in touch with your mortgage lender or broker if you change jobs, take on new debt, such as a car loan or education fee or take any action that can lower your credit score, such as new credit card accounts, closing old loans or increasing money owed. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"3-tips-for-successful-mortgage-pre-approval\">3 Tips for Successful Mortgage Pre-approval<\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"578\" loading=\"lazy\" src=\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2022\/03\/how-to-get-pre-approved-for-a-mortgage-1024x578.jpg\" alt=\"Couple determines how to get pre approved for a mortgage\" class=\"wp-image-20754\"\/><\/figure>\n\n\n\n<p>It only takes about an hour to complete a mortgage pre-approval, and typically, it can be completed online or through your mortgage broker. To make the most of your pre-approval, follow these three tips:&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-1-get-your-paperwork-organized\">1. Get Your Paperwork Organized<\/h3>\n\n\n\n<p>Even as you shop for a home, start collecting all the necessary paperwork for the mortgage pre-approval (and, eventually, application). You&#8217;ll quickly realize that quite a lot of documentation is required. The good news is the pre-approval process requires relatively little, but it still pays to get all your documentation in order.&nbsp;<\/p>\n\n\n\n<p>Although every lender is different, for most mortgage pre-approval applications, you&#8217;ll need the following:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Official proof of identification, such as a driver&#8217;s license or passport;&nbsp;<\/li><li>Proof of employment (such as a letter from your employer);&nbsp;<\/li><li>A copy of your bank account and investment statements (choose the accounts that hold your <a href=\"https:\/\/www.zolo.ca\/blog\/where-to-save-down-payment-fund\">down payment funds<\/a>);&nbsp;<\/li><li>A list of debts, along with how much you owe;<\/li><li>A list of assets and their current market value.&nbsp;<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-2-shop-around\">2. Shop Around<\/h3>\n\n\n\n<p>Just like all major purchases, if you want to get the best possible mortgage rate and terms, it pays to shop around. Talk to your local bank rep and research online before contacting a mortgage broker.<\/p>\n\n\n\n<p>Remember, a few hundred basis points off your mortgage rate can really help. For example, getting pre-approved at 2.5% on a $500,000 purchase price with 20% down will result in a monthly mortgage payment of $1,792. Find a broker that can get you pre-approved at 2.25% and that monthly payment drops to $1,742\u2014for a total savings of $3,000 over five years.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-3-lock-it-in\">3. Lock It In<\/h3>\n\n\n\n<p>Once you get pre-approved, lock it in and get it in writing.&nbsp;<\/p>\n\n\n\n<p>Most lenders will lock in your pre-approved rate for a specified period of time\u2014usually 30 to 120 days. Locking in your rate means you don&#8217;t have to worry about your mortgage rate rising while you look for the right home. If rates drop, most lenders will match the rate drop and adjust your pre-approved rate accordingly. (If they don&#8217;t do it automatically, ask.)<\/p>\n\n\n\n<section class=\"wp-block-zolo-related flex items-center py-6 leading-tight border-t border-b border-blacklight undefined\"><p class=\"font-serif pr-6 md:pr-12 mr-6 md:flex-shrink-0 border-r border-blacklight\">Related content<\/p><p class=\"related-link w-full my-0\"><a href=\"https:\/\/www.zolo.ca\/blog\/mortgage-pre-approval\">The Essential Guide to Mortgage Pre-approval<\/a><\/p><\/section>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"what-if-you\u2019re-not-happy-with-your-mortgage-pre-approval-loan-estimate?\">What if You\u2019re Not Happy With Your Mortgage Pre-approval Loan Estimate?<\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"683\" loading=\"lazy\" src=\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2022\/03\/Not-happy-about-mortgage-pre-approval-1024x683.jpg\" alt=\"Mortgage pre-approval options\" class=\"wp-image-20756\"\/><\/figure>\n\n\n\n<p>After going through the mortgage pre-approval process, you may be disappointed at the maximum amount you can borrow to buy a home. <\/p>\n\n\n\n<p>If that happens, ask your broker or lender why your loan amount is lower than anticipated. <\/p>\n\n\n\n<p>You can also take steps to rectify some of the more common obstacles that prevent higher mortgage loan amounts. <\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>If your debt ratios are too high\u2014meaning more of your earnings go to paying off debts \u2014 it&#8217;s best to pay down debt. Tackle the debt with the highest interest first, focusing on reducing the overall debt before applying for a mortgage.  <\/li><li>Another option, if your debt ratios are too high, is to increase your income. The more income you earn, the lower the ratio and the more favourable you are to a lender. <\/li><li>Focus on increasing your credit score. The higher your credit score, the easier it is to qualify for a larger mortgage with better rates and terms. Read more on the ten steps to quickly improve your credit score. <\/li><li>Increase your down payment. When you put more money down on a property, you end up borrowing less, and this helps you qualify for a loan. <\/li><li>Finally, you can consider putting your house-hunt on hold. If your required loan and pre-approval amount are miles apart, you may want to put the home buying search on hold and focus on saving more, earning more and paying down debt. <\/li><\/ol>\n\n\n\n<p>While it can be disappointing to qualify for a smaller mortgage than you want, there are strategies to help you improve your creditworthiness\u2014and ways to increase your chances of getting approved for larger loans and better rates. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"final-thoughts\">Final Thoughts<\/h2>\n\n\n\n<p>A mortgage pre-approval is an important part of the home buying process. Although not a required step, getting pre-approved can be helpful since it provides a clearer picture of how much home you can afford and gives you an edge when negotiating with sellers. To avoid disappointment, follow the above steps and keep your mortgage pre-approval on track.&nbsp;&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Here&#8217;s how to avoid disappointment and maximize your chance of approval<\/p>\n","protected":false},"author":22,"featured_media":24166,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[47],"tags":[],"guide":[],"class_list":["post-20696","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buying"],"acf":[],"zolo_excerpt":"","_links":{"self":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/20696","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/comments?post=20696"}],"version-history":[{"count":8,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/20696\/revisions"}],"predecessor-version":[{"id":24167,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/20696\/revisions\/24167"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media\/24166"}],"wp:attachment":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media?parent=20696"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/categories?post=20696"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/tags?post=20696"},{"taxonomy":"guide","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/guide?post=20696"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}