Things not to do after you get pre approved.
We’ve either experienced or know someone that has gone through a university application. When applying to university, you submit your transcripts and information about yourself. After a few weeks to months, you hear back on whether you’ve been accepted. The acceptance letter comes with conditions though. Your acceptance might be revoked if the conditions are not met or broken. For example, if your GPA drops below a certain level, or if you do not complete the introductory courses. In other words, an acceptance letter doesn’t always fully guarantee acceptance into a program or university.
Pre-approvals, although different, are much the same. You are expected to meet specific requirements while pre-approved for a mortgage. The inability to meet the requirements can cause a lender to revoke the pre-approval until the conditions are met again.
1. Change Source of Income
When applying for a mortgage, a lender looks at a borrower’s source of income. A change in a borrower’s source of income can impact the whole household’s income level. A change for an employee on a salary-based income to a self-employed source of income can greatly impact their ability to borrow and qualify for the original pre-approval amount. A reduction in the source of income can then mean a borrower will no longer be able to meet the monthly payment amounts on the pre-approval. It is important to remember that a pre-approval is based on a specific set of criteria, if this changes, your mortgage broker will need to recalculate your application.
2. Market Exposure
A borrower’s investments can also have an impact on a borrower’s income and pre-approval for a mortgage. Your investments can be used as a source of income. Increased exposure while pre-approved for a mortgage can then affect a borrower’s borrowing ability. All investments carry risks. Different types of investments carry a different amount of risk. An investment like a stock is going to carry a higher risk. More exposure to the market, or more investments, creates more risk for a pre-approved borrower. You might become short on cash if the market were to crash while shopping for a home.
3. Lifestyle Change
A dramatic change in a borrower’s lifestyle post-pre-approval can have a potential negative impact on a borrower. The crowd you hang out with will influence the way you spend money. When you start living above your means, you start to manage your finances differently. Living a South End lifestyle on a Dartmouth budget can diminish the funds you once had. An increase in a debt-to-income ratio, or spending, can cause a lender to revoke the pre-approved amount. It is important to not change your lifestyle habits drastically during your pre-approval. Is racking up additional credit card debt worth it?
4. Applying for additional credit lines
Lenders look at a borrower’s credit score to help determine the terms they are qualified to borrow. The higher a borrower’s credit score, the better a rate they will qualify for. The difference between a great credit score and an excellent credit score can greatly affect the borrower’s qualifying interest rate. Adding new credit lines can be any financed purchase a borrower chooses to make while pre-approved for a mortgage. For instance, taking out a car loan can cause a borrower to no longer qualify for the pre-approval.
Taking out a personal loan in the middle of buying a house is another way that a borrower can lose the pre-approval for a mortgage. Applying for more lines of credit and loans will first impact the borrower’s credit score. The accumulation of the debt will then increase the borrower’s debt-to-income ratio. The snowball effect of a new loan can dramatically alter the borrower’s pre-approval.
5. Missing Debt Payments
As mentioned before, the borrower’s credit score and debt-to-income ratio are major factors in the qualifying amount. Paying your bills on time is one of the most important factors in a borrower’s credit score and debt-to-income ratio. Your credit score decreases and debt ratio will change when payments aren’t made as agreed upon. The lender will see you as a higher risk of default. A lender is looking for a reliable borrower that will be able to meet their monthly mortgage payments. Continuing to pay bills on time while pre-approved is one of the simplest ways to ensure the pre-approval is maintained.
A mortgage pre-approval doesn’t guarantee that a borrower will receive the mortgage amount. A dramatic change in the borrower’s finances can cause the borrower to no longer qualify for the mortgage amount. When looking to see how you can get pre-approved for a mortgage, give us a call at Centum Home Lenders! You can give us a call at 506-854-6847 or get in touch with us here!