Ask Angela- Pre Approvals
Question: I am so stressed out right now. Two months ago my husband and I, received a pre-approval to buy a home. We found one in our price range and went to our mortgage person. Our application was denied because we bought a brand new car a month ago and have payments on the car. What can we do?
Answer: When you get a pre approval it is for that moment, if your finances stay the same or get better (income raise), the pre approval should be good in most cases.
Pre approvals are just a estimate of what you can afford and whether or not you could qualify for a mortgage, based on the information you have disclosed. But, when you change your financial picture, as you did when you took on car payments,your application needs to be updated with the new information and sent in for another pre approval. With the new pre approval, you will find out how much you can spend on a house.
Unfortunately, you will have to search for a new house, less in value, or increase your down payment or pay off the car, to put you back where you were.
OTHER REASONS WHY YOUR APPROVAL WILL GET DENIED:
Looking at the main causes of home buyers going from pre-approved to declined during the mortgage underwriting process, you will find a number of reasons, it can fall apart. Disclose everything to your mortgage broker and when the lenders come back with questions, be prepared to show paper work and a full explanation. There is a fine line between not disclosing and fraud and since the Lenders do not know you personally, it may be hard for them to tell what your intentions were. Mortgage fraud is expensive to the lenders and they want to make sure they are not taking on any undue risk.
Follow these steps for disclosure and your pre approval should get approved:
- owing back income taxes to the government, most people do not disclose this to tier mortgage broker, because they never think about it.
- shopping for additional credit during the mortgage loan process. Many borrowers believe that once they've obtained the initial pre-approval, they are all good, their credit will not be checked again, leaving them free to take on new debts. Well, 99% of lenders today will recheck your credit the day before closing, looking for new debts that could cause you to no longer qualify for the home. Mortgage brokers should be telling their clients not to take on any more debt until the purchase of the home is done.
-undisclosed family relationship with your employer. They're different rules for home buyers who work for a family member. When you work for a family member, there's a higher chance of fraud because that family member may be more willing to lie about how much you earn or your role in the company. Always disclose this to your broker, especially if you are paid more because of family ties, The lenders may look at the average wage in your occupation and if yours is substantially higher they will look deeper or because it was not disclosed, they may not want to do business with you. Too much risk.
- having a relationship with the seller of the home. When a home buyer and seller have a relationship, there's more room for side deals when it comes to down payment and inflating the value of the home. This makes lenders nervous. You see, lenders rely on an arm's length transaction, where the buyer and seller do not know each other, to make sure the buyer has done their due diligence in shopping for the home.
-making large undocumented deposits into your bank accounts. Most mortgage loans require 90 days worth of Bank Statements. So, if Uncle Fred gives you a large amount of money for your down payment because you are his favourite niece or nephew, get him to sign a gift letter to give to your broker, there must always be a paper trail for your deposited funds.
-a drastic change in your employment. This could include changing positions, changing employers, having your compensation structure change, or losing your job altogether. Changing jobs while you're in the middle of the mortgage process can make things more complicated and ultimately affect the credit decision. The lenders are looking for employment stability.
- Owing property taxes on any other property you own.
-not disclosing mortgages that are owed to private individuals.
-failing to disclose child support or alimony payments you're required to make
-failing to disclose or attempting to hide any other pertinent information.
- always be transparent with the lender through your mortgage broker. If you have forgotten a payment, like Dell or Easy home make sure you tell your broker, so they can update your application.
For questions or comments email akroemer@mortgagegroup.com
