What Not To Do Before Buying A Property In Alberta

Buying a home is one of the largest financial decisions most people will make in their lifetime. Most people consider working with a mortgage broker so they have a rough idea on what price range works to begin their home search. Also, most realtors require a mortgage pre-approval before showing homes, as it confirms a buyer’s purchasing power and helps avoid wasting time for both parties.

There are several levels of mortgage approval. A pre-qualification is quick estimate based on basic information about your income and debts. It rarely requires a document verification or a hard credit check. While this can be helpful, it can often hold you back from the true affordability of your price range.

A standard pre-approval will require a deep dive into your finances. This is where the lender will check your credit score, verify your documents like a tax return, pay stubs and where your down payment source is getting a pre-approval before shopping for a home. Their rate will be locked in for approximately 60 to up to 130 days.

The strongest option is a fully underwritten pre-approval. An underwriter verifies your income, assets, and credit before you find a property, leaving only the property appraisal to be completed once you have an accepted offer. However, receiving a commitment letter does not mean that the process is complete. Lenders often perform a final credit check before closing. Any changes to your income, employment, debt levels, credit profile, or available funds can trigger a reassessment of your application. In some cases, this may result in financing delays, revised mortgage terms or even the withdrawal or mortgage approval.

To Protect Your Home Purchase And Avoid Unnecessary Stress, Buyers Should Be Aware Of The Following Common Mistakes

Do Not Make Any Major Purchases Before Closing

Many home buyers begin planning for their new life once their offer is accepted. While it can be tempting to purchase new furniture, appliances, or even a vehicle in preparation for moving day. However, taking on additional debt before your mortgage even closes can significantly impact your financial profile. Do not take on new debt for items such as vehicles, furniture, or major appliances. This can affect your debt-to-income ratio and mortgage qualification. Discuss in detail your needs with your mortgage broker about any wishes you may have for your future property, such as making upgrades or doing renovations as they may have specific mortgages suitable for you.

When a lender approves your mortgage, they calculate your debt to service ratios based on your existing obligations. Adding new monthly payments can increase your overall debt burden and potentially push you beyond the lender’s acceptable limits.

Examples of major purchases that may create issues include:

New vehicles or vehicle leases
Furniture financing
Appliances
Home improvement materials
Recreational vehicles
Boats or motorcycles
Large purchases on credit cards

Some retailers advertise ‘zero-interest’ financing or ‘buy now, pay later’ programs, which may seem appealing but some lenders will still consider these as obligations when assessing your ability to repay your mortgage.

Do Not Apply For New Credit

Every time you apply for new credit or credit cards, lenders may conduct a credit inquiry. Multiples inquiries within a short time period can negatively affect your credit score and raise concerns about your financial stability. Credit applications would include anything from Credit Cards, Personal loans, Lines of credit, any retail financing amounts, vehicle financing, or home improvement financing. Even if you are approved for the new credit amount but never use it, the lender may still factor the available debt into their assessment. Lenders typically prefer consistency and any inconsistency may signal increased financial risk and could trigger additional underwriting reviews.

Do Not Miss Any Payments

Your payment history is one of the most important factors influencing your credit score. Missing even just one payment during the home buying process can have some implications. As well, a drop in your credit score between approval and funding may result in higher interest rates, additional lender conditions, reduced borrowing capacity and mortgage approval reconsideration. By maintaining a perfect payment history during the purchase process demonstrates financial responsibility and relatability.

Do Not Change Jobs Without Consulting Your Mortgage Professional

Avoid changing jobs or becoming self-employed during the mortgage process. Lenders look for consistent and verifiable income. Changes that may affect your mortgage include, switching employers, moving from full-time to part-time employment, changing from salary to commission-based income, becoming self-employed, taking unpaid leave or reducing your work hours, or losing employment. Even if your new job pays you more than your previous one, the lender may require additional documentation or a new approval process.

Keep Your Downpayment Funds Unchanged

Mortgage lenders must verify the source of your down payment funds. Any large deposits that appear in your account without proper supporting documentation can create delays and may trigger anti-money laundering reviews by lender. This may include, any cash deposits, transfers from unknown accounts, gifts from family members without proper documentation, cryptocurrency liquidations, funds borrowed from friends or relatives. Lenders may request evidence showing where the funds came from. If a family member is helping with down payment funds, ensure all gift letters and supporting documents are completed according to lender requirements.

Do Not Co-Sign Additional Loans

Helping a family member or friend qualify for their own financing may seem harmless, but co-signing creates a legal obligation that lenders will consider when evaluating your mortgage application. Co-signing makes you legally responsible for the debt and can negatively affect your qualifying ratios. If the borrower misses a payment, you will be responsible. Another complication is that your credit may be affected by the borrower’s financial behavior.

Do Not Close Off Existing Credit Accounts

Many buyers believe that paying off and closing credit card accounts will improve their mortgage application. While reducing your overall debt is generally beneficial, closing accounts can sometimes negatively impact your credit score. Closing accounts may reduce your available credit, increase your credit utilization ratio, shorten your credit history and lower your overall credit score. Before closing any accounts, consult your mortgage professional to determine if in doing so whether doing could affect your financing.

Final Thoughts

The period between mortgage approval and possession is often referred to as the ‘quiet period’ of the home buying process. As a buyer it may seem like everything is finalized, but the lenders are still relying on the financial picture you presented when your application was initially approved.

The safest approach is to maintain the status quo until the transaction closes. Keep your employment steady, avoid taking on any new debt, continue to make payments on time, preserve your savings, and consult your mortgage broker or lender before many any significant financial decisions.

A few weeks of financial discipline will help ensure a smooth closing; it will also help to protect your mortgage approval and allow you to take possession of your new home with confidence and ease!

This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. This information may have changed from the date of publication, please contact Kahane Law Office for further information.