Friday, 16 October 2015

Top 5 Reasons Your Pre-Approved Mortgage Could Be Declined

Quite a while ago, I wrote about the differences between a mortgage pre-qualification and pre-approval.(Hint: It's ALL about the documents...) While it covered a few of the things to consider, I thought it was worth explaining some of the reasons why even a pre-approved mortgage can be declined. Although I hold myself to an exceptionally high standard, there will always be some things which could cause an decline and which are beyond my control as your mortgage broker.

I just recently had clients call me to inquire why their previous mortgage broker was unable to follow through on their pre-approval(from approx. 4 months ago). I reviewed their application and was quickly able to spot the changes in their situation which made it much more difficult to approve than they had originally anticipated. If their broker had taken the time to explain this to them, they could have not only made the client happy but even worked through it and obtained final approval. Here are some things worth watching out for:

1) Property/Appraisal Problems

It can be very difficult to predict when problems of this type will come up, but I always suggest letting your mortgage broker know about any properties you are considering. Our training allows us to look for details about a property which could be detrimental to your approval, including:

  • A low appraisal, vs. your purchase price(For more on Appraisals, check this out)
  • Rural properties, or properties outside a lender's service area
  • Non-typical homes (Mobile, modular, straw, anything out of the ordinary)
If we take all the potential factors into consideration for a particular property, it becomes much easier to understand if or when a lender may decline, based on your choice of property.

2) Changes To Your Credit

Credit blemishes happen all the time, and can often be overcome when applying for a mortgage. The problem here happens when surprises show up late in the approval process. Some of the potential roadblocks could include:

  • Missed payments
  • Increased balances
  • Accounts which have recently gone to collections
For the most part, these things can be overcome with some planning so my best advice is to let your mortgage broker or lender know in advance if you are anticipating any major changes or surprises. It's understandable that things sometimes change between pre-approval and writing an offer to purchase, but it's easier to explain when we are given the information ahead of time.

3) Employment/Career Changes

I think this one pretty well explains itself. If you change your job between your pre-approval and the time of your approval, it could cause some problems. Here are some tips to remember:



  • Same industry/Type of job = Probably OK, ask your mortgage broker
  • New industry/Different career = Could be OK, ask your mortgage broker
  • Go from employee to self-employed = Probably NOT OK, check with your broker
Mortgage applications are all about trying to tell your story to the lender. If your story makes sense, i.e. you got a great new job in a similar industry, then it should be straightforward to explain this to your lender. If you become self-employed however, almost all lenders will require you to have 2 years of business under your belt before they will give you an approval. Just something to consider when buying or refinancing your home, and considering some job changes at the same time.

4)Increased/New debts or Liabilities

Your monthly payment obligations all count towards what is called your Total Debt Service Ratio(or TDS, See HERE for more info). As your payments increase, your monthly ability to service your mortgage decreases proportionally. Things like:

  • Buying a new car
  • Going on a shopping spree
  • Increasing your payments on an existing loan
Can all affect your approval amount, so consider calling your mortgage broker before driving that new car off the lot!

5) Guideline Changes

If there's one thing to be learned by those in the real estate industry, it is this: The rules are constantly changing. With changes being made by everyone from FICOM to CMHC to the various lenders, the only constant is the changing rules. Some of the guidelines that could change during the course of your pre-approval might be:

  • Debt servicing requirements (See GDS/TDS article for more info)
  • Minimum down payments (See this article for more)
  • Required documentation (For income, down payment, property, etc.)
If either the regulators, the mortgage insurers, or your chosen lender decide to change their policies, then there is always a possibility that it could affect your application. Always put your trust in your mortgage broker, knowing that is it our job to keep you up-to-date on changes like this as they happen.

Are you thinking about getting pre-approved for your next mortgage? Give me a call anytime and I would be happy to sit down with your for a Free Consultation to discuss your needs. Visit my website at www.ryanwsmith.ca for more info, or to fill out an easy, quick online application!

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