Have you been pre-approved for a mortgage? Has anyone actually reviewed your income, and down-payment documents, or looked at your credit bureau? Being pre-approved often just means a few questions were answered regarding your income, and voila you have a rate being held for the next 120 days. This does not mean you have been pre-approved for a particular mortgage amount. That process is what I call being Pre-Qualified. It means a mortgage expert has verified your income, and down-payment and has also examined your credit bureau. They would then find where you would fit with many lender’s policies, or maybe just the 1. Its a specific process and sometimes at the end of it we can get a rate hold for you.
Getting pre-qualified for a mortgage is great, congratulations if you have been. But, that doesn’t mean that your mortgage is completed locked in. There are many factors at play that could have an impact on you when you actually go to put through your application and want to use the loan for your offer.
Some of these factors include:
Changes to your application
This means that there have been some kind of major changes to your application. Perhaps you decided to get a jump on furniture shopping, so you took out a small loan for some new items. Perhaps you changed jobs. The list goes on. But, these changes can have a significant impact on whether or not a lender ACTUALLY gives you the amount you were pre-approved for.
The lender isn’t a fan of the property you’re buying
Just because you love the property, doesn’t mean the lender will. What a lot of people don’t know is that there are quite a few property types that lenders don’t always lend on. Some of those include:
- Leased land or co-op
- Age-restricted property
- Any reference to water or leaks in the minutes
- A “fixer upper”
- Contains asbestos, vermiculite insulations or has (even partial) knob-and-tube or aluminum wiring
- Is on land with a commercial zoning component
- Livestock is present, etc.
- Size of the property- below 500 sq. feet,
- Doesn’t use municipal sewage or waste
- Over 1 Acre and/or multiple buildings
- Ongoing or upcoming assessments or legal proceedings
So, if you’ve been pre-qualified, but then go to put your paperwork through with a property the lender doesn’t like, they have every right to turn down your application. This is why it’s SO IMPORTANT to include a “subject to financing” clause. Pre-qualified or not, you always need to have this component!
Always have a subject to financing clause
At the end of the day, financing can be very subjective. So, if you include a “subject to financing” clause, then you’re 100% protected if you can’t find a lender for the property you’ve put in an offer on. Being pre-qualified for a mortgage doesn’t guarantee you will be approved, but it will give you your spending ballpark. You know what you qualify for, so you can tell your real estate agent, and start looking at homes that are within your price range. Have close contact to your Mortgage Expert when you want to put offers can really make a difference on your outcome. They will be able to update your file, and examine the property, so the end result of you winning your offer is much higher.
It is not a green light to start throwing out offers. So, make sure you take the proper steps to make sure you are protected. And, keep in mind that mortgage pre-approval does not mean that you are guaranteed to get your mortgage.