How to Avoid haing your Mortgage Pre Approval " Unapproved+"

 It happens every year.  A client will go to a mortgage broker or the bank and get a pre-approval and then go house hunting.  They find a home and make an offer which is accepted. They then go back to the lender with the offer and all the paperwork and all of a sudden, they are not approved.

 How did that happen? What happened to the preapproval?   What most people do not realize is that a preapproval is a brief overview to see if you are creditworthy and it tells you how much you can afford. The preapproval is really no more than an interest rate hold.

   Inexperienced bank employees and a few brokers fail to give their clients the 5 Commandments when they give their clients the preapproval.

 Here they are:

1-      Don’t make any large purchases – don’t buy a new car or change the lease. Do not go out to buy the new furniture for your home until after the mortgage is approved. Even if you have one of those no payments for 90 days plans from the Brick, Sears or Leons , they do appear as purchases made at this time on your credit bureau report.

2-      Don’t apply for new credit – I know the zero down balance transfer looks appealing but you don’t need another hit on your credit bureau. Put off the temptation until after the deal is done.

3-      Keep your job – This may sound like a no-brainer but there are a lot of people who will switch forgetting about the 3 month probation or will become consultants which means they are self-employed. Don’t change industries.  More than one mortgage has been shot down by a job change.

4-      Pay your bills – pay them on time and don’t let the balances get close to the credit limit.

                           If you let your balance get close to your limit you can lose 30 points. Go over by a                   dollar and you will lose 35 points in a flash. Lenders often check for credit score drops in the days leading up to your visit to the lawyer’s office.

5-      Don’t move large amounts of cash around in your accounts. If you are receiving a gift for your down payment from your parents be sure to photocopy the cheque and the deposit receipt. Money laundering is a big worry with lenders so you should wait until your broker tells you it’s okay to move funds.

Finally,  be aware that the lawyer will ask you for 2 pieces of identification. If you make an offer on a house use your formal name, not your nickname. If the name on the offer and the name on your identification do not match you could delay or kill the home purchase at the last minute.

Let’s face it. Buying a home is a life changing event. Deal with a professional mortgage broker and you can avoid making stupid mistakes that will deprive you of owning the house of your dreams. 

Get your pre-approval by contacting me via my website.  

What's the Score ? How to Improve your Credit

The credit score, also referred to as a “FICO score,” is a mathematical formulae created by Fair, Issac and Company.

The credit score is used by most companies to decide if the applicant is a good credit risk or not. Equifax and Trans Union will calculate the numbers from the credit report and generate a number between 300 and 900.

A low score indicates a bad risk. A score of 680 or more puts the applicant in the lenders’ good books.

How scores are calculated:

Factor Weight Points Payment History Bankruptcies, late payments, past due accounts and wage attachments, collections, judgements - none is better 35% 315 Amounts Owed Amount owed on accounts, proportion of balance to total credit limit - moderate use is best 30% 270 Length of Credit History Time since accounts opened, time since account activity – The longer you have had your account open, the better. 15% 135 New Credit Number of recent credit inquiries, number of recently opened accounts - less is best. 5 per year max. 10% 90 Types of Credit Number of various types of accounts (credit cards, retail cards, mortgage) - variety is good 10% 90 Potential Totals 100% 900

 

Fair Isaac reports that the American public's credit scores break out along these lines. It would be similar for Canadians.

Credit score	Percentage
499 and below	2 percent
500-549	5 percent
550-599	8 percent
600-649	12 percent
650-699	15 percent
700-749	18 percent
750-799	27 percent
800 and above	13 percent

How Clients Can Improve Their Credit Score

1. Order a copy of the credit report, review it carefully and correct any significant errors. 
2. Pay bills on time. 
3. If there is a questionable credit history, they could open a few new accounts and use them responsibly, paying them off on time. 
4. Avoid opening accounts without intention of using them. You can, however, open it use it once and then maintain a balance of 0 which will build up your score.
5. Having a credit card or instalment loan can help boost a credit score, as long as the balance is not too high. 
6. Keep balance low in relation to available credit. If the credit limit is $1,000, keeping the balance below $500 (or 50 per cent of the limit) will improve the score. Balances of more than $750 (or 75 per cent of the limit) will decrease the score. Going over the limit has an even more negative effect and you can lose 35 points quickly.
7. Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (i.e., “balance transfer”) and closing an old account can hurt the score.

 If you would like advice on how to improve your credit score so that you can buy a home contact me through my website at davidcooke.ca