Why your pre approval really was not what you hoped it would be
Some people find out too late the pre-approval they had to buy their dream house was incorrect.
So what may have gone wrong?
There unfortunately is any number of reasons this could happen. One of the most common is the debt payment obligations and how they were calculated.
Normally you have a total debt servicing ratio of 42% to 44% of gross income. Your obligation monthly on the debt you are carrying on the unsecured line of credit you have worked so hard to get. Is only costing you $75 per month for $20,000 and that is great. However under the CMHC new rules you have to add in a 3% payment of that $20,000 and that is $600. Most computerised programs use the obligation that shows up on your credit Bureau which is in this case is just $75 and when the underwriter does their job and replaces the $75 with the $600 you could be now out on your pre-approved home value by over a $100,000. So when does the underwriter generally look at your application? The answer is, when you put an offer of purchase in on the house you have only a few days to arrange financing on.
The second thing is that due to costs most lenders do not even do pre approvals any more so they give you a preapproval which is really just a rate hold for 60-120 days.
Something to think about.
I make sure the 3% is added into your pre approval so you don't get surprised at the last minute.
Does mean all my pre-approvals turn into 100% approvals. Unfortunately no. But by covering off the little details you will have far less surprises and a higher probability of closing on that dream home.
Posted by Allan Burnett
on July 24, 2015