Think your pre-approval means you’re in the clear?
Not so fast. Pre-approval is a great first step in buying a home, but it’s not a guarantee that your lender will fund your mortgage in the end.
So, A lot can go wrong if you’re not careful. In Canada, lenders take a much closer look during final approval, and many seemingly “safe” applicants have been rejected at the last minute.
Let’s break down the most common reasons a mortgage pre-approval doesn’t lead to final approval, and what you can do to prevent it.
Case 1: You Changed Jobs or Income Dropped
Lenders want to see job stability. If you switch employers between pre-approval and closing, especially if the new role is probationary, it can raise red flags.
- Job Changes: Even if your salary increased, switching roles or industries could make lenders nervous about your long-term reliability.
- Bonus or Commission Income: If you rely on variable income, lenders want to see a stable history. A recent dip could disqualify you.
Case 2: You Took on New Debt
It’s tempting to buy furniture or a new car before moving in. But any new loans or credit card balances can change your debt-to-income ratio.
- Credit Card Spending: Running up balances can lower your credit score and increase monthly obligations.
- New Loans: Auto loans or lines of credit can drastically reduce your borrowing capacity.
Case 3: The Property Didn’t Appraise at Purchase Price
This one surprises many buyers. If the home you’re buying is appraised for less than the offer price, your lender may reduce the mortgage amount they’re willing to offer.
- Shortfall Risk: You’ll need to make up the difference in cash, or the deal could fall apart.
- Solution: Include an appraisal condition in your offer, or have a contingency plan in case the value comes in low.
Case 4: You Made Large Unverified Bank Deposits
Lenders go through your bank statements closely. Large, unexplained deposits, especially from abroad or from family, can trigger compliance reviews.
- Gifted Down Payments: These must be documented clearly with gift letters and the source of funds.
- Cash Deposits: Lenders may decline your application if the source of funds can’t be proven.
Case 5: You Ignored the Conditions of Pre-Approval
Many buyers think a pre-approval means “fully approved.” But most are conditional pre-approvals, with terms that must be met.
- Missing Paperwork: Failing to submit updated pay stubs, tax returns, or T4s can lead to delays or denial.
- Delays in Submission: If you take too long to satisfy conditions, your rate hold might expire, or the lender may re-evaluate your file.
Why Pre-Approval Isn’t Final Approval
Getting pre-approved helps you understand what you might qualify for, but it’s usually based on preliminary checks. Final approval happens during underwriting, when lenders verify income, reassess your credit, and evaluate the property itself.
During that time, any change in your financial picture or property details can derail the deal, even if you were confident during pre-approval.
How to Avoid Mortgage Rejection After Pre-Approval
Here are a few simple but powerful ways to protect your approval:
- Stay in Regular Contact: Keep your mortgage broker updated about any changes in job, income, or credit status.
- Avoid Major Purchases: Don’t finance cars, furniture, or open new credit lines before closing.
- Don’t Move Money Without a Plan: Always document the source of large deposits.
- Read the Fine Print: Know what your pre-approval is based on and what conditions still need to be met.
- Have a Backup Plan: Save extra for appraisal gaps or unexpected closing costs.
Conclusion
A mortgage pre-approval in Canada is a helpful milestone, but not a guarantee. Job changes, new debt, appraisal issues, or incomplete documents can still derail your mortgage.
If you’re looking for guidance that goes beyond the basics, Pradip Maheshvari can help you move from pre-approval to successful closing with confidence.
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