Why a mortgage pre-approval does not guarantee a mortgage approval!

A majority of consumers shopping for a home believe that obtaining a pre-approval guarantees mortgage financing. This is one of the most common misunderstandings of the home buying process. In this video I breakdown the risks still involved in purchasing real estate after getting pre-approved.

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A mortgage pre-approval does not guarantee mortgage financing.

[00:01] - Kirk

Did you know that if you get a preapproval for a mortgage, it does not guarantee that you're going to get a mortgage approval when you're ready to purchase? Let's talk about why!

Generally, homeowners armed with a preapproval shop with more confidence and they should, as they know at that time, how much they can qualify for, but why would a preapproval not automatically guarantee a mortgage approval?

The two main reasons are pre-approvals contain no information about the property and the risks associated with it, nor do they take an account any life changes you have between your pre-approval and the time of purchase.

Property Risks

[00:36] - Kirk

1-Appraisal Risks:

Let's dig a little deeper into that. Let's talk about property risks. The five major risks about a property are number one, appraisals. Depending on what you purchase for a house, an appraisal still needs to be done so the insurer can guarantee that value. In hot markets like Toronto, a lot of houses are selling way over asking. The lender can't verify that. value is actually the market value of the property. A buyer is going to be stuck trying to figure out how to pay the difference between the appraisal and the purchase price.

[01:05] - Kirk

2-insurance risks:

If a house has asbestos, knob and tube wiring or aluminum wiring, all these can create problems when trying to find an insurer.

3-Location Risks:

A lot of lenders only lend in certain locations. It's important to be only looking for homes within the criteria of the lender that you have your pre-approval with. This is becoming more common now with more buyers getting out of the city due to high prices and being able to work from home.

[01:38] - Kirk

4- Farms

Anything that looks like a farm is considered agriculture and that is a completely different type of mortgage.

5-Condos:

Some lenders have blacklists for certain properties due to certain issues with the management team. Also, condos should be over five hundred square feet. Anything under five hundred square feet is considered a micro condo. Yes, you can still get a mortgage for them, but they should have a defined bedroom. Now, let's talk about life changes between when you got your preapproval and purchase.

Life Changes

1-Employment Risk

[02:08] - Kirk

Now, let's talk about life changes between when you got your pre-approval and purchase. Did your employment change, were you on salary but now your hourly, do you now work for yourself? Do you have commission-based income all of a sudden, or are you seasonal all of a sudden? All of that can greatly affect your mortgage approval.

2-Debts

The second part of life changes is debts. Did you go out and buy a nice car or a boat? Have you racked up a lot of credit card debt since the preapproval? All of this can greatly affect your application.

[02:33] - Kirk

My name is Kirk. I love to talk about mortgages. Please feel free to reach out to clarify anything from this video or anything else you want to know about mortgages.

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