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You’ve assessed your finances and the housing market, and researched the various financial options open to you and your household. Then, you took the leap in applying for a mortgage – quite possibly the most significant money-related decision of your life. Now you play the waiting game.
This waiting period is perhaps one of the hardest parts of the home-buying process, determining if you have been approved or rejected for a home loan. While it can be challenging, especially in this red-hot Canadian real estate market, you can be confident in your prospects if you have taken the necessary steps and employed the right strategies to receive approval and attain the best mortgage rate.
But it is not time to throw caution to the wind. In fact, you need to be more careful and judicious in what you do with your finances until you receive the funds to purchase, whether it’s a single-family home in Fraser Valley or a two-bedroom condominium in the Toronto housing market.
So, what are some things you should do? Or better yet, what are some things you should avoid doing, after applying for a mortgage? We have compiled a list of critical aspects you need to consider moving forward.
Key Things To Avoid After Applying for a Mortgage
#1 Avoid Making Large Purchases
You might have had your eyes on a luxury vehicle. You may have wanted to purchase new furniture for your new home. You may even have wanted to change your entire wardrobe in anticipation of your new roots in a different neighbourhood, city or province.
Avoid making large purchases. This is because any significant cash outflow can impact your broader finances. Remember, when you take on a $500,000 mortgage, you are also enduring new monthly obligations, meaning that your debt-to-income ratio will be higher. This is what lenders monitor.
#2 Don’t Co-Sign Other Loans
You may want to help your best friend receive a new car loan or help your aunt get approved for a line of credit by co-signing these credit products. But this can be dangerous since co-signers are legally obligated for these loans if the borrower cannot fulfill their financial obligations.
#3 Refrain from Applying for New Credit
Be it a new credit card or a personal line of credit, one thing you should refrain from doing at this time is applying for new credit. Even if it is something you can afford, a check on your credit report will show that you have applied for new credit, which may affect your credit rating or score.
Remember, you want to have as high a credit score as possible. Even a slight reduction could affect your mortgage application odds. In the interest of a top-notch score, refrain from seeking out additional credit instruments until after you’ve closed on your purchase.
#4 Wait to Change Bank Accounts
Indeed, you might be enticed to change bank accounts because of a promotion or better interest rate, but this is something best left for another time. It would be more prudent to maintain your present suite of bank accounts because mortgage lenders want to source and track your assets and debts, which is easier done through a steadily held bank account.
#5 Keep Your Credit on Ice
By cancelling a credit card, do you think you can enhance your credit score and, thus, improve your odds of being accepted for a mortgage? Well, think again.
It is a common misconception that limiting your credit options can somehow work in your favour. But it is best not to close any credit accounts or cut up your credit card into little pieces, since it will not be beneficial to your prospects of being approved for a mortgage in today’s market.
Remember, mortgage lenders are driven by the depth and length of your credit history, not only your payment history. Overall, mortgage brokers and financial institutions home in on your total credit usage as a portion of available credit.
Let’s be honest: It can be harder to get approved for a mortgage. Average home prices are high across the country, the stress test has been raised, and interest rates are rising. Home ownership can appear to be a daunting task, but it is still within reach if you do your due diligence. If you have the means to apply for a mortgage, you can enhance your chances by being extra cautious as you wait for that life-changing stamp of approval.