Can a Mortgage Be Approved & Then Be Revoked?
For most home buyers, obtaining a mortgage is a requirement to purchase a property. Once you’re approved, you feel so relieved! Congratulations! Now you can rest easier and start packing & preparing for your new home.
Although rare, there are certain situations when the approval can later be revoked. Reasons vary and the most common reason is fraud; but sometimes changes in your financial or employment situation and even factors beyond your control, can cause an approval to be revoked.
If you take on more debt
If you’ve been approved for a mortgage, it is based on your current debt(s) at time of underwriting/approval. You are well advised to do nothing that might affect your credit until after the mortgage funds. If you take on additional debt: co-sign a loan, buy a new car, or buy a bunch of furniture on credit before your home purchase closes – you will increase your debt ratio and you may exceed what is allowed. Typically, mortgage lenders run an updated credit report one final time just prior to closing.
If you change employment
In my experience, this is the most common reason for a lender to cancel an approval when the change wasn’t disclosed. If you have quit your job, changed your status (dropped from full-time to part-time) or been laid-off. Also, do not change employers (even if for more money). Lenders normally call your employer a day or two before funding.
Don’t spend your down payment
I know it seems crazy to have to say this, but I have seen it happen. If you commit to a mortgage lender that you will put down a $50,000 down payment for example, then a $50,000 down payment is what you must provide to your lawyer before closing. You cannot take your $50,000 and have an upscale European vacation instead (true story). If you no longer have your down payment money, this is a problem. There can be no changes unless the file is re-underwritten and re-approved.
Fraud on your application
Equifax Canada data notes a 52% rise in suspected fraudulent mortgage applications since 2013. Mortgage lenders will revoke an already approved mortgage before funding if they discover a borrower has exaggerated income, provided falsified paperwork, arranged for an inflated appraisal or gave erroneous property details, and/or flat-out lied on your mortgage application in any capacity, they will not hesitate to cancel the approval. This may be mortgage fraud and it is a crime. Mortgage fraud is generally defined as illegal actions taken by a borrower motivated to acquire or maintain ownership of a house.
Other Factors
Certain factors beyond your control can cause lenders to decline an approved mortgage. In some cases, lenders cancel approved mortgages because you didn’t close your purchase in time. Lenders will only hold the funds for your mortgage for so long, and lengthy closing delays may have consequences.
What to do
Although stressful, as long as you’re communicating with your mortgage broker/bank at all times, even an unexpected turn of events resulting in an after-the-fact decline may be remedied with a new application based on your updated details.
Candace Perko,
Mortgage Broker
