When a mortgage approval is not "money in the bank"!

This is a cautionary about mortgage approvals:  there is no "unconditional" requirement for the lender to lend, or the default insurer to insure- if you become damaged goods before the mortgage money has passed through the lawyer's hands.

Unconditional or all conditions met mortgage approvals means the lender, and default insurer if there is one involved, is satisfied with your income, credit, down payment and the property EXACTLY AS IT IS TODAY.

The "unconditional" means the lender and insurer is saying:  we will not change if nothing on your application changes.

INCOME:  Once you have an unconditional approval you maybe tempted with a new job offer.  If you give notice to the employer you had at the time of your application- your circumstances have changed so the lender or insurer may change their approval.  If you take new employment, the lender or insurer may decide it is not a secure enough income for them to lend.  If your employment terminates for what ever reason, there is an issue with qualification. 

CREDIT:  You have been approved based on your credit history.  If you decide to not pay account payments, or increase your debts before you have your mortgage money in hand, it could disallow your approval.   So, no "one year no pay" accounts, either!

DOWN PAYMENT:  The unconditional approval or all conditions met approval was based on the amount of money you had evidence for your down payment.  If you spend part or all of that money for other purposes, thinking you could use credit, gift money or the sale of another asset at the time of closing to replace what you spent- it could disallow your approval.

PROPERTY:  On March 24, CTV Calgary local news showed the case of an individual who made a purchase agreement for a London at Heritage Station condo unit.  The value in 2007, at the time of the agreement, was accepted by the lender and the insurer, CMHC.   Now that possession is coming up, CMHC reviewed the value of the unit and said it 's current market value is $335,000.   The buyer has to come up with over $80,000 additional cash to close the purchase or face a lawsuit!

It was not the purchaser's fault property values had changed, as it would have been for taking a new job, increasing debt or spending some down payment money- but a significant condition, property value, had been changed.

ADDITIONAL caution on building a new home.  During the process of building a new home, once you get into the design centres you may decide to upgrade flooring, lighting, cabinets and counters, plumbing fixtures etc from the original plan.  Those increased costs most people plan to add a portion to their mortgage.   That is a change and could result in a review of all previously met conditions.

This is a concern if you were approved under old rules.  Suppose you had been approved for a variable rate mortgage and the lender used their 3 year rate to approve you.  As of April 19, the five year posted rate has to be used.  What if you do not qualify now?

Most lenders have an expiry date to their mortgage approval.   Suppose your approval expiry is April 1 but you do not take possession of your home until April 15.   You met conditions before, but what if since then the lender has had an internal change of policy.  After April 2, they may have additonal conditions for you.

Moral of the story:  Once you have an "unconditional" or all conditions met approval- make no changes; and, the longer it takes to have title transfer and your mortgage money in hand, the greater the risk of changes beyond your control.