The first thing that most people think of when buying a home is the search, and with good reason. It can be the most “hands-on” part of the home buying process and it can be the most emotionally exhilarating component too. However, finding the right home is no guarantee that it will be yours. Not only do you have to make an offer that the sellers accept over all others, but your mortgage lender has to be willing to lend you sufficient funds with terms that are acceptable to both of you.
While getting pre-approved gives encouragement that you will be able to buy a home, it too is not a guarantee of a mortgage approval. Although unlikely, it remains possible that your mortgage loan is denied even after you are pre-approved.
So why are mortgage loans denied? Here are the top reasons:
You changed jobs.
Even if you have continuous gainful employment, changing jobs can cause your mortgage loan to be denied. Why? Many mortgage lenders like to see consistent, long-term employment with few job changes. This demonstrates that you have a strong employment history and can be considered reliable in terms of your financial responsibilities.
It is normal and common for people to change jobs, especially if it is within the same industry. However, drastic changes, such as changing from a music teacher to a business owner, can create an unknown element of your success in the new field, which could cause lenders to deny your application. If you do intend to change your employment at any point during the home buying process, make sure you tell your lender as soon as you plan on making the change. Your mortgage lender can tell you whether this will affect your ability to buy a home.
You took on extra debt during the loan process.
Getting pre-approved for a mortgage lets you know approximately how much you will be allowed to borrow, as well as the terms of that loan. But don’t make the mistake of thinking that once you have been pre-approved, you can go on a shopping spree! A pre-approval is not the same thing as a mortgage application approval. It simply gives you an idea of how much you can borrow, but it is not a commitment for borrowing.
By taking on more debt, such as buying a new car or expensive vacation, between your pre-approval and your actual mortgage application, you are affecting your debt-to-income ratio negatively or can reduce your credit score. If you want to increase or maintain your credit score, or have general questions about credit, take a look at Shamrock Home Loans’ free Ultimate Guide to Credit Scoring.
Lending guidelines or loan requirements have changed.
Sometimes it’s not you, it’s them. After being pre-approved and despite not changing jobs, adding debt, or anything else that would negatively affect your mortgage application, you still could be denied a mortgage loan. This could happen when the mortgage lender changes their overall requirements. For example, they may have retroactively increased their minimum credit score requirement from 620 to 650, the amount of down payment required, and more. Unfortunately, you may have little recourse in this situation, but talking politely with your mortgage lender could yield happy results.
There are problems with the appraisal.
It doesn’t happen with all, but some mortgage lenders make their lending contingent on a positive home appraisal. Although it varies from lender to lender, some lenders will issue a mortgage pre-approval for a buyer subject to a satisfactory bank appraisal. Issues that contribute to a negative appraisal can include costly repairs, such as roof concerns or electrical problems, or appraisals that are lower than the value of the property.
In these scenarios, you can ask for a second appraisal, request that the repairs be made so that the sale continues, or suggest that the sale price match the appraisal value so that the mortgage can be approved.
A Last Thought
It can be heart-wrenching when you believe that you will be approved for a mortgage, but it falls through at the last-minute. To prevent the likelihood of such a scenario, make sure your financial house is in order. Make sure your credit is good, have all requested documentation available, do not make any changes at any time during the home buying process, and so that the chances of owning the homes of your dreams becomes a reality.
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