One of the most important steps to take prior to looking at homes is getting pre-approved for a mortgage. Before viewing or offering on properties, you want to make sure you’re looking at homes that are within your budget; it also signals to the seller that you are a serious buyer who is likely to move through the buying process seamlessly and get to the closing table. However, there is no guarantee that you will successfully obtain financing, even after a pre-approval. As a buyer, this is what a mortgage contingency allows for, but it’s probably even more important for your eventual happiness that you do everything in your power to make sure the mortgage commitment actually comes through.
In most cases, if your mortgage is denied after pre-approval, it is due to something avoidable either on the part of the lender or yourself. It’s important to know what not to do:
Issues With Appraisal -This one is a little less in your control, and it varies from lender to lender but most lenders will issue a mortgage pre-approval for a buyer subject to a satisfactory bank appraisal. The reality is that there can be unforeseen issues with the bank appraisal that have to do with the marketable value of the home or a punchiest that came up from an inspection. The part you can control: don't go crazy with an offer. If your agent is showing you comps that show the home is worth $700k and you offer $800k, you are likely going to run into an appraisal issue.
Misinformation - We know a client is not misleading anyone on purpose, but it is important to recognize that when you “spitball” numbers for a pre-approval, you are setting yourself up for potential problems. Once you’ve made an offer on a home, your lender will start to verify the information you submitted for your pre-approval. If you think your credit rating is “about 780” and it turns out to only be 700, this could affect your loan. Or if you are self-employed and forget to report income that’s on your tax return, this could be the difference between the loan coming through or not.
Change Of Employment - One of the most common reasons a mortgage is denied is due to a change in employment. Depending on the type of financing a buyer is obtaining, there are certain requirements for length of consistent employment. It’s important that a buyer who is pre-approved asks their mortgage consultant about a possible employment change before making the change. In most cases, a top mortgage consultant will be able to predict whether there will be an issue with ultimately obtaining the financing or not.
Additional Debt is Incurred - Another very common reason a mortgage is denied after a pre-approval is because a buyer takes on additional debt. Don’t take out a new car loan or open a new credit card after you’re under agreement on a home. This can have a huge impact on debt to income ratios and ultimately can lead to a mortgage that is denied.
Tips To Make Sure Your Mortgage Doesn’t Get Denied After Pre-Approval
The majority of mortgage lenders do an excellent job to ensure most of their pre-approvals actually make it to the closing table. Some additional tips to help ensure your mortgage is not denied include;
Provide all requested documentation to lender in timely fashion
Don’t make any large deposits into your bank accounts without having proof as to where they came from
Don’t withdraw large amounts of money from your bank accounts
Continue to save money in the event your closing expenses are more than originally estimated
It can be devastating for a pre-approved buyer to have their mortgage denied at the last minute. Prior to making any decisions that could impact your financial situation, consult with either your mortgage professional or real estate professional. In most cases this can prevent you from making a decision that could impact whether or not your mortgage is denied.