5 Reasons Why Your Mortgage Could be Denied After Preapproval

When you’re about to buy a house, being preapproved for a mortgage is one of the most important things you can do in the mortgage process. A mortgage preapproval is advantageous because it provides you with a straightforward budget and can allow you to outbid someone who has not been preapproved for a home loan in a bidding war. Your mortgage lender runs a credit check and decides how much money they can lend you when you get preapproved for a loan.

However, being preapproved for a loan does not guarantee that you will receive the funds. Several factors can sabotage your home-buying plans, resulting in a loan denial from the mortgage lender.

Using a mortgage calculator to calculate how much home you can afford and preview future monthly mortgage payments can help reduce the chances of missing out on a home loan.

Why could your mortgage application be turned down after preapproval?

1. Your credit score changes

When a lender agrees to issue you mortgage preapproval, they take your credit score into account heavily. For home loans, most mortgage lenders have minimum credit score requirements. They will refuse mortgage approval if your credit score falls below that amount.

A number of factors can affect your credit score, including new loans, late payments, and closed accounts. You should check your credit report before applying for a mortgage and during the preapproval process to detect any mistakes or fraudulent products early.

Use a credit monitoring program to assess the financial condition Credit Karma. Credit Karma will help you find your credit score, payment background, and fraud alerts, among other things.

It’s a “soft tug” or “soft inquiry” when you check your credit score, which means your score isn’t affected. It’s a “hard-pull” when your lenders review your credit and pull your credit report. Hard credit inquiries are reported on your credit report and have the ability to lower your credit score.

2. Debt levels grow

If your debt grows, your mortgage lender will reject your loan application. Although purchasing a home is exciting, you should wait until your loan is closed before purchasing new furniture or other things for the home. If your debt grows, it will have an effect on your debt-to-income ratio and your ability to repay your new loan on a monthly basis.

If you have many high-interest loans, a personal loan could help you combine your payments into a single bill. Debt restructuring will help you pay off your debt quicker by lowering your monthly payment, lowering your interest rates, and simplifying your finances. This is something you can look at before applying for a mortgage loan.

3. Issues with the appraisal

If the home appraisal comes in lower than the loan amount, your lender will refuse your loan. You have three options: challenge the mortgage rejection, negotiate a lower purchase price with the seller, or pay the difference with your own funds.

4. Shifts in jobs or profits

If you lose your job or have a major pay cut after your lender has preapproved your loan, they have the right to revoke the approval. This is likely to occur if your decreased income makes it impossible for you to meet your mortgage payment while still paying off other debts.

5. There are no records of where your money originated.

You will accept monetary gifts to help fund your down payment while applying for a mortgage. You must, however, keep notes. Anyone who gives you money for this reason should also write you a gift note. This letter tells the mortgage lender that the assets are not a loan that must be repaid, meaning that the ability to repay your new home loan is unchanged.

Steps to take

Before you apply for a mortgage loan, make a plan. Make sure your credit score is fine, and put money away for unforeseen expenses so you don’t have to use your credit cards. Keep track of any gift letters you get from family or friends that support you with your down payment.

Owing to the competitive nature of the housing market, avoid making a bid that is too big to avoid future appraisal issues.

Lastly, most lenders are able to do things a little differently with regard to down payments, interest rates, max loan amounts, closing times, their ability to loan on a multi unit property etc. Make sure you get preapproved with at least three lenders before you begin looking for homes. The more resources you have, the better loan program you’ll get yourself into.