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Top 5 Reasons for Mortgage Denial despite Pre-approval

by Mortgage Leads Get in touch with us for any kind of mortgage lead


Summary: Wondering why a mortgage might get denied despite being pre-approved? Here are a few reasons that will help you get a clear picture. Understanding these can help you avoid mortgage denial after pre-approval.

Getting pre-approved for a mortgage is one of the main steps you need to take before shopping for a home. This will tell you how much you can borrow in order to purchase a home. Many lenders who may contact you might be happy to pre-approve you for a mortgage. However, even after getting pre-approved for mortgage, there is no guarantee that you will get the financing.

There are many situations when a mortgage might get denied despite being pre-approved. The fault might be with the buyer or the lender who has pre-approved the mortgage. Nevertheless, understanding the common reasons that can lead to the denial of a mortgage can reduce the chances of your mortgage getting denied after being pre-approved. Here are 5 such reasons:

Reason #1: Change of Employment

Change in employment is one of the most common reasons why a mortgage might get denied even after pre-approval. Length of consistent employment is one of the criteria that lenders consider before approving the mortgage. For instance, the borrower needs to have a solid employment history of two years to be approved for an FHA mortgage. Any gaps in employment history thereby might require written explanations that a mortgage underwriter will have to approve.

In certain cases if the change in employment is in the same field it might be acceptable by the lender. But if you are completely switching your career field you might face problems obtaining your financing. Always make it a point to ask the mortgage consultant who comes to you, about a possible employment change before you actually change your job. If it affects your financing it is better to stick to your existing job until you get the money.

Reason #2: Negative Item on Credit

You may not require a perfect credit to purchase a home. Yet, each lender who comes to you, will have his own specific credit score guidelines to adhere to. If you have already been pre-approved for a mortgage you have to make sure there won’t be any negative impacts on your credit, especially if your credit score is in the low 600’s. It is always better to pay your bills on time and keep monitoring any changes in your credit score. If there are any mistakes in your credit report, this is the best time to get it corrected.

Reason #3: Incurring Additional Debts

Taking on an additional debt before obtaining a mortgage increases your chances of mortgage denial. It can have a huge impact on your Debt-To-Income ratio, which is one of the major factors mortgage lenders tend to consider while approving mortgages. If you have been pre-approved it is better to wait until you get your money before taking any additional debts or credit lines.

Reason #4: Changes in loan Requirements or lender guidelines

There are chances of changes in mortgage requirements and guidelines after you have been pre-approved. Some of these changes might even lead to a mortgage denial despite pre-approval. For instance, if you have been pre-approved with a credit score of 620 and if the requirement changes to 640 after that, it is unlikely that you might get your financing. Similarly if there are any changes in guidelines with regard to Debt-to-income ratios or amount of savings (reserves) required of buyers, mortgage denial could be inevitable.

Reason #5: Issues with Appraisal

Issues with appraisal are also one of the reasons for mortgage denial. Nevertheless, it totally depends on the discretion of the lender who contacts you. Some lenders will approve mortgages only after getting a satisfactory bank appraisal. So if there are any issues with your bank appraisal your mortgage might get rejected.

In one of the cases a gas station in close proximity to the subject property was cited by the banks appraiser. This became the reason for rejection of the FHA mortgage. Thankfully, the buyer was still able to obtain financing by changing over to a conventional mortgage product which had no issues with the proximity of the gas station.

Many mortgage lenders who might contact you try their best to ensure that their preapprovals make it to the closing table. Nevertheless, adhering to these do’s and don’ts will make sure you obtain your financing:

Don’t increase your debts or take on additional lines of credit

Don’t deposit any big amount into your bank account if you don’t have the proof as to where the amount came from.

Don’t make any huge withdrawals from your bank account

Submit all the documentation requested by the lender in a timely fashion

Take measures to improve your credit score

Stay at your job until you obtain your financing, even if a career change might seem very tempting

Keep track of any changes in the lending requirements or guidelines

Work on your debt-to-income ratio

Make it a point to save as much money as you can just in case your closing expenses exceed what you have originally estimated

Having your mortgage denied after being pre-approved could be devastating. However, by paying attention to the reasons and the dos and don’ts mentioned above, you can reduce your chances of mortgage denial. Before you make any decisions that can affect your financial situation, make it a point to consult a real estate professional or a mortgage consultant who might come to you through purchase mortgage live transfer leads.



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Joined APSense since, September 30th, 2018, From New York, United States.

Created on Apr 14th 2019 11:02. Viewed 579 times.

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