Getting pre-approved is the first step in your journey of buying a home. But even with a pre-approval, a mortgage can be denied if there are changes to your credit history or financial situation. Working with buyers, we know how heartbreaking it can be to find out your mortgage has been denied days before closing.
How can a mortgage be denied after pre-approval?
A mortgage can be denied after pre-approval if a buyer no longer meets the requirements of the loan. Here are some reasons a lender may deny a loan:
- Negative credit change. If your credit score was hovering around the requirement (say 620), and you missed a payment during your home search or racked up more debt, your credit score dips. This negative impact on your credit score could keep you from getting a home loan.
- Open more lines of credit. By opening more lines of credit, you are getting deeper in debt. Too much debt looks risky to lenders.
- Change of employment. Lenders don’t only look at how much income you make, but also your history of holding a steady job. Some loans have requirements for length of consistent employment (typically two years). Starting a new career in the middle of your home search means you would not hit that requirement.
- The property doesn’t meet mortgage contingencies. During the home inspection and appraisal process, you will find out if the property meets all of the mortgage contingencies. If it does not, you will not be able to obtain a loan.
Tips to ensure a Mortgage Approval
What can you do to make sure you make it to closing day with a loan? Keep your financial situation the same (or better) than it was when you got pre-approved.
- Do not incur more debt. You might be looking at new furniture for your dream house, or want to book a vacation. Wait to do this after closing.
- Do not make any large deposits. If you don’t have proof as to where large deposits come from, this can be very suspicious to lenders.
- Do not withdraw large amounts of money. On the other end, don’t take out a large sum of money for no reason.
- Add to your savings. Before getting pre-approved, you probably saved up for a down payment. Keep adding to this savings on your regular schedule.
If any major changes do happen between the time you got pre-approved and your closing date, communicate that with your lender. Before starting a new job or making a big purchase, check first to see if this could affect your loan approval.
Have more questions? Contact NEHM today!