You’re in the process of buying a home. You’ve done your due diligence and everything looks great for you. Now, all of a sudden, your mortgage loan was denied even though you were pre-approved.
Is this possible, and how can this happen, are probably questions you’re asking.
The sorry truth is that it is possible to be pe-approved for a mortgage loan and still be denied later. Here are 5 reasons why this could happen.
1. Negative Changes on Your Credit Report
Beside income and employment, your credit report is one of the most important factors in determining if you’re approved or pre-approved for a mortgage loan.
The credit report tells the lender not only what debts you have now and have had in the past, but how you’ve paid your debts.
The higher your credit scores, the better it looks to lenders. If the home buying process takes a few weeks, your credit scores can change.
If you’ve obtained more credit or made late payments since you applied for your loan, your credit scores could go down and cause the lender to deny your loan.
2. Change in Employment
Changing employment in the middle of the home buying process can cause you to be denied the loan even if you were pre-approved. Your employment was also an important factor in determining if you’re approved.
The lender needs to know that you have steady employment so you can make the mortgage payments. In some cases, a different employer may not make a difference, but it can hurt you.
If you are contemplating changing employers, ask the lender if it will make a difference.
3. You’ve Incurred More Debt
Lenders typically run your credit report when first apply for the loan and again just before the loan closes. If you’ve incurred more debts since you first applied for the loan, it will affect your credit scores.
One of the factors that determine your credit scores is your credit limits in relation to how much of your credit limit is utilized. If you’re considering getting some credit cards, you might want to consider waiting until the mortgage process is complete.
4. Appraisal Problems
One very important step in the home buying process is the home appraisal.
Lenders typically don’t like to lend more than 80 percent of the home’s appraisal value. Even if your loan was pre-approved, you risk being denied the loan if the home is appraised for much less than what you’re borrowing.
The pre-approval was based not only on your financial information but also on the home’s value being close to or higher than the loan amount. When looking at homes, it’s important to see if a current appraisal is available to use as a guideline.
5. Changes in the Lending Laws
Although this reason is rare, changes in the lending laws or the banks requirements can affect your being approved even if you were pre-approved. One example can be with your credit scores.
Most lenders have a guideline of what they want their borrower’s credits scores to be. If the lender changes its requirements during the buying process, it can cause a loan to be denied.