Navigating the mortgage maze can be a confusing and daunting task, especially for first-time homebuyers.…
6 Reasons You Could Lose Your Mortgage Approval
It happens all the time. You get a mortgage approval, only to find out a few weeks later, you lost it.
How could you lose approval after the underwriter provided it?
It’s more common than you think, but most people don’t realize it can happen. So whether you got too comfortable and didn’t realize small financial decisions could hurt your approval or something big happens, here’s what you must know.
A Pre-Approval isn’t Final Approval
First and most important, you should know that a pre-approval isn’t a final approval. It helps buyers determine the amount they can afford and plan their budget accordingly, while also offering more assurance when making an offer on a home. Preapproval involves providing your loan officer with information like income, credit, and employment history to create a credit report that allows them to offer lending terms that are best suited to your situation. The preapproval letter provides you with a strong baseline to look for properties within your budget, but that doesn’t mean you’re ready to close.
There is still time between now and when you close the loan for things to change, aka fall through. After that, the underwriter must approve the house you purchase, plus re-verify your credit, income, employment, and assets.
Any little change could put your preapproval at risk, causing you to lose it.
It’s the underwriter’s job to ensure you are still a good risk after the pre-approval and before closing the loan. Since it could be 60 – 90 days between that time, a lot can happen.
6 Reasons you Could Lose your Mortgage Approval
It’s not a pleasant feeling, but most of the time, there’s recourse if you lose your approval. Here are the most common reasons borrowers lose a loan approval and what you can do.
The Appraisal Came in Low
If you find a house and sign a contract, but the appraiser doesn’t agree that the sales price equals the fair market value, it could cause you to lose your approval.
The appraiser determines the property’s fair market value by comparing the subject property to recently sold homes in the area. If the appraiser determines the home isn’t worth as much as you agreed to pay, your loan won’t go through unless you re-negotiate the price with the seller, or you agree to cover the difference.
When you don’t agree with the appraiser’s decision, you can file an appeal and ask for reconsideration. If your lender doesn’t agree, they can ask for a second appraisal or an appraisal review.
The Title isn’t Clear
Another step underwriters take when you find a home is to order a title search on the property. The title search ensures there aren’t any liens on the property because liens follow the property, not the owners.
If the title search turns up liens the seller can’t clear, the underwriter won’t be able to clear your loan to close. So unless you want to pay the liens, you may need to find another property.
You Racked up Credit Card Debt
If you went out and racked up credit card debt after you got pre-approved, it could hurt your loan approval.
Your underwriter determines your debt-to-income ratio based on your income and debts when you apply. If you charge more on your credit cards, you increase your total debts, which increases your DTI.
To avoid this, lock up your credit cards after you get pre-approved until you close the loan to ensure you don’t risk a higher DTI.
Your Income is Different
You and your underwriter may not calculate your income the same. You may not get approved if you miscalculated your income and assumed you make more than they use for qualifying.
This often happens to borrowers who work on commission or get hourly pay. Underwriters use your average income or hours worked to determine your income. They don’t want to use your highest income if it is variable because they could over-qualify you for a loan you cannot afford.
You Can’t Produce Proper Asset Statements
When you were pre-approved for the loan, you stated how much you’d put down on it. You might not get approved if you can’t produce the asset statements to show the money saved.
Your down payment affects your loan amount and the loan-to-value ratio. If you can’t prove your assets with two months of bank statements proving the funds belong to you, the lender may decline your loan application, especially if you’ve already maxed out your loan-to-value ratio.
You Can’t Prove your Employment
You must prove a 2-year employment history with stable employment and no gaps. It could affect your loan approval if you can’t provide information proving your two-year history, such as W-2s and tax returns from the last two years.
Lenders must ensure you have a stable and consistent income. If you can’t prove that, they may not be able to take the risk of lending you the funds.
What to do if your Mortgage Application is Denied
If your mortgage application is denied, figure out why.
Your loan officer can walk you through the reasons you lost the loan approval. Then, take notes and fix the issues. For example, if your credit score drops or you don’t have enough assets for the down payment, make the necessary changes and try again.
Often it’s a simple issue you must fix to get approved for the loan. You might not even have to start all over again in some situations. You may be able to fix the issue, prove you did, and satisfy the conditions.
Mortgage preapprovals sometimes fall apart, and that’s okay. It’s just a sign that you must fix any issues to get approval.
It could be something as simple as bringing a late payment current or getting another month of bank statements to prove you have the money for the down payment.
Talking to a knowledgeable loan officer can make all the difference when it comes to meeting your financial goals in obtaining a mortgage loan. With their extensive knowledge of the requirements, they can answer any questions that may arise and give you guidance on how to move forward. In some cases, they are able to explain which steps need to be taken in order to get your approval back or if waiting out the storm is necessary before reapplying down the line. Whatever the outcome may be, it’s better to leave it in the hands of those who know best and understand what you need for success when it comes time for mortgage approval.
At Innovative Mortgage Brokers, we take pride in our role, providing knowledge and experience to our clients. When it comes to pre-approving a loan, our priority is making sure it can be relied upon. We will spend time with our clients to discuss their needs and make sure we understand the exact financial situation before proceeding with the preapproval stages. Our team is always ready to provide guidance and assist you in any way possible for a successful mortgage experience in both Pennsylvania and Florida.