Why are Pre-Approved Mortgages Denied?

Why are pre-approved mortgages denied? Well, if you’re asking the question, it probably means one of two things: you were pre-approved for a home loan and it fell through or you’re concerned about the possibly of your financing being turned down. The truth of the matter is, pre-approved mortgages aren’t given final approval on a fairly regular basis. And, there are five common reasons pre-approved borrower do not receive home loans from lenders.

Why are Pre-Approved Mortgages Denied?

Just like there are a number of homeowner refinancing mistakes, there are several borrower missteps and changes in circumstances which cause lenders to turn down financing. If you’ve done all the necessary preparatory work, like saving for a down payment, earnest monies, inspection costs, moving expenses, and closing cost, plus, thoroughly gone over your credit reports, you’ve certainly taken the appropriate steps.

When a lender pre-qualifies you for a loan, they just take a quick look at your financial situation. Then they throw out a number they might be willing to lend you. It’s all very breezy and informal (i.e., worthless). The pre-approval process goes deeper. This is when the lender actually pulls your credit score, verifies your income, etc. But neither of these things guarantees you will get the loan. The only time you can be 100% certain of your mortgage approval is when you close the deal. Up until that time, there are plenty of things that can derail the process. —Home Buying Institute

But, you’ve also got to be aware of the biggest first-time home buyer mistakes. These include, but are not limited to: not calculating all your monthly costs, making regrettable compromises, buying a home without really knowing the neighborhood, or forgetting to take future possibilities into account. All of these things factor into the home buying process and being a knowledgeable homeowner. But first, you need to secure a home loan. Here are the five common reasons pre-approved mortgages are denied by lenders:

  • A career change. A large factor in home loan approval is attributable to your employment status and history. If you’ve been steadily employed for the past three to five years and with the same company, that’s very favorable to lenders. But, if you change companies, even if your income doesn’t change, or worse yet, change careers, it could very well cause the final financing approval to be denied.
  • New credit file entry. One of the most frustrating and confusing aspects of credit reporting is the way new entries just appear. Sometimes, these are a mistake, other times they are accurate, and there’s even a combination of the two scenarios. If a new credit file entry appears, whether it’s an old bad debt or even a change in a line of credit, that can pose a problem for mortgage borrowers. It could even affect your credit score significantly to put you out of range for a home loan.
  • Low home appraisal. Perhaps the most nail-biting moment in the home buying process is waiting for the home appraisal to come in. If the house appraises for more than the agreed sales price, you have good cause to celebrate. But, if the appraisal comes in lower than your agreed buying price, your lender won’t be likely to give your mortgage a final approval. You might have to look for another lender and go through the process all over again.
  • Bigger debt obligation. Most real estate professionals tell buyers not to open new lines of credit and avoid running up balances on open credit lines. But, home buyers still commit these costly errors and that turns a pre-approved mortgage into a denied home loan.
  • A change in loan terms. It’s not out-of-the-question for the loan requirements or guidelines to change between the time you were pre-approved for a home loan and the time of final mortgage approval. This can also mean having to find another lender or go with another loan product.

If you’d like to know more about home loans and the home buying process, please phone me at 407-616-7286, I’ll be happy to speak with you.