What to do if you get pre-approved for a mortgage, then a loan declined just before closing — RISMedia
Getting a pre-approved mortgage before you start house hunting puts you in a strong position. When you know how much a lender is willing to give you to buy a home, you can focus on properties in your price range. Mortgage pre-approval also shows sellers that you are a serious buyer. Even if you’re pre-approved, however, that doesn’t guarantee you’ll be able to get a loan to buy a home.
Reasons you might be denied a mortgage after being pre-approved
When you apply for pre-approval, a lender will review your financial situation and decide if they are willing to give you a mortgage. Before closing on a property, a lender will review your situation at that time.
A lender may deny your application if you take out a new line of credit, such as a car loan, or if your credit card balance increases significantly after being pre-approved. These types of changes can raise your debt ratio above the lender’s guidelines.
A job change can also get you turned down for a mortgage. Lenders are looking for a stable employment record. If you change jobs shortly before buying a home, a lender may not be willing to give you a home loan, especially if you take a pay cut or change fields.
Sometimes a problem arises after a property has been appraised or inspected. If you accept a price higher than the value of the house, a lender will not give you a loan for this amount. A lender can also refuse to grant a mortgage if the house has a health or safety problem.
What to do if your loan application is refused
If you are denied a mortgage, the lender should tell you why. In some cases, the lender may simply need additional information or clarification regarding a debt or a change in your income or employment.
You may be able to get a mortgage from a different lender, as each institution has its own requirements. You may want to consider applying for a loan through a government agency, such as the Federal Housing Administration. These types of programs often have more lenient requirements than conventional mortgages.
If the lender is worried about your income or debt level, co-signing someone could save the deal. Only do this if you are sure you can cover mortgage payments and other costs. If you don’t, your relationship with a family member or friend can be seriously damaged.
If the house is valued at less than the agreed price, you can renegotiate the price with the seller or pay more out of pocket to cover the difference between the agreed price and the amount the lender is willing to give you. If you are denied a mortgage because the house needs repairs, you can ask the seller to fix the problem so that the lender approves your loan application.