When it’s time to purchase a home, one of the first things you should do is get pre-approved for a home loan. In this highly competitive market, mortgage pre-approval is “the ace up your sleeve” because it emphasizes that you are serious about buying a home and have the finances to back you up.
While having a pre-approval letter gives you an advantage at the negotiating table, it’s not a guarantee that you’ll close the loan.
That said, it may surprise you to learn that lenders may turn you down for a loan even if you get pre-approved. Let’s look at some of the reasons why this may happen and how to prevent it.
What Happens During the Pre-Approval Process?
The pre-approval process is quite similar to final approval, wherein lenders gather your financial documents and see where you are at. Based on all your documentation, a mortgage professional can tell you what size of the loan you are qualified for and the interest rate you may get.
You can also receive an estimate of what your closing costs will be. The question is, why can you get denied even after pre-approval? The pre-approval process is quite similar to final approval, wherein lenders gather your financial documents and see where you are at. Based on all your documentation, a mortgage professional can tell you what size of the loan you are qualified for and the interest rate you may get. You can also receive an estimate of what your closing costs will be. The question is, why can you get denied even after pre-approval?
Possible Reasons You Can Get Denied By A Mortgage Lender Even After Pre-Approval
Significant changes can occur with your financial situation between pre-approval and closing. This is the main reason for getting turned downed after pre-approval.
Lenders will go through all your financial documents once more as you approach closing day. If they discover that your creditworthiness or financial standing has changed significantly since pre-approval, they can use this as a basis for denying your loan.
Here are the top reasons why your loan can be in jeopardy even after pre-approval.
A Negative Hit on your Credit
Credit reports pulled during pre-approval are usually good for 120 days. If you don’t close a loan within that time, lenders would need to pull a new credit report once more.
If you’ve been late on payments, closed any of your accounts, or have taken on new debt since pre-approval, your credit score can take a hit and cause a denial on your loan.
Increase in Debt
Lenders may check if you have incurred additional debt that may affect your DTI. For example, after pre approval, buying a new car is not a good idea since the new loan can bump your DTI above the limit.
Verification of Employment
Every loan requires a Verification of Employment. A VOE is completed by the HR of the company or payroll company. The income and employment is cross verified with the file.
Although, the inaccurate information will cause the underwriter to denial a loan for that specific reason. A reputable mortgage broker will help ensure this last step in the process does not become a reason for a loan denial.
Tips That Help Ensure Your Loan Stays Approved Until Closing
Making financial changes can sabotage your pre-approval, so it’s better to know what you should do and not do between pre-approval and closing.
That said, the best thing you can do between pre-approval and closing is to keep things as they are from a financial standpoint.
• Refrain from switching jobs
• Don’t get new loans
• Avoid things that can lower your assets or increase your debt