Nothing’s worse than having your dream of home ownership snatched away at the last moment. Though it isn’t common, lenders can deny your mortgage application after pre-approval. There are a few reasons this can happen, but all of them can be prevented with a little preparation and foresight.
Reasons Banks Can Revoke Mortgage Pre-Approval
A new negative change in your credit report – When you apply for a mortgage, the lending institution pre-approving your application bases its decision on your credit report the day you apply. If you’re on the borderline of having fair or poor credit and barely qualify for a loan, you can lose your pre-approval status with one small change to your credit score.
This isn’t the only way to get denied for a mortgage after pre-approval, but it’s one of the most common reasons. It’s best to have a little bit of wiggle room with your credit score so this doesn’t happen to you. Wait until you’re truly ready to buy a home. If your credit is a little shaky, it won’t hurt to hold off until it’s in better shape to apply for a loan.
New lines of credit or loans – The better your credit score, the better the interest rate, right? So if logic prevails, you should be able to get a credit card to help boost your score a little bit before your close on the loan, right? Wrong. If you got a new credit card after getting pre-approved for a loan, it can throw off your debt to income ratio and prevent the mortgage from going through.
After you’ve applied for pre-approval, don’t get any more credit cards, personal loans, vehicles loans, or other lines of credit. The time to do those things is before you apply for a mortgage. When you apply, you should be done working on your credit to improve it. If you’re not done working on your credit score or paying off debts, you’re most likely not ready to buy a home.
You changed jobs – This is true even if you got a job with a better wage. You need to show your lender that you can stay in the same job for at least a year before you apply for a loan. They don’t want to see job hopping because it can make your risk of default higher. If the economy or the business you work for takes a downturn, people with the least amount of seniority lose their jobs first. Your bank wants to make sure you aren’t going to be out of a job every time the economic winds change direction.
The home fails inspection – Lenders make their decisions contingent upon certain conditions. If the property you’re trying to purchase fails inspection, the bank won’t approve your mortgage. This circumstance is totally out of your control. If this happens, don’t worry. You can find another property or even build a property if you get the right loan product.
If you’re worried about losing pre-approval for your mortgage or you have questions about applying for a home loan, the Potempa Team at One Trust Home Loans is here to help. With 25 years of experience in mortgage lending and more than $1 billion in home loans closed year over year, we’ve got the answers you need and the products you trust. Give us a call or apply for pre-approval today.