Purchasing a home is commonly the biggest investment that most people will make in their lifetime, but it can also be an extremely stressful and challenging time. Yes, it’s fun to look at new homes to buy, but once it’s time to get approved for a mortgage, it’s all business. Although getting a mortgage pre-approval is a great first step, it can lead to a false sense of security, as being pre-approved doesn’t necessarily mean you’re going to be approved for the quoted mortgage financing from your bank.
Here are five reasons why a bank can deny your mortgage application.
A change in employment
A mortgage can be denied if a change in employment has occurred. This does depend on the type of loan you have requested. Most lenders will not guarantee that you will get mortgage financing if you switch jobs during the request period. Most mortgages require the borrower(s) to have a minimum of two consistent years of employment income and a stable employment history to even qualify. If banks feel uncertain that the borrower(s) will be able to make their mortgage payments, they will not sign off on the mortgage.
Negative impacts on your credit score
Most homebuyers don’t need perfect credit to secure a loan, but any big changes to your credit score can hurt your chances of receiving a mortgage pre-approval. Lenders vary on their criteria relating to credit scores. If your credit score does happen to drop suddenly, your lender who pre-approved you may not feel comfortable signing off on the mortgage and your deal could fall through. All buyers need to be aware of their current score before applying, and how your credit score can be negatively affected in a short time.
New and unforeseen debt
Lenders may also deny a mortgage after a pre-approval if the borrower(s) has acquired a higher level of debt. It’s suggested that in the time before finalizing a mortgage and home purchase, any new debt should be avoided. Even a small increase in debt load or adding a new line of credit could jeopardize receiving a mortgage pre-approval.
Guideline changes or new requirements from the lender
Borrower(s) must be aware that even if they secure a mortgage pre-approval, they are not exempt from any new requirements or guidelines that the lender or government implement. An example of this would be if a lender adjusted their minimum credit requirements from 650 to 670. If the borrower(s) don’t meet the new requirements, they could lose their mortgage pre-approval.
The appraisal comes in too low
In most cases, if the borrower(s) are buying a brand-new home from a builder they will not need to have the home appraised, and the bank will provide them with a mortgage loan based on the purchase price. If the borrower(s) are buying a pre-existing home, lenders will require a home appraisal to be conducted by an accredited appraiser chosen by the lender. The home you want to buy must be appraised for at least the loan amount requested.