From Tuscon to New York, housing markets across the country are cooling due to recent economic downturns. This has left some sellers desperate to part ways with their property and has created wonderful opportunities for inspired buyers.
If you’re among those that have tried to capitalize on the current state of things, received a mortgage loan, and then found that your loan was denied shortly before entering into the closing phase of your purchase, you may be wondering what happened.
Whether you’ve experienced that sad mortgage loan denied last minute feeling or you’re trying to avoid it, you’re in the right place.
In this post, we outline the most common reasons for last-minute mortgage denials. We hope that by being armed with this information, you’ll be able to more reliably borrow money for housing in the future.
1. Assets Changed Dramatically
The amount of money you’re approved for when you take out a loan will be largely contingent on the number of assets you have.
If your lender looks over your existing assets and values them at $100,000, they’re going to be alarmed if just before closing, your assets are halved. That’s because they see lower assets as less cushion should you fall behind on your mortgage payments.
To avoid raising red flags regarding your assets when managing a home loan, do not spend a lot until your housing purchase closes.
2. Loss of Job
Employment is very important when it comes to taking out a home loan. It’s what lenders assume will enable you to keep up with your payments.
Should your employment status change while you’re going through your home closing process, there’s a good chance you’ll run into mortgage loan denied last minute issues.
Frankly, if you feel your job is on the rocks, it’s best not to take on a mortgage. If you get hit with a surprise layoff, be grateful that it happened before purchasing a large asset as opposed to after.
3. Issues With the Home You’re Buying
When you borrow money from the bank to buy a home, they’ll need the house to be appraised to ensure you’re not buying into a dud. This necessitates you having to pay for an appraiser to look your house over.
While most appraisals won’t turn up anything out of the ordinary, some reveal catastrophic flaws like a foundational crack. Once this information is brought to light, banks will almost certainly cancel your pre-approved mortgage.
The good news is that your bank can extend you a new line of lending to invest in another home that’s in better condition.
4. Income Verification Failure
Income verification is diligence that’s performed by your lender to ensure the assets you own/money you’re making exist. Verification is carried out in several ways including looking over your bank statements and talking to your employer.
While verification is relatively straightforward for most, for others, things can get complicated. This is especially true for self-employed individuals that don’t receive W2s.
It could be that after submitting all of your income documentation, late in the home buying process, an evaluator decides that trusting the numbers you outline for your business is too risky, derailing your purchase.
If you’re finding that lenders are struggling with you given your unconventional income streams, try to find lenders that specifically advertise catering to non-W2 individuals.
5. A Shift in Credit Score
As with all loans, your credit score will have a major implication on your loan approval or denial. If your credit score is in excellent shape when you apply for a loan, you’ll likely get approved for the full amount you’re asking for and at a great interest rate.
But what if your credit score shifts before you close on your housing deal? Most likely, your lender will be notified of a major shift in your credit score and may either adjust your interest rate or deny your loan altogether.
Avoiding credit score shifts while house hunting is usually as easy as not applying for any new lines of credit during this period.
6. Changed Lending Guidelines
It’s rare but sudden economic downturns can lead to lending guidelines changing. That shift often creates situations where pending mortgages get dropped for not meeting new criteria.
There’s not much you can do to avoid this mortgage cancellation trigger. The best defense you have is to try to be overqualified when applying for lending products.
7. Late Documentation
Getting your mortgage suddenly denied can come down to something as simple as not filing your paperwork. Don’t fall victim to this devastating and avoidable snag.
Keep in constant communication with your loan officer during the lending process, always ask them if they need anything else from you and, if needed, pick your real estate agent’s brain for advice on how best to proceed.
Leverage Our Tips to Avoid Mortgage Loan Denied Last Minute Drama
There’s nothing worst than being excited about buying a house only to run into mortgage loan denied last minute drama. We hope that the tips we’ve shared make it easier to avoid that fate.
Remember, there’s lots of excellent help out there, some of which is free when it comes to home buying.
Talk to an advisor at your bank. Chat with a real estate agent. You might even choose to locate first-time home buyer non-profits to source information on common mortgage pitfalls.
Our team welcomes you to browse more of our content if you’d like to dive deeper into topics surrounding real estate now!