Five Reasons Not to Get Too Cocky About Mortgage Pre-Approval

Denial. It’s a word that nobody wants to face. Not in a relationship; not around the holidays; and, in this instance, certainly not when they’re applying for a mortgage. Nowadays, most buyers seek mortgage pre-approval before they even begin their home searches. While that is an awesome first step to take in the home-buying process, buyers should note that mortgage pre-approval does not guarantee that a home loan will be approved when it comes time for closing.

Not to be the bearer of bad news, but here are five common reasons final mortgage approval can go awry, even after a buyer has received pre-approval:

1. Credit: When a buyer seeks pre-approval, lenders most certainly will examine their credit score and spending activities. What a buyer may not realize is that their lender also will reexamine their credit just days before closing. If something negative hits a buyer’s credit report during the closing process, their mortgage could be denied. So, after gaining mortgage pre-approval, buyers need to be sure that they’re paying any credit card bills on time. Additionally, they should not be opening new lines of credit or making any large purchases that could go against their credit. Remember, lenders examine credit scores and debt-to-income ratio just before closing.  

2. Employment or Income: Obviously, getting a promotion or raise while going through the closing process is not going to negatively impact mortgage approval. On the opposite end of that spectrum, job loss or a career change actually could. If a buyer’s income decreases for any reason during the closing process, lenders are likely to reevaluate their qualifications and their overall home loan approval could be in jeopardy.

3. Missing Documentation: When a buyer seeks mortgage pre-approval, they submit documentation like current bank statements and pay stubs. Often times, lenders will request updated copies of those documents before closing day. Simply put, if a buyer fails to provide the lender with current documentation, they may be denied a home loan. Checking in with the lender to make sure they’ve got everything they need before closing is one way to avoid such denial. 

4. Closing Processes: And, now for a common mortgage denial reason that may be totally out of a buyer’s control. Though it may sound so unfair, closing processes like the home appraisal, inspection and title search actually can contribute to a buyer being denied a home loan, even after they’ve received pre-approval on their end. If a home appraisal comes back lower than the agreed upon sales price, a loan may not be approved. Similarly, if a home inspection reveals that extensive repairs or maintenance are needed, a loan could be denied. Finally, if a title search reveals that the seller has a lien against the property, the buyer’s home loan could be denied.

5. Expiration: OK, buyers, did you realize that your mortgage pre-approval would not last forever? Yes, that’s right; mortgage pre-approval can expire. Typically, mortgage pre-approval is only valid for a specific amount of time that a lender sets. If a buyer does not find a home during that time limit, they may need to ask for an extension on their mortgage pre-approval or they may have to go through the entire pre-approval process again! Yikes!
So, what is the best way for a buyer to proceed toward final mortgage approval once they’ve gained pre-approval? Why, it’s simple… just find a house, make an offer, begin the closing processes (and hope they go smoothly), provide all necessary documentation and try not to alter credit, employment or income until after receiving those coveted new house keys!

This post is sponsored by PA Preferred Mortgage:
Pennsylvania Preferred Mortgage is a full service mortgage banker and is a member of the Prosperity Home Mortgage, LLC family. Specializing in residential and refinance loans, Pennsylvania Preferred Mortgage offers a wide range of mortgage products, including fixed and adjustable rate mortgages, jumbo loans, Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, and renovation financing. Learn more at www.papreferredmortgage.com.