When you get the mortgage pre approval you are under impression that the bank has to provide you the funds for approved amount. But it’s crucial to remember that it doesn’t
work like that and there are few things that can change the mortgage approval process and actually result if denial. Most of the things can be controlled by you and easily
avoided but you have to know about them not to make following mistakes:
1. Changing employment.
If you were thinking about changing your career this is not the time to do it now as it can jeopardize your mortgage.
Bank lender was issuing you a pre-approval letter based on your current job and when any employment changes, most probably your current salary is different, frequency of getting paid changes, etc. I recommend you speak to your mortgage banker who will advice you if you can do it without risking your mortgage.
If you quit your job and your mortgage pre approval was solely based on your pay, it will definitely cancel your preapproval which makes total sense as it indicates that you won’t be able to make your payments.
2. Making large deposits with no supporting history.
When you are getting through preapproval process, your mortgage banker will request statements for your checking and savings accounts and if there are large deposits that
don’t match with your documented income payments then your mortgage banker will request letter of explanation. So before you accept any gifts or payments from anyone, contact your mortgage banker to see what supporting documents will be required.
3. Getting divorced.
I think this is logical but just in case I will explain. When you were getting preapproval letter, most probably the banker was using the income for husband and wife, hence, once you are getting divorced only one income is used which might change your ratio and result in mortgage denial.
4. Making late payment for your credit card(s)
This is common reason why issues arise during the mortgage process but can be easily avoided by paying all your credit cards automatically. As a consequence of late payment, even if it’s for $15 it will affect your credit score and consequently your credit worthiness.
So make your credit cards payments on time to avoid any issues obtaining mortgage.
5. Apply for other loans.
I think this is the most frequent reason to get denied for a mortgage.
The loan you were pre-approved for is based on your credit status and your outstanding debt. If you think the bank won’t see the new debt you are wrong as right before the closing the bank will run your credit again to make sure there are no changes and will deny if this type of change presents. Even if you decide to buy another car and your car payment stays the same or even will get lower, your credit score will go down which might in adversely affect your creditworthiness. Please consult with your mortgage banker if you can’t wait to obtain credit for something else.
6. Closing a credit card account.
I can see how this one can be missed as you are on the roll to lower your debt to afford home of your dreams and you pay off your credit card debt. You feel it’s just right to close credit card so you are not enticed to ever use it again to realize later that you made a mistake. Closing credit card really can lower your credit score. The biggest part of your credit score is the length of your credit history and credit limit. By closing your credit card you are erasing part of your credit history and your credit limit which results in your score to drop and with vulnerable credit history it can drop substantially.
7. Spending your savings.
When you are applying for a mortgage, your lender asks you about your saving so when it comes to closing time it’s expected to have same amount on your savings or more. I know you might be eager to buy new appliances or something else for your new home but please wait till after the closing to do so.
8. Getting lawsuit.
This one is straightforward. Just don’t get in any legal lawsuits. What if the lawsuit won’t go the way you want and your wages are garnished or get fines, then you won’t be able to pay your mortgage, which results in too high risk for the bank.
9. Appraisal Issues.
This one is completely out of your control but absolutely critical in the mortgage process.
If the property you are buying won’t appraise for agreed price then your lender won’t provide you financing unless you or the seller (or both) will cover the difference. From one hand you don’t want to overpay for the house. That’s why appraisal contingency has to be in every real estate contract but from another side appraisal value is subjective for some properties. Especially, if they are unique properties, hence having extra money might save the deal in this instance.
10. Settling old collection accounts.
It’s another one that I can see being overlooked easily as you think that paying off debt is good but not when it comes to your old collection accounts.
The pre-approval process already factored in your old collection accounts, so there is not benefit to paying them to offer right now as it can result your credit score to drop temporarily, which might be enough for the underwriter to deny your mortgage.
We all know that you can’t lie in the application as it might come sideways at the end. Bank analyzes your data very carefully and checks it again before final approval.
Needless to day, if any fraudulent data will come up it will more than likely result in your mortgage approval being taken away.
Fill out mortgage application to see if you are pre approved now.