There’s a common misconception that you will be guaranteed a mortgage loan after being pre-approved. However, if you’re not careful, it is possible to ultimately be denied a mortgage loan. Before talking about the reasons why this can happen, let’s briefly run through the pre-approval process.
The pre-approval process is similar to the final approval process. Your credit scores, financial documents, income, debt and tax records will be checked. If all of these documents fit the mortgage lender’s requirements, you will be provided a pre-approval and the dollar amount for which you are qualified. This is your ‘buying power’. Of course, you do not have to borrow that amount.
Before providing a final approval, and after you have found the home you want to purchase, the actual, detailed approval process will begin. Your mortgage lender will re-check all of the previously submitted documents. If there are any negative changes since they were last checked (e.g., you changed jobs, purchased something big, etc.), this could affect obtaining a final approval. Some other examples are:
- Negative comment on your credit report that may have resulted in a lower credit score;
- Less income than previously reported;
- Loss of any assets that helped you attain the pre-approval;
- Significant rise in your debt level;
- Changes in loan requirements such as a higher minimum credit score.
Finally, the mortgage lender will insist on an appraisal of the property to confirm it is worth the amount of the requested loan amount. If the appraisal does not come in at the same or more than the loan amount, then they have the option to deny the final loan or request the borrower to provide additional deposit money to offset the difference. This is something that is happening more in recent years as mortgage lenders tighten restrictions to protect their interests.
The key lesson here is to maintain the status quo between getting your pre-approval and final approval. A final ‘desk check’ is done by the lenders a few days before the final commitment so don’t make changes in your job, use money in your savings account, reduce assets, or increase debt. Wait until you’ve gotten that final approval before buying all that new furniture.
We hope this information is helpful to you and look forward to guiding you through the entire home buying process from mortgage pre-approval to finding your ‘dream’ home, negotiating the best possible price to closing and beyond. Contact us. You can trust our professionalism and expertise.
– Lois and John