What to Do If You’ve Been Denied a Mortgage Loan After Pre-approval
Imagine this scenario, you’ve gone through mountains of paperwork and read all the expert blogs to make sure you’re doing your home purchase the right way. You’ve received pre-approval and you’re ready to secure a great mortgage term but there’s a problem – you’re denied a loan.
Conditional Loan Approval vs Pre-Approval
It’s important for potential homebuyers to understand the differences between conditional loan approval and pre-approval. While you can obtain both types of approval before applying for a mortgage, conditional loan approval is more powerful than pre-approval.
What Happens After Pre-Approval
Pre-approval is one of the earlier steps in the homebuying process. Pre-approval helps you dip your toes into the real estate market by letting you know which home price points you should seriously consider. Once you receive pre-approval you can search for individual homes, you’re likely to be approved for. If you’re serious about a home, you should consider conditional approval after you’ve received pre-approval.
What is Conditional Approval for a Mortgage?
Conditional loan approval, also known as a loan commitment letter, is an upgraded version of pre-approval in which the approval is reviewed by an underwriter instead of a loan officer. An underwriter has greater authority to approve loans which makes conditional loan approval the best type of pre-approval you can bring to the home-buying table.
Does Conditional Approval Mean Approved?
No. Though conditional loan approval carries more weight since it’s it been reviewed by a loan expert, it means the underwriter is about 90% satisfied with the current conditions for closing a deal, not 100%.
Can You Be Denied a Home Loan After Pre-approval?
Yes, you can be denied a home loan after pre-approval and can even be denied after receiving a conditional approval home loan. Pre-approval is a great tool for setting your budget and is helpful when applying for a mortgage, but it is not a guarantee that you will receive approval. A pre-approval does not factor in the full financial picture and leaves some work to be done before further approvals.
Factors in Loan Denial
Let’s suppose you’ve been pre-approved but are denied when applying for a home loan. You need to fix any issues before re-applying for a mortgage, but what are those factors? While individual agents and officers can help direct you to deficiencies, here are the most common factors in loan denial after pre-approval:
•New Negative Credit Item – A new negative credit item like a lien or default can break a loan’s conditions.
•Change of Employment / Income – Loan writers base their loans off your employment and its predictable income. If one of those changes your loan could be denied.
•New Debts – It’s not recommended to take on new debts such as an auto or student loan before a home purchase. New debts can ruin your chances at a great loan.
•Lender Changes – Lenders frequently update their terms and policies. You might have been pre-approved 6 months ago only to find you no longer qualify at the loan counter.
•Appraisal Problems – Appraisals can raise red flags or change the amount needed for the home. There could also be clerical errors found during an appraisal that could influence a loan’s approval.
Can a Home Loan be Denied After Closing?
Yes, although rare, a loan can be denied after closing. The same above factors in loan denial can factor in after you’ve closed on a home. Loan denial after closing happens most often in hot housing markets where handshakes and paperwork are moving faster than the lender’s office.
Getting Approval Assistance with a Real Estate Team
You have to do paperwork before you start searching for homes, you need paperwork before securing a loan, and there are mountains of questions in-between. If you’re serious about the home buying process, it’s important to hire a local real estate team to help you navigate a home purchase.
Get Approved, Get the Home of Your Dreams
Pre-approval is one of the earliest steps in the home buying process to give you an idea of what you qualify for while conditional approval means you only need to do one or two things to be approved for a home loan. Seek out pre-approval, bolster an offer with conditional approval, and work with a local real estate agent to translate jargon and secure the best loan for the best home.