In the process of home buying, many prospective buyers experience the discouraging situation of their mortgage loan being denied even after obtaining pre-approval. This unsettling outcome can result from numerous factors. For instance, a decline in the economy or a tightening housing market may push lenders into being highly selective about borrowers, thereby denying loans even after pre-approval.
Another critical factor that can affect loan approval is a significant change in your income status, such as job loss, reduction of working hours, or disappearance of a former income source. This is because lenders consider your ability to repay the loan, which may not be possible with inadequate income.
Your credit score plays a significant role in the home buying process. It serves as an indicator of your debt handling capability and repayment ability. Hence, any drastic drop in your credit score after pre-approval could make your lender reconsider granting you the mortgage.
Also, if there's an increase in interest rates and your income remains stagnant, you may not be able to afford the escalated mortgage payments, prompting your lender to withdraw the loan offer.
Sometimes, the lender's assessment of how much you could borrow based on pre-qualification, might be too low for your target housing market. This could lead to not proceeding with the loan offer. Furthermore, there are property qualifications attached to each mortgage type, and failure of a property to meet such can result in denial of a mortgage.
Should you unexpectedly lose your mortgage after pre-approval, it's essential to understand why. Contact your lender for an in-depth explanation. Once you've understood the cause, take necessary steps to enhance your chances of approval next time; it might be extra income documentation or paying off some debts to balance your debt-to-income ratio.
If there's no immediate solution, you may consider switching to another lender or even selecting a different property to purchase. Engaging a mortgage broker could be a helpful step if you lose an offer due to changing market conditions. They can assist you in finding a suitable offer.
While the denial of a mortgage application following pre-approval can be frustrating, it is not an unusual occurrence, particularly in a tight housing market or during economic decline. The crucial step is to decipher why your mortgage was denied and make efforts to resolve the issues identified. However, if the denial was due to factors beyond your control, scouting for a new property or working with a mortgage broker could be a more feasible path.