Pre-approval for a mortgage makes it easier for buyers to navigate the real estate market. By submitting an application to a mortgage lender before viewing a home, prospective buyers have a better idea of the budget that they have available. They can make better choices about what homes they view and how much they offer for properties.
Lenders extend pre-approval to buyers who are highly likely to successfully complete the underwriting process and obtain a mortgage. Factors including household income, personal debt levels and credit scores influence pre-approval and the amount of financing that buyers can secure.
Most aspiring home buyers who have mortgage pre-approval can confidently make offers on homes. Unfortunately, some of those buyers end up disappointed when they cannot actually obtain a mortgage after making an offer on a property.
What might lead to pre-approved buyers getting denied an actual mortgage after making an offer?
A sudden job loss
The ability to pay a mortgage depends in no small part on maintaining consistent employment. Borrowers usually need to have had their jobs for at least a year to qualify for a mortgage with competitive terms. If a buyer with pre-approval suddenly loses their job after making an offer on a property, they likely cannot move forward with the transaction. Any significant change in income is likely to complicate financing prospects.
An increase in overall debt
Those preparing to buy a home often need to make several big purchases. They have to pay for homeowners insurance coverage, moving services and a variety of other pressing needs. Some people use revolving lines of credit to cover various expenses in the weeks leading up to a real estate transaction. If they use too much credit, they may shift their debt-to-income ratio enough to prevent the lender from finalizing the mortgage. Those who take out too much debt in between when they secure pre-approval and actually acquire the mortgage may make themselves ineligible in some cases.
Surprise issues with the property
Sometimes, the borrower is theoretically eligible for the mortgage. However, the lender may question the value of the proposed transaction. Maybe the appraisal came in unexpectedly low. Perhaps the inspection turned up several significant issues with the property that undermine its fair market value. Lenders may choose not to extend financing in scenarios where the current price or condition of the property does not meet underwriting requirements.
Buyers hoping to purchase real property may need to take steps to protect themselves. Including the right contingencies and terms in offer documents can help buyers protect their earnest money and make it easier for them to move on if a real estate transaction falls apart at the 11th hour. Those who understand the possible challenges that can derail residential closings can more successfully avoid scenarios in which unexpected complications interfere with their dreams of homeownership.
