When your mortgage loan is approved, you’ll probably want to celebrate. And you should! However, you should remember that there is still a lot that has to happen before anything is finalized so that you can close. Here are a few tips to help you avoid the most common reasons why approved loans unfortunately have to be denied before closing.
1. A Low Appraisal
Your lender is loaning you money based on the value of the home you want to buy, so the home should be worth at least what you’re paying for it. After you fill out a loan application, the lender will send an appraiser to the home to determine its fair market value.
If the appraiser finds your home is worth less than its sales price, your loan could be denied. However, you may be able to appeal the appraisal if you believe the appraiser missed important information relative to the home’s value. You might also be able to make up the difference between the appraised value and the sales price in cash or ask the home seller to lower the sales price.
2. There’s a Problem with the Home
Depending on the type of loan you’ve applied for, an appraiser could uncover problems with the property that do not meet the lender’s requirements, such as the lack of running water or a leaky roof. Unless repairs can be made before the closing date, your loan could get denied.
3. You Decide to Switch Jobs
Borrowers who have steady income and stable employment provide less risk to the lender. This is one reason that lenders ask you to provide recent pay stubs and two years’ worth of tax returns or W2’s. If you take a new job after you’ve already been approved, it could affect your ability to close. That’s especially true if your new job doesn’t pay as much as your old job, or if you’ve changed the type of work that you’re doing or if your method of pay has changed (new bonus or commission income).
On the other hand, if you’ve been offered a new job in the same field and with better pay, you’ll probably be OK. Your lender will just need a written job offer letter and may need to prove that you’ve started your new job prior to closing.
4. You’ve Taken on More Debt
If your loan was approved, it’s because the lender analyzed that you’d be able to pay back the loan based on your monthly debt and monthly income.
If you make large credit card purchases, buy furniture or appliances for your new home, or take out a car loan after you’ve already been approved for a mortgage, this will increase your debt and may affect your ability to qualify for your loan.
5. Your Credit Score Drops
When you apply for your loan, your lender looks at your credit history to determine how well you handle your finances. They also look at it again before closing, too. If one or more late payments or collections show up on a credit report after you’ve already been approved, your credit score could drop below the minimum required for your loan, and your loan could be denied.
There are other reasons why your loan could be denied, too—such as failing to tell your lender about other debts you have, like alimony payments or money you owe the IRS. For this reason, it’s best to be totally upfront with your lender about your finances from the start.
Unfortunately, your loan approval is not an iron-clad guarantee that your loan will close. That’s why it’s smart to consult with your lender before making any major financial decisions before closing and to continue paying your bills on time.
The experienced mortgage professionals at Right By You Mortgage have years of experience helping borrowers close loans safely. If you’d like to see for yourself, email us at inquiries@rightbyyoumortgage.com or give us a ring at 1-877-552-2242. We’d be delighted to help!
