Being denied a mortgage after getting pre-approved

Being denied a mortgage after getting pre-approved

We can never stress this point enough: get pre-approved for a mortgage before you begin looking for a home.  This pre-approval will help you know how much you can afford. So, does a pre-approved mortgage mean you are guaranteed a final mortgage approval? Not necessarily. There are a number of factors that can cause a lender to deny you a mortgage, despite having been given a pre-approved letter. 

Often times when mortgages get denied after a pre-approval it is because the appraisal of the home came in too low or lower than expected (see our post on appraisals).  Lenders typically require that a home being purchased is appraised in order to verify that it is worth as much as the buyer agreed to pay for it.  If the home’s value is appraised at a price lower than the agreed-upon purchase price, the lender will likely refuse to provide a mortgage. If this happens to you, you can try to negotiate a lower price to match the appraised value or you can try to put more money as a down payment. 

Once you get pre-approved for a mortgage, try to avoid applying for another loan or a credit account. Don’t forget that the debt-to-income ratio is something lender look at.  Asking for a new credit card, for example, will add to your debt. If your income is the same, a lender will see a problem with this scenario.  

How is your credit? If it is in a less than desirable situation during the home buying process, that can definitely be a reason for a lender to deny you a mortgage.   Whether your score took a tumble because you missed a couple of bill payments, applied for a new loan, or have been maxing out your credit card month after month, any one of these things could cause your score to dip and therefore lead to a denied mortgage application.