“I was pre-approved then how come my mortgage was denied?”
“Seriously, my mortgage process is stalled because of one expense I forgot to mention to my lender?”
These are the most common comments I hear from buyers during their mortgage process. It is important to point out that even if you are pre-approved by the lender, your mortgage can still be denied. Why does that happen?
Let’s understand what’s pre-approval and final loan commitment first.
A loan pre-approval is a letter given by the mortgage broker or loan officer for the amount a buyer is qualified to borrow at a specific rate. It is based on income, expenses, credit score, down payment source and some requirements like appraisal.
The commitment letter comes in after the loan has been officially approved. It’s given after the underwriter thoroughly reviews expenses and income to determine if the buyer can comfortably make the mortgage payments.
One of the common reasons for mortgage denial is when a buyer decides not to sell his current home that still has a mortgage on it. If the underwriter feels it is not feasible for the buyer to carry mortgages for two properties the loan is denied. At times the buyer is advised either to rent out or sell the current property before the Close of the new property.
Other reasons could be major expenses occurring while the mortgage is in process, some recurring expense that was not mentioned during the initial stage of pre- approval or a financial change like change/loss of job or salary cut.
These Ten Commandments of home loans should be followed diligently to avoid delay and denials:
Thou shalt not quit or change your job, or become self-employed
Thou shalt not use credit cards excessively or be late on any payments
Thou shalt not buy a car, truck, boat, van, time sharing, furniture or anything that requires financing
Thou shalt not spend money that you have set aside for closing the transaction
Thou shalt not keep any financial secret from your mortgage broker
Thou shalt not begin to remodel or demolish your home prior to closing
Thou shalt not initiate any inquiry into your credit or open any new credit cards
Thou shalt not make any large payments or withdrawals without first speaking to your mortgage broker
Thou shalt not change bank accounts or make any monetary transfers without first speaking with your mortgage officer
Thou shalt not co-sign a loan for anyone