Getting preapproved for a mortgage before you begin looking for a home puts you in a strong position. When you know how much a lender is willing to give you to buy a house, you can focus on properties in your price range. Mortgage preapproval also shows sellers that you’re a serious buyer. Even if you get preapproved, however, that’s no guarantee that you will be able to get a loan to buy a house.
Reasons Why You Might Be Denied a Mortgage After Getting Preapproved
When you seek preapproval, a lender will examine your financial situation and decide whether it’s willing to give you a mortgage. Before you close on a property, a lender will take a look at your circumstances at that time.
A lender might deny your application if you take out a new line of credit, such as a car loan, or if your credit card balances rise significantly after you get preapproved. Those types of changes can raise your debt-to-income ratio above the lender’s guidelines.
A change in employment can also cause you to be denied a mortgage. Lenders look for a record of stable employment. If you switch jobs shortly before buying a house, a lender may be unwilling to give you a home loan, especially if you take a pay cut or switch to a different field.
Sometimes an issue arises after a property is appraised or inspected. If you agree to a price that’s more than the house is worth, a lender won’t give you a loan for that amount. A lender can also refuse to grant a mortgage if the house has a health or safety issue.
What to Do If Your Loan Application Is Denied
If you’re denied a mortgage, the lender should tell you why. In some cases, the lender might simply need additional information or clarification regarding a debt or a change in your income or employment.
You might be able to get a mortgage through a different lender since each institution has its own requirements. You may want to consider applying for a loan through a government agency, such as the Federal Housing Administration. Those types of programs often have more lenient requirements than conventional mortgages.
If the lender is concerned about your income or level of debt, having someone cosign might salvage the deal. Only do this if you’re confident that you’ll be able to cover the mortgage payments and other costs. If you don’t, your relationship with your family member or friend can be seriously damaged.
If the house appraises for less than the price you agreed to, you can renegotiate the price with the seller or pay more out of pocket to cover the difference between the agreed-upon price and the amount the lender is willing to give you. If you’re denied a mortgage because the house needs repairs, you can ask the seller to address the issue so the lender will approve your loan application.