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It’s no secret that going through the mortgage application process can be stressful. This is especially true if after everything is said and done, you find out your mortgage was not approved. How can this be, when you were pre-approved and thought you had a great application? There are several reasons why these circumstances might take place. Today, we’re addressing the question: Why was my mortgage not approved?
#1 Change in credit score
Your credit score is one of the key factors in determining your mortgage approval. Once you are pre-approved, your potential lender knows what your credit score was at that point in time. If your score is much lower when you apply for your mortgage, your lender is going to do some investigating. No matter how high your score might have been, if it goes through a drastic drop, lenders will notice and take action. They might assume you will have trouble making your mortgage payments in the future, which could lead to the dreaded “mortgage not approved” message.
A credit score to aim for is around 650, as this will help secure most of the best mortgage terms. If your score is lower, you can usually still secure financing, but it might have higher interest rates. Whatever your credit score was during your pre-approval, do your best to either maintain it or improve it.
#2 Employment concerns
Since employment directly affects income, this is another big thing lenders will examine for your mortgage application. If your employment changes in any way, this might make lenders hesitant to approve you for a mortgage. If you take on a new job with a lower income, lenders will be unsure if you can handle your monthly mortgage payments. Even if you get a new job with more money, many positions have probation periods and lenders will feel less confident that you will have this position long-term. Finally, becoming self-employed involves a whole different set of requirements to secure mortgage financing. This will absolutely make lenders pause before funding your mortgage. It’s best to maintain your current employment so you don’t give your lender any unpleasant surprises.
#3 Appraisal comes up short
This issue is becoming more common as housing prices are experiencing drops, thanks to rate hikes and inflation concerns about spending. As a result, housing prices aren’t skyrocketing at the pace they used to, and in some cases, are actually decreasing in value. The issue here is sometimes, buyers put in an offer on a home for a certain amount, and it is accepted, but by the time the appraisal comes around, the value has decreased. Lenders won’t finance a mortgage for more than the home’s value. Buyers may be left to cover the balance between what they offered and what they can get in a mortgage. Many lenders will still finance a mortgage for the lower value! However, they will not approve one for the original, higher, amount.
#4 Debt issues
Debt is a big issue for lenders when reviewing a mortgage application. Lenders know your future mortgage will be a big piece of debt, so they won’t be happy if they see you have taken on other large debts between your pre-approval and approval. For example, imagine you decide to purchase a car. Remember, your pre-approval was based on your situation at that time, which didn’t include your new car loan. Since this extra debt will eat up some of your money, lenders cannot be as sure you can make your mortgage payments. Without proper assurance that you can handle additional debt, you may be facing a rejection in your application. Avoid extra debt as much as possible during this process, so as not to give your lender extra concerns!
#5 Human error
Perhaps the most frustrating reason to have a mortgage not approved is human error. Mistakes in filling out your documents, including your mortgage application, can lead to your mortgage not being approved. Unfortunately, lenders are not always super forgiving about paperwork problems. You may not get a chance to fix your incorrect paperwork before they reject your application. Whether you make a mistake with your income, credit score statement, debt levels, or you’re missing some key documents, a lender might not finance your mortgage. It’s the worst feeling to do all the work of filling out your application and making an effort to be careful with your spending and saving, just to find out that human error is going to stand between you and your mortgage. It’s essential to review your documents VERY carefully!
Facing a “mortgage not approved” message isn’t ideal for anyone. However, if you are pre-approved and can maintain your current situation, you have a good chance of securing that mortgage approval. The key is to not make any changes that lenders believe may affect your finances or ability to make payments. Your mortgage broker can help you along the way, ensuring your situation is optimal for getting the product you deserve.
If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.