If you are in the market for a new home and have already been pre-approved for a mortgage, you might think you’re in the clear. However, this is not always the case. There are several reasons a mortgage can be denied after pre-approval, and you must understand what causes it to happen to ensure your mortgage will be approved.
Reasons a Mortgage Can Be Denied After Pre-Approval
There are a number of reasons that a mortgage can be denied even after the prospective applicant has received pre-approval. Here are a few of the more common reasons:
Change of employment – One of the requirements for being approved for most mortgages is steady employment. If you have changed jobs and are still in the probationary period with your new employer, this can negatively impact your mortgage approval, although exceptions may be made in some cases, like if the job change is within the same field. The length of time you are required to be with an employer varies, but typically it is at least six months.
A poor credit report – You do not need perfect credit to be approved for a mortgage, but there is a minimum requirement for your credit score (and for most lenders it is a minimum score of 650). If you have been pre-approved but then acquire new debt or miss debt payments, this will hit your credit score and can potentially knock it down enough that you may not be approved.
Additional debts – Related to your credit score, taking on large debts when trying to get a mortgage is not a good idea. Hold off on buying that new car or applying for a line of credit until your mortgage deal officially closes and you have the keys in hand.
Changes in loan requirements – It is possible that after pre-approval, a lender or mortgage product may experience changes to their requirements and guidelines that result in you being denied the mortgage. These may include changes in debt-to-income policies, the savings required of the buyer, or a mortgage insurance premium increase.
Appraisal issues – In some cases, the mortgage pre-approval for an applicant is subject to a satisfactory bank appraisal. If there are issues with the appraisal, the mortgage application could be denied.
What To Do If Your Mortgage Has Been Denied
Luckily you don’t have to give up if your mortgage application has been denied. There are several things you can do to improve your financial situation and increase your chances of being approved:
Improve your credit score – Raising your credit score is the most reliable way to convince lenders to give you a mortgage, since it shows you can make payments on time.
Pay down debt – If your debt-to-income ratio is too high, pay down some of your debt to lower the ratio. A consolidation loan could help speed up the process if some of the debt comes from credit cards or other high-interest sources.
Add income – Like paying down debt, adding income will help improve your debt-to-income ratio.
Increase the down payment – By saving more money for a down payment, you will decrease the mortgage amount and the risk to the lender. As a result, they will be more likely to approve you for a mortgage.
Get a co-signer – If you have unreliable credit, you could try getting someone to co-sign your mortgage application. This person must have a good credit history and agree to pay your mortgage if you can’t. However, many people refuse because it is a high risk to them.
How to Ensure Your Mortgage is Approved
It is never a good feeling to be left wondering whether your mortgage application will be approved. There are a few things you can do to help ensure that you are not denied, including:
Don’t take on any additional debts like vehicles, student loans or lines of credit
Don’t make any large deposits into your bank accounts without having proof of their source, and don’t make any large withdrawals
Continue to save money and make loan payments on time
It can be devastating to learn that, despite being pre-approved for a mortgage, you can’t get financing to purchase the house you want. There are several reasons this can happen, so be sure to consult with your mortgage lender if this occurs so that you can take the necessary steps to remedy your situation and get your mortgage approved as soon as possible.
Still Have Questions?
As you begin your home-buying journey, you likely have lots of questions. You’re not alone. RE/MAX Canada hit the streets to find out how much (or how little) Canadians know about real estate, and offer some answers in the process.
When you’re ready to buy, ensure you work with an experienced, professional real estate agent who can help you navigate the market. Click HERE to find a RE/MAX agent near you.