You should get pre-approved for a mortgage before you look for a house, but a lender will also have to give final approval. Your financing may fall through before closing, but you may still be able to buy a home, depending on the reason for the problem.
Why You May Not Qualify for a Mortgage
Lenders can modify their guidelines because of changes in economic conditions, the real estate market and government regulations. A rule change between preapproval and closing may negatively impact you.
Your financial situation may change. You or your spouse may take a pay cut or have your hours reduced, and you may no longer meet the lender’s criteria.
Your credit score could go down. If you buy furniture and appliances before you close on your new home, that can increase your debt-to-income ratio. Your credit score may fall if you make late payments on your car loan or credit cards. It may also happen because of an error on your credit report.
Your mortgage financing may fall through because of the appraisal. A lender will give you an amount of money that is in line with the value of the house. If the property does not appraise for that much, the lender may refuse to provide financing.
What to Do If You Hit a Snag
If your lender tells you that your loan application is denied, don’t panic. You may have options that can allow the deal to move forward. The first thing you need to do is make sure you understand the problem.
If a change in loan guidelines is to blame, you may qualify for a different type of loan through the same lender or a mortgage from a different lender. You may be able to make a larger down payment with money from your savings, a gift from a family member or funds from a down payment assistance program.
If your debt-to-income ratio is too high, you may be able to make a substantial credit card payment to bring it back in line with your lender’s requirements. If there’s an error on your credit report, you can dispute it.
If the appraisal comes in too low, you can ask the seller to lower the price. A seller who has to move by a specific date or who has had a house on the market for a long time may be willing to accept a price reduction.
Understanding how mortgage lenders make their decisions may help you avoid a problem. Review your credit report for errors before you begin house hunting. Don’t make an unreasonably high bid on a house, no matter how much you love it, and don’t make any large purchases before closing.
If your financing falls through, that can be a shock, but it doesn’t mean you have to give up on your dream of becoming a homeowner. Speak with your lender and your real estate agent about ways to address the situation.