As
a home buyer (or an agent) there is nothing more frustrating than being denied
a mortgage after you have already been pre-approved by the bank. But how can
this happen? How can the lender give you the go ahead to buy a home and then
deny your application when you’ve finally found the perfect home? Well, there
are many reasons that this can happen but 99% of the time it is something that
the home buyer has done that has changed their circumstances. These situations
are completely avoidable provided that the loan seeker understands the rules.
These are the top 10 reasons that lenders deny a mortgage application even
though a pre-approval had already been granted.
Failing to
disclose a past bankruptcy, short sale or foreclosure is a big “no no”
Many
home buyers are eager to get approved and understandably so. Sometimes they
will not mention a past experience such as a foreclosure because they are
afraid that they will not be approved for another mortgage. While this is
understandable it is always doomed to failure. Obtaining a pre-approval is
easier than an actual mortgage approval and involves less research and
disclosure but when applying for the actual loan past situations will be
discovered and it’s a sure bet that the loan will be denied. Honesty is the
best policy.
A change in employment
could be a problem
Drastic
changes in your employment status can definitely affect your ability to get
approved. If there’s one thing that banks like it is stability. Changing jobs, a lay off or even changing positions
within the same company can cause concern to the lender. If at all possible try
to maintain the “status quo” until after the loan has been approved. This is
one time that the “same ol’ same ol’ “is a good thing.
Ownership in
your place of employment MUST be reported
If
you represent yourself strictly as an employee but actually own even the
smallest share of the place where you work the bank wants to know about it.
Most homebuyers know that being self employed can make obtaining a home loan
much more complicated and represent themselves strictly as an employee. The
same as failing to mention a previous foreclosure, the applicant may obtain
pre-approval but will be denied when applying for the actual mortgage loan.
Obtaining
additional credit debt after being pre-approved can be a big mistake
A
big part of obtaining pre-approval status for a home loan is based on your
income to debt ratio. Simply put this means that you make enough money to pay
your existing bills AND the monthly mortgage payment that you are applying for.
If you increase your debt after pre-approval it’s possible that you will exceed
the maximum debt that the bank will allow. This is not the best time for
additional credit card debt or purchasing a new car.
Failing to
report child support, alimony payments or other financial obligations is a big
mistake
Once
the lender finds out that you have debts that have not been disclosed
everything will change. It’s not only a matter of your being less than
forthright in your business dealings with the lender but it will dramatically
affect your income to debt ratio. This is one of the most common causes for the
lender to simply change their mind after granting pre-approval.
Undisclosed
business losses will count against you
If
you have claimed any type of business loss on your taxes the lender is
eventually going to find out about it. This could be a major loss such as a
side business that hasn’t quite worked out or even a small loss claimed such as
selling things on the internet. Either way it’s in your best interest to inform
the lender of any type of side work that you are involved in.
Lenders do not
allow you to borrow any portion of the down payment required to purchase the
new home
As
far as I know there isn’t a lender that exists that will accept borrowed money
to finance your down payment for a home. There’s a good reason for this too
because history has shown that in the past home buyers that were granted a home
loan with 0% down payment were more likely to default on their loan. In other
words they could walk away from the home if the going got tough without losing
a single cent of their own money and that’s not good business for any lender.
Attempting to
buy too many properties at one time will cause the lender to turn down your
loan request
This
one is a “no brainer”. Obviously the lender will be quite uncomfortable about
loaning you money at the same time that you are being approved for other
properties, especially if you are pushing the limits of your available amount
of credit. Many lenders have a policy of allowing a maximum of 4 mortgages at a
time and regardless of your personal resources will not grant an exception.
Keep in mind that the traditional mortgage requires the home to be a primary
residence as well and who needs 4 homes?
Owning too many
other properties (or even vacant land) can cause the lender to deny your
mortgage loan
It’s
quite common for borrowers to not disclose the fact that they own other
properties. Many times they think that it doesn’t matter to the bank,
especially if they don’t owe any money on them. The problem here is that even
if the properties are 100% paid for there are still tax and insurance
obligations that must be paid and that does
make a difference to your ability to obtain a new mortgage.
Believe it or
not, DISHONESTY is one of the main reasons that home seekers that have already
been pre-approved for a home loan are eventually denied. I don’t really
understand what makes someone think that they can provide false information on
a loan application without the truth eventually being discovered but one thing
is for sure; if you provide false information to the bank it is a 100%
guarantee that there will be no loan granted to you. In addition, providing
falsified documents or misleading statements with the intent of obtaining a
home loan is a crime in all states and is punishable by fine, imprisonment or
both. The bottom line here is simple; your best bet to actually getting
approved for a home loan is to be honest. Any other approach is a big waste of
time for all involved.
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