Can you be declined for a mortgage after receiving a mortgage pre-approval?
Short Answer: Yes
Let’s look at the situation you are in.
You’ve made a decision to purchase a home and ready to take on the responsibilities of homeownership. You’ve done your due diligence and decided to get pre-approved before buying a home and before contacting a real estate agent. A pre-approval is advised so it’s a good move. You get pre-approved and think this is the end of the mortgage approval, but you may still be denied a mortgage for a variety of reasons during the underwriting process. If you are unaware of the reasons, this blog article may save you some grief and money.
Here are the reasons you can be declined after pre-approval:
- Your income or employment has changed – you become pre-approved based on the status of income and employment so if you change jobs or have a lower income, this can cause you to be denied a mortgage.
- Your lender does not think the purchase is worth the loan amount – Your lender will want to know the home you purchase is worth the money they decide to loan for your mortgage. It may be in your best interest to get an appraisal, most lenders usually require an appraisal so get the appraisal before signing on the dotted line to purchase the home.
- Taking on substantial debt after the pre-approval. Many lenders require you have a debt ratio of no higher than 43%. The debt ratio is a comparison between the amount of money you earn and the amount you spend to cover your monthly debts. That includes credit card spending.
- Making Large purchases after the Pre-approval. You lenders will review your bank account before the final approval of your mortgage to ensure you have enough for the down payment, related expenses such as closing costs, moving costs etc.
Unless you are confident you will get mortgage financing, do not lose the deposit on your home purchase and get a financial condition in place. Your mortgage broker can offer you more helpful advice on pre-approval and mortgage rates and conditions.
