Top 5 Reasons Pre-Approved Mortgages Get Denied
Every week, we speak with prospective homebuyers who were preapproved for a NJ residential mortgage, only to have their mortgage loan application denied later in the underwriting process.
These prospective buyers are often ‘in-contract’ to purchase a new home and are desperate to find a NJ mortgage broker or lender that can approve their loan.
In my own experience, most homebuyers who were preapproved and later denied received their initial preapproval and loan denial from the same lender. We see this scenario most often with large retail banks like Wells Fargo, Chase, TD Bank, Citi Bank, and Valley National Bank.
How is it possible to be pre-approved and then later denied?
There are really two answers to this question:
1. The preapproval was not done thoroughly/properly in the first place, and the homebuyer never should have received a preapproval letter.
2. Something changed after the preapproval was issued and that change is now causing the loan to be denied.
Most often we observe that the problem is #1. Most mortgage lenders don’t spend much time or effort confirming that a prospective buyer can actually qualify for their purchase.
Here are a few examples:
1. Child Support – John wants to purchase a new home, makes $200,000 per year in income, minimal debt, and wants to make a 20% down payment on his home purchase. John visits his bank and receives a preapproval letter. John signs a contract, pays for an appraisal ($500), home inspection ($500), attorney ($1,500), and title insurance ($400 non-refundable search fee), only to find out that his loan has been denied by the bank that preapproved him and took his loan application. The issue? … John is divorced and pays $2,500 per month in child support to his Ex-Spouse. So, the question is: Should the bank have asked John if he paid child support before preapproving him? At Brightwire Loans, we believe the answer is ‘YES’! In contrast, many banks may argue, “Hey, we couldn’t have known about the child support, after all it was ‘Only a PreApproval’.”
2. VISA Status – Sylvia is an H1-B VISA holder. She pursues a preapproval at the bank, where she isn’t questioned about her employment authorization or citizenship (this may sound unbelievable, but these are real-life scenarios that Brightwire Loan Officers have actually encountered). Sylvia receives her preapproval, finds a house, and applies for a loan. She is denied for the loan - a month and $4,000 later. Some may argue that Sylvia should have known that she could not get a mortgage with an expired VISA. In this case, Sylvia’s VISA was NOT yet expired, however it had less than 1 year remaining before expiration and the credit union required that she have at least 1 year remaining at the time of closing. So, who is at fault? Sylvia for not volunteering her employment status, or the credit union for failing to ask until after the contract was signed and Sylvia had wasted $4,000?
So, the question becomes, “What can I do to ensure that my preapproval does not lead to a mortgage denial?”
1. Choose a mortgage company that has excellent reviews and a quality preapproval process. How do you know if the preapproval is high quality? Call Brightwire and we can help!
2. Don’t let anyone pull your credit report. If your credit report is pulled by another company, the inquiry may decrease your credit score.
3. Don’t make any changes to your employment. Stay at the same job in the same position working the same hours from the time you are preapproved until after your home purchase is completed. What if you need to change jobs? Call Brightwire and we can guide you!
4. Don’t deposit large sums of cash into the bank. Banks view large cash deposits (more than 10% of your annual income) as suspicious, and may even report those deposits to banking regulators and other law enforcement agencies.
5. Don’t take out any new debts. This includes new debt to finance appliances, furniture, and/or electronics for your new home. The earliest that you should open a new line of credit is 2 business days after closing on your home purchase.
Are you concerned about the quality of your preapproval? Do you want a free second look to confirm that you will qualify to buy your dream home when that time comes? Please consider calling an independent mortgage broker near me for helpful advice before making your offer.