A Pre-Approval Is A Snapshot In Time
Getting pre-approved is arguably the most important step in the home buying process.
A pre-approval letter tells you how much home you can buy, and, without it, a real estate agent might not let you to make an offer or even view a home.
When you obtain mortgage pre-approval, you’ll be able to close on your purchase as long as the property meets your lender’s guidelines.
Sometimes, though, your situation changes and you are “un-approved” for the mortgage. The snapshot the lender took when you applied changed just enough to make you fall out of lending guidelines.
This doesn’t have to be the end. As a home buyer, know how to handle a reversed mortgage decision, and how to keep your mortgage in approved status.Verify your new rate
How Do Mortgages Get “Un-Approved?”
There are several reasons that you may not be able to complete a pre-approved home purchase.
Typically, something changes or is discovered about your situation that does not align well with lending rules.
Your first step is to make sure you have a valid pre-approval, which is different than pre-qualification.
Pre-qualification is simply a loan officer’s estimation of your approval, not based on documentation but a description of your situation.
For instance, you are self-employed and you said you make $100,000 per year. But an analysis of your tax returns reveal income of only seventy thousand dollars annually after business expenses. Your application may be turned down.
If you did not complete a home loan application, authorize a credit report, and supply income and asset documents, you did not get pre-approved.
A turn-down after a valid pre-approval process may have been due to one of the following circumstances.
Your property might not meet lender guidelines or appraisal may come in low. Pre-approval means you have met the lender’s guidelines. The property must also be accepted, and its value must be supported with an appraisal.
This is one of the easier issues to deal with. You can still buy a home, just not the home you originally intended.
It may be inconvenient to find another home, but the appraisal process is there to make sure you don’t pay too much for a home, and that the home is livable and meets safety guidelines.
Your financial situation changed
Lenders perform additional audits after you’ve been approved, and before the loan closes.
If you have applied for or opened additional credit accounts, acquired some derogatory credit history, or changed jobs, your old approval may no longer be valid.
Typically, people don’t have control over a job loss during the application process. But it is surprising how many people voluntarily change jobs while buying a home.
Keep your financial situation from changing, if at all possible, during your home purchase or refinance process.
Your documents expired
The paperwork that proves your income and assets is only good for about 30 to 60 days.
If your home search takes longer, you will re-supply the lender with new paystubs, bank statements, and perhaps a more current tax return if you recently filed.
It’s possible that the new documentation doesn’t support the income and assets you originally submitted.
New documentation does not commonly derail a pre-approval. Be sure to keep enough money in the bank and keep a consistent income all the way through your mortgage application process.
The loan program expired
Sometimes, loan programs are available for a limited time only.
Programs like Fannie Mae’s MyCommunityMortgage and HomePath existed for a number of years, then were retired. Both served home buyers who had small downpayments and could not qualify for other programs.
Fannie Mae has since replaced these programs with the HomeReadyTM home buying program, a loan that is more flexible in many respects.
In the rare event that your loan program expires, you may have to adjust your expectations. For instance, your lender offered a three-percent-down loan, and guidelines changed so that it requires five percent down. You’ll need to come up with a larger down payment or apply for an alternate no- or low-downpayment loan.Verify your new rate
How to Get Re-Approved
Try as hard as you can to change nothing about your financial situation during the mortgage application process.
If it’s already happened, however, you can do damage control.
Your next step depends on the reason for loan denial. If you suddenly don’t meet the lender’s guidelines because your credit score dropped, you may be able to get approved with a more lenient program. The FHA home loan allows credit scores down to 580.
Or, you can try to erase erroneous or outdated credit issues with a rapid rescore. In just days, your score could rise by 100 points or more.
If the issue is a too-low appraisal, the lender may have done you a favor – you don’t want to pay more for the property than it’s actually worth.
If you believe the lender’s appraiser is wrong, though, you can enlist the help of a real estate agent. The agent can provide information justifying the property sales price, such as similar area sales.
Your other option is to pay for a second appraisal or start over with another lender. But before going through these steps, try to use the appraisal as a bargaining chip. The seller might reduce the price to match the documented value.
If you have applied for or used new credit, see if the lender will re-approve you if you close out the new account or pay down your balances to re-establish your old debt-to-income ratio.
If not, do those things anyway and apply with a new lender once your debt-to-income ratio has dropped to an acceptable level. You can also try changing to a more flexible program like FHA, VA or USDA loans.
Every situation is different, but typically there is a workaround if you’ve experienced a mortgage “un-approval.”
What Are Today’s Rates?
Rates are extremely low and hitting levels not seen in three years. Home buyers and refinance applicants are enjoying unexpected trend of dropping rates in 2016.
Get a rate quote now while rates are at historic lows. Seeing your rate takes just minutes, and no social security number is required to start.Time to make a move? Let us find the right mortgage for you