5 Factors That Can Derail Your Mortgage Loan Approval
What factors could squash your home mortgage loan approval during the process, and even on the day of your real estate closing?
While it can seem like there is a fair amount of work to be done in just finding a home to buy, getting pre-approved for a purchase mortgage loan, and arranging moving, this can often just be the beginning of the process. The real work begins in earnest after the contract is inked, and your mortgage application with home loan lenders is moved into underwriting.
Loan underwriting and quality assurance reviews can be tedious at times. It is very common for additional conditions, documents and verifications to be requested during this process. Speaking with your loan officer in depth, in advance can help pre-empt many challenges in this process. However, there are other issues which can arise that home buyers have control of, or which can catch them by surprise.
Factors that Derail Mortgage Loan Approval
One of the biggest changes in recent years has been the increase volatility in employment and increasing lack of job security. Purchase mortgage approvals weigh heavily upon the borrower’s ability to repay. This is generally based upon both income and stability and predictability in employment. While the latter could be argued to be antiquated, home loan lenders may be hard to convince. Mortgage lenders often re-verify employment and income on the day before a real estate closing. If a job is lost it can completely derail a loan application. If this happens applicants ought to attempt to immediately find a replacement job, and ensure that it is in the ‘same line of work’.
Declining Credit Scores
Credit scores can often be checked again during the loan process, especially if closings are drawn out. Even a couple point drop can cause borrowers to fall below benchmark thresholds for purchase mortgage approvals. This could mean the application being denied altogether, or cause a reduction in LTV, or rise in interest rate and points. Borrowers should be careful not to apply for other credit during this time or take out new loans.
Rises in Debt and Monthly Obligations
Building on from the above; any increase in monthly financial obligations can throw off DTI (debt-to-income) ratios. This can again reduce the dollar figure home buyers qualify to borrow, or make their loan riskier and result in high borrowing costs to offset that risk. What has frequently tripped up borrowers in the past has been being lured into taking out furniture credit, auto loans or student loans which promised no immediate payments. Home loan lenders still count this against borrowers as they will have to make payments during the life of the loan.
While not under the direct control of any home buyer title issues can, and have derailed many closings. Title searches should be performed early, and double checked prior to closing. Common issues can include new loans, clouds on title, and liens being discovered. A good Realtor will help educate their clients and eliminate these things from happening.
Some home loan lenders and mortgage loan programs are very sensitive to where all monies come from. Borrowers should be careful to document how deposits are made, where large deposits and gifts come from. Failure to keep this paper trail could cause unforeseen hiccups in the process.
Fortunately, while this can all sound scary, if home buyers stay on top of the factors above they should enjoy a streamlined purchase and mortgage loan approval process.