Reasons for Denial After a Mortgage Preapproval

Getting preapproved for a mortgage is a smart step for any homebuyer. When you apply for preapproval, the bank checks your credit and asks for all your financial documents. The preapproval letter gives you confidence that the bank wants to lend to you, and it will also tell you the limit on what you can borrow. However, a preapproval letter does not guarantee that you will end up with a mortgage from that lender, which may ultimately decide to deny your loan request.

Change in Financial Circumstances

A preapproval is conditioned on your financial circumstances remaining the same between the time you apply and the time you close your loan. If you lose your job, if you take on other significant credit or if you default on another loan, you may be denied a mortgage despite your preapproval. As you go through your home search, make sure you keep the bank up-to-date on any changes in your financial life so that you can work through any difficulties.

Appraisal

Even if you stick to the loan limit on your preapproval, and the seller accepts an offer that meets your number, you still have to wait for the home appraisal. If the appraiser decides that the home is not worth what you have offered for it, the bank will not lend you the money. In addition you must meet any loan-to-value ratio set by the bank. For instance, if the loan must be no more than 80 percent of the value and the appraisal comes back too low, the loan will not be approved.

Title and Inspection

The home inspection on your chosen property may turn up repair and maintenance problems. If the bank believes these are significant and expensive enough, your loan may be denied. Similarly, the bank will order a title search to make sure the home can be sold with clear title. If this search throws up gray areas such as liens on the current seller, again, a loan may be denied.

Expiry

Lenders will preapprove you for only a set limit of time. If you have not found a property you want to bid on within that limit — 90 days is fairly standard — then you must either negotiate to extend your preapproval or lose it and have to start again.

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