Purchasing a home can be a harrowing experience. Between the requirements you must fulfill under your contract and those by the lender, coming into the final stretch can offer a huge sense of relief. Unless, of course, your lender comes back at the last minute and denies your application for a mortgage. Unfortunately, a lender has every right to come back and deny your loan, even if everyone is sitting at the closing table.
The Mortgage Approval Process
Qualifying for a mortgage requires multiple, time-consuming steps.
A pre-qualification tells everyone involved in a sales transaction that you qualify for a mortgage IF everything on the application is accurate and verifiable. But a pre-qualification is only the first step in a much more in-depth qualification process.
Once your lender has a formal application in hand, they will then go forward to verify that all the information on the application is true. They will verify
● your income and the source and reliability of that income. This is usually done through copies of income tax statements, W-2s, or pay stubs for conventional loans.
● how much debt you have
● your creditworthiness through a credit check
● your down payment
● the amount of cash in your bank account to ensure you can still make payments should you encounter an emergency
Finally, the lender will ensure that the home is worth what they are lending against and the title has no defects. If everything checks out, the lender will give you a loan commitment and you will be conditionally approved for the mortgage.
Why Would You Get a Last-Minute Denial?
News flash: a lender has the right to deny a loan right up until the final closing.
Once you have a loan approval in hand, it may be a false sense of security. A few weeks may have passed since you received the approval from your lender, and that lender knows that things can change quickly in that time.
Lenders often re-verify the most important information just prior to closing to ensure that your situation hasn’t changed and that you will still be able to afford the loan. If nothing has changed, chances are that your closing will go through smoothly. But life happens, and any major changes can put your financing in jeopardy.
You lender may deny your mortgage if
● You have had a change or loss of employment
● You have taken on additional debt
● There has been any negative impact on your credit score
● The home appraisal came in too low
● The lender has changed qualification criteria
Unfortunately, a denial at the last minute can be a problem for everyone involved, especially the potential borrower who may find themselves suddenly homeless.
Can a Mortgage Approval Be Revived?
That depends on the reason for the denial.
If you have started your own business or taken out a loan right before the closing, the lender will be reluctant to lend to you. Reviving the loan will require new verification documentation, and the application will have to go back through underwriting to verify support for a new approval.
If the lender does not see enough verifiable support, there will be no mortgage and the closing, unfortunately, will have to be postponed. This means you may lose out on the home completely and face other difficult consequences.
Are There Any Other Options?
In some cases, a non-qualifying loan can be a good option if you have been denied a mortgage at the last minute, particularly if you now find yourself unable to verify income.
No-income verification loans are specifically designed for individuals who have income and assets but cannot verify those under stringent conventional loan criteria. Non-qualifying loans are typically extremely flexible regarding income verification, property criteria, and credit scores. Approvals usually take far less time than conventional loans, and qualification requirements are much less restrictive.
If you have been denied a mortgage at the very last minute, all is not lost. There may be a lender and mortgage product out there that can save the day and get you into that home you have been working so hard toward after all.