Mortgage pre-approval can help home buyers roughly estimate their budget and feel more confident when making offers. Typically, buyers with pre-approval can rapidly finalize mortgages after sellers accept their offers on real property.
However, the situation can change between when the buyer first communicated with their mortgage lender and the proposed closing date. In some cases, buyers with pre-approval cannot actually obtain financing.
What might lead to a pre-approved buyer failing to secure a mortgage?
1. Appraisal or inspection issues
Lenders typically mandate professional property evaluations to ensure the property is worth the price offered and that it is in habitable condition. If there are issues with the inspection or an appraisal gap, the lender may refuse to fund the mortgage or may limit the amount of financing available.
2. Sudden job loss
A loss of employment is a significant setback for those seeking mortgages, as lenders usually want to work with borrowers who have held the same job for at least a year, if not longer. An unexpected termination or layoff before a closing might lead to buyers becoming ineligible for financing.
3. Improper credit use
A mortgage applicant’s debt-to-income ratio and the outstanding balances on their various lines of credit directly influence their mortgage eligibility. If aspiring home buyers max out their credit cards paying for moving services or take out new loans to finance furniture purchases, their lenders may decide that they no longer qualify for a mortgage because of their increased debt.
Including appropriate contingencies in offers can protect buyers from the loss of their earnest money if they cannot secure a mortgage. Buyers often need guidance limiting their exposure as they prepare to acquire residential real estate, and that’s okay. Seeking personalized legal guidance is always an option.