Tuesday, January 21, 2014

Why Some Home Buyers are Denied a Loan AFTER Being Pre-Approved

As a home buyer (or an agent) there is nothing more frustrating than being denied a mortgage after you have already been pre-approved by the bank. But how can this happen? How can the lender give you the go ahead to buy a home and then deny your application when you’ve finally found the perfect home? Well, there are many reasons that this can happen but 99% of the time it is something that the home buyer has done that has changed their circumstances. These situations are completely avoidable provided that the loan seeker understands the rules. These are the top 10 reasons that lenders deny a mortgage application even though a pre-approval had already been granted.

Failing to disclose a past bankruptcy, short sale or foreclosure is a big “no no”
Many home buyers are eager to get approved and understandably so. Sometimes they will not mention a past experience such as a foreclosure because they are afraid that they will not be approved for another mortgage. While this is understandable it is always doomed to failure. Obtaining a pre-approval is easier than an actual mortgage approval and involves less research and disclosure but when applying for the actual loan past situations will be discovered and it’s a sure bet that the loan will be denied. Honesty is the best policy.

A change in employment could be a problem
Drastic changes in your employment status can definitely affect your ability to get approved. If there’s one thing that banks like it is stability. Changing jobs, a lay off or even changing positions within the same company can cause concern to the lender. If at all possible try to maintain the “status quo” until after the loan has been approved. This is one time that the “same ol’ same ol’ “is a good thing.

Ownership in your place of employment MUST be reported
If you represent yourself strictly as an employee but actually own even the smallest share of the place where you work the bank wants to know about it. Most homebuyers know that being self employed can make obtaining a home loan much more complicated and represent themselves strictly as an employee. The same as failing to mention a previous foreclosure, the applicant may obtain pre-approval but will be denied when applying for the actual mortgage loan.

Obtaining additional credit debt after being pre-approved can be a big mistake
A big part of obtaining pre-approval status for a home loan is based on your income to debt ratio. Simply put this means that you make enough money to pay your existing bills AND the monthly mortgage payment that you are applying for. If you increase your debt after pre-approval it’s possible that you will exceed the maximum debt that the bank will allow. This is not the best time for additional credit card debt or purchasing a new car.

Failing to report child support, alimony payments or other financial obligations is a big mistake
Once the lender finds out that you have debts that have not been disclosed everything will change. It’s not only a matter of your being less than forthright in your business dealings with the lender but it will dramatically affect your income to debt ratio. This is one of the most common causes for the lender to simply change their mind after granting pre-approval.

Undisclosed business losses will count against you
If you have claimed any type of business loss on your taxes the lender is eventually going to find out about it. This could be a major loss such as a side business that hasn’t quite worked out or even a small loss claimed such as selling things on the internet. Either way it’s in your best interest to inform the lender of any type of side work that you are involved in.

Lenders do not allow you to borrow any portion of the down payment required to purchase the new home
As far as I know there isn’t a lender that exists that will accept borrowed money to finance your down payment for a home. There’s a good reason for this too because history has shown that in the past home buyers that were granted a home loan with 0% down payment were more likely to default on their loan. In other words they could walk away from the home if the going got tough without losing a single cent of their own money and that’s not good business for any lender.

Attempting to buy too many properties at one time will cause the lender to turn down your loan request
This one is a “no brainer”. Obviously the lender will be quite uncomfortable about loaning you money at the same time that you are being approved for other properties, especially if you are pushing the limits of your available amount of credit. Many lenders have a policy of allowing a maximum of 4 mortgages at a time and regardless of your personal resources will not grant an exception. Keep in mind that the traditional mortgage requires the home to be a primary residence as well and who needs 4 homes?

Owning too many other properties (or even vacant land) can cause the lender to deny your mortgage loan
It’s quite common for borrowers to not disclose the fact that they own other properties. Many times they think that it doesn’t matter to the bank, especially if they don’t owe any money on them. The problem here is that even if the properties are 100% paid for there are still tax and insurance obligations that must be paid and that does make a difference to your ability to obtain a new mortgage.

Believe it or not, DISHONESTY is one of the main reasons that home seekers that have already been pre-approved for a home loan are eventually denied. I don’t really understand what makes someone think that they can provide false information on a loan application without the truth eventually being discovered but one thing is for sure; if you provide false information to the bank it is a 100% guarantee that there will be no loan granted to you. In addition, providing falsified documents or misleading statements with the intent of obtaining a home loan is a crime in all states and is punishable by fine, imprisonment or both. The bottom line here is simple; your best bet to actually getting approved for a home loan is to be honest. Any other approach is a big waste of time for all involved.

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