Common reasons why mortgages aren’t approved

What are some common reasons why mortgages aren’t approved? Securing that final approval means clearing the last hurdle on the path to homeownership. The last thing you want is to find out your application was rejected. With this in mind, here are five big causes of mortgage rejections, and how you can avoid them as you go through the application process.

Your credit score has dropped

A borrower’s credit score plays a big role in determining their mortgage approval. Lenders like to see that borrowers have a strong credit history, and part of that includes having a credit score of at least 650, in most cases. This is the common threshold lenders use to make decisions about mortgage applications. More importantly, however, is ensuring your credit score doesn’t drop between your pre-approval, and the time you submit an application for your final approval. Assuming you have a pre-approval, this means your potential lender knows what your credit score was at that point in time. If they see it has changed, this might cause them to change their mind about financing your mortgage. A credit score decrease can indicate a borrower will have trouble making future mortgage payments. Remember, a pre-approval is not an approval, so it’s important not to take your foot off the brake! Try to either maintain your credit score, or improve it, before securing your final approval.

Your employment has changed

Your employment matters to lenders, because it is the most direct source of your income. The higher your income, the more confidence lenders will have in your ability to make mortgage payments. It’s best to maintain your current employment throughout the approval process for consistency. An employment change that results in a loss in income means you will have less money to contribute towards your mortgage. Even a new job that involves a pay raise can be risky, because many positions have a probationary period. Lenders may feel uneasy about the possibility of a borrower losing their income altogether during this time. When mortgages aren’t approved, employment can be one of the reasons why.

Lenders are concerned with your debt levels

If your debt levels have significantly increased since you secured your pre-approval, this will raise a red flag for lenders. Since a mortgage is a large debt, lenders don’t want to see that you have added on even more debt in the form of credit cards, car payments, or other large expenses. They recognize this will be another financial obligation on your end that will take up a big chunk of money. This can make lenders wary about your abilities to manage multiple debts. If at all possible, try to avoid adding onto your debts while you’re going through the approval process. When mortgages aren’t approved, excessive debt is a common cause for lenders to reject that application.

The appraisal value is too low 

Conventional lenders will not finance a home for more than its appraised value. This is because they want to ensure they are getting a return on their investment, which this type of financing cannot provide. This can become an issue when a buyer puts an offer on a home and it is accepted, but the appraisal value is lower than the offer. In these situations, the buyer is paying more for the home than it is technically worth. While lenders may be willing to finance a mortgage for the appraised value, they will most likely not approve the original application. You can read more about your options when your appraisal value comes up short here.

There has been a human error

Finally, another simple reason your mortgage may not have been approved could come down to human error. After all, applying for a mortgage involves a lot of documents and providing various pieces of information. It’s possible that at some point, you filled in a form incorrectly, or missed a line on a document. In any case, this is perhaps the most frustrating reason for a mortgage rejection, because in most cases it is preventable. Unfortunately, lenders may not be willing to give you a chance to make the necessary corrections, so it’s super essential to fill out all your information very carefully. Take the time to double check your documents, and have a broker review everything with you to ensure you have what you need!

There can be several reasons why mortgages aren’t approved, but these are five of the most common causes. If you have been pre-approved, do your best to maintain your current situation. This will help your chances of securing that final mortgage approval. If you have any concerns about your mortgage application, don’t hesitate to reach out! We can discuss your situation and help you ensure you’re on the right track.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.