Mortgage Prequalification Denial: What Happened? - Blown Mortgage

DEN IA L A F T ERMORTGAGE

PREQUAL I F ICAT IONWHAT HAPPENED?

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You thought you were all set with your mortgage when you received a prequalification from your lender. You went out and found the perfect house and now are sitting idle with no mortgage approval as the underwriter slyly shakes his head at you, denying you an approval for your intended mortgage. It happens every day to unsuspecting potential homeowners and it could happen to you if you are not careful. A prequalification is a loose approval based on the facts you provided. Until those facts are verified, you do not have an actual approval.

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NOT TELLING THE WHOLE TRUTH

If there is any time to tell the whole truth it is during the mortgage preapproval process. There is no reason to hide certain facts of your financial history because they are going to be found out. Your bankruptcy, repossession or multiple late payments to your previous mortgage cannot be hidden, no matter what others may tell you.



NOT TELLING THE WHOLE TRUTHThe minute the lender pulls your credit report and goes through

every account with a fine tooth comb, the truth will come out. The more up front you are at the very beginning of the process, the

more likely it is you will receive an approval/quote for the right loan rather than the one you would hope for in a perfect world.



YOUR TAX RETURNS TELL ADIFFERENT STORYThere is a large difference between the money you say you make and what your tax return shows. If your tax return shows many expenses written off pertaining to your job, you could make less money than you thought you did in the eyes of the mortgage underwriter. Some of the expenses you may deduct include mileage, uniforms or supplies for work.



YOUR TAX RETURNS TELL ADIFFERENT STORY

Oftentimes these expenses do not amount to enough to affect your income, but if you have significant expenses, they could deduct

enough off of your income to negatively affect your debt-to-income ratio. This is also a large problem for those borrowers that are self-

employed. If you write off a large amount of expenses, it will come right off of your bottom line, decreasing your qualifying income.



TOUCHING YOUR BANK ACCOUNTSAFTER MORTGAGE PREAPPROVALOnce you gain mortgage preapproval, you should leave your bank accounts as is with the exception of the money needed for daily expenses and to pay monthly bills. You should not be making any large deposits or taking expansive withdrawals. Any action out of the ordinary in your bank accounts will raise a red flag with the underwriter, especially in the case of deposits.



TOUCHING YOUR BANK ACCOUNTSAFTER MORTGAGE PREAPPROVAL

If you have a large sum of money suddenly deposited in your account and it cannot be tied into your income, the underwriter

will question it and need proper verification of its source. If the income is not verifiable or it turns out it is not your money, it could result in a denial of your loan. Any money that exchanges hands

60 to 90 days before your mortgage application will be closely scrutinized.



YOUR JOB CHANGEDOnce you gain a mortgage prequalification, you will need to keep your same job if you want to keep your approval. If you take a while to find a home and change jobs in the meantime, your prequalification could be null and void. Lenders want to see you at the same job for a minimum of 2 years before qualifying you for a loan.



YOUR JOB CHANGEDOf course there are exceptions to the rule, especially if you stay within the same industry and keep your income consistent with what you were used to receiving during the past few years. In these cases, underwriters are often able to keep the approval

going, but there will need to be at least 30 days of documented pay before the loan can close. If you change jobs into a

completely different industry or lose your job altogether, your underwriter will need to deny the loan.



There are numerous factors that play into your mortgage approval. Even if you have a prequalification, your underwriter could discover a problem with your file that renders your approval useless. The prequalification is not a contract enabling you to financing no matter what is uncovered during the underwriting process. If you want to ensure your prequalification turns into a clear to close from the mortgage lender, take the time to be up front, look over your tax returns, make sure your bank accounts are in line and your job is secure. These factors will provide you with the greatest success when applying for a loan.



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INFORMATION PROVIDED BY:

Justin McHood

Mortgage Commentator

Information Originally Published: 4/5/15

Justin McHood is Americas Mortgage Commentator and has been providing Mortgage commentary for over 10 years.

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