Why Lenders May Deny Sometimes a Mortgage after Preapproval?

A mortgage lender will give you a preapproval letter after looking at your credit score, income, debt, and other factors. However, a preapproval does not necessarily guarantee that you will obtain the loan. If your financial or credit status changes adversely before your mortgage has been closed, the lender may deny the loan even when you believe you have everything wrapped up.

Your Credit Score Suddenly Drops

Your payment history makes a key impact on your credit score. If you are late on debt repayment by 30 days or more, your creditor may report the delinquency to a credit bureau. This could cause your credit score to take a hit. If the payment is due beyond 60 or 90 days, the drop in your credit score may be even steeper. Some other negative items might also affect your credit after you have been preapproved for the loan.

It is vital that you continue to maintain good credit practices even after the preapproval. If you worry that negative activity may hit your credit report in the days and weeks following your preapproval, be prepared to make every effort to resolve the matter. Your lender may check your credit score not just at the time of your loan application, but also a day or two prior to closing.

You Accumulate New Debt After Preapproval

In addition to your income and credit, the mortgage lender will look at your existing debt load while pre-approving your loan. After preapproval, if you end up accumulating new debt (such as a new line of credit or a car loan) it could reduce the amount of loan that your lender is willing to give you.

Depending on your financial position, consider carefully before using credit cards or applying for a new loan until your mortgage is closed. If obtaining new credit is unavoidable, talk to your lender beforehand to see if it could hurt your chances of a mortgage loan.

Your Income or Job Status has Changed

Your employment status and income could play a significant role in determining your mortgage preapproval. Any change in these factors before your mortgage is closed could result in a reassessment of your financial position by your lender. A job change that does not affect your income in a major way may not hurt your chances. But if you quit your job or switch to low-paying employment, your lender may decide against approving your loan.