Mortgage pre-approval is critical for those hoping to purchase residential real estate. Pre-approval helps people set a realistic budget and can make their offers more compelling to sellers.
Many people who qualify for mortgage pre-approval rush forward with viewing homes and making offers. They might even choose to waive contingencies, assuming that they can secure a mortgage and complete the transaction promptly once they find the right home.
In some cases, buyers who have pre-approval letters from lenders may ultimately be incapable of securing a finalized mortgage. What situations may lead to a denied mortgage despite a pre-approval?
Financial changes alter eligibility
Many people seeking mortgage pre-approval breathe a sigh of relief once they have a positive response from a lender. They may then proceed to make financial decisions that could undermine their ability to actually secure the mortgage.
For example, they might use their credit cards or open other lines of credit before they actually close on the home. Those choices can drag down their credit scores and increase their debt-to-income ratio, making them ineligible for the mortgage they require.
Other times, circumstances outside of the buyer’s control may affect their eligibility for a mortgage. A sudden job loss can leave a buyer unable to qualify for a mortgage. The death of a co-borrower could also cause major complications.
Contingencies can help prevent the loss of earnest money if there are financing issues or other challenges that result in the cancellation of a residential real estate closing. Buyers preparing for residential real estate closings can benefit from working with an attorney to protect themselves throughout the process.