Buying A Home

Pre-approved but denied later for loan?

My BIL today told me that often you can get pre-approved but then later denied once you find a home and everything is being processed bc it is ultimately up to the under writer.  He made it seem like this happens often and used to work in the mortage business. 

 DH and I have been pre-approved and are still looking for our first house but this makes me super nervous!  Has anyone heard of this happening?  Is it common?  Rare? 

 Thanks and Happy Easter!

SAIF

Re: Pre-approved but denied later for loan?

  • I asked my LO this very question when we got pre-approved,and he said that he has seen it happen occasionally. However, if you don't have any red flags (suspect credit, unstable income, or a high debt-to-income ratio), it's not something to be that concerned about.

    Just make sure that NOTHING changes on your credit between pre-approval and closing.  

  • This happened to me. I found out the day of inspection that the bank I was pre-approved with wouldn't approve my loan.

    The bank was being very vague about why, and I didn't understand why I found out after seeing properties, making an offer on one and having an inspection done. A couple hours later after finding out that they wouldn't approve my loan, I received a call and an e-mail from my Mortgage Consultant that she had been working with Fannie Mae the last few hours and felt that they could get the loan approved.

    Prior to finding out about the loan status, I made plans to meet with her to go over paperwork (to proceed with moving my pre-approval to a loan). She asked to still meet with me, so I agreed. When I arrived at the bank, she informed me that the loan was approved. She told me it had to do with my credit score (which she was aware of, and it isn't terrible) and the fact that I was purchasing a Condo. My mortgage consultant knew from the get-go that I was interested in purchasing a Condo and not a single family home.

    So far, things are back to moving smoothly, but I am definitely more cautious.

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  • Gwen has a very interesting story, I had never heard of that happening before.

    I would assume most later-denials stem from changes to the credit history or income levels of the buyer during the house-hunting and pre-closing process, like they finance a car or buy an housefull of furniture or get fired or something. 

    In the process of getting all your paperwork together for the loan, they may ask for odds and ends.  If you can't produce that paperwork, I suppose your loan would fall through. 

     

    ds born may 2011
  • It happened to us. We were in a strange situation though, low income, very high savings, and a 6month old car loan as our only open credit. We could have bought the house in cash to clarify the savings. We didn't want to though.

    We gave the loan officer all of our information being extremely blunt and honest- knowing that it should strongly affect our ability to acquire the conventional loan we wanted. She said we were golden for 3% down on a 200k loan- this at the height of the crash in early 09. We thought she was nuts and confirmed several times. We were always told that our cash available savings was more than sufficient special circumstances to get a standard conventional loan.

    We got to within a week of closing on one house- told her we wanted to put 20% down on a 148k home- well within the 3%/200k approval. At that point she told us we would be paying interest rates 1.5% higher than originally quoted but, whatever that was close enough for us. She even tried to talk us back into a 3% downpayment. This is relevant later.

    That house appraised below contract value and we decided to walk. So we found another house within a week for 135k- 13k lower than the first and 65k under our pre approval. Again we called her up and said we wanted a 20% down conventional loan. This was when things got odd. She stopped returning our phone calls two weeks before we were scheduled to close and five days before we were scheduled to close (in utter panic mode because we couldn't get her to talk to us) a NEW loan officer sent us an email. He said that he'd been given the case and that acquiring a conventional loan was an utter impossibility given our "recently revealed" debt to income ratio. But since we had been working with his firm for so long he pulled in a ton of favors and got us a FHA loan offer if we would consent to putting 25% down, an additional 1% interest rate (over the one already raised 1.5%), and 5 years of PMI. It was the only offer we would receive in this market and he asssurd us that we were lucky to get a loan to cover a 135k house at all. This was less than 3 months after receiving a pre approval letter for 200k, 3% down. (not a pre-qualification. A pre-approval.)

    I. went. ballistic.

    We pointed out all of our prior correspondence, all of our careful checking, all of the times we had pointed out our debt to income ratio, but it didn't matter because there was no underwriter except this one who wanted to take a chance on our profile despite the reassurances we had received. We could cough up the additional 5% downpayment, accept that we had 5 years of PMI even with an absurd 25% downpayment, and that our interest rate was one of the highest we had heard of anyone getting at that time (which still wasn't bad, but it was insult to injury) or we could find another apartment to rent because we weren't buying a house.

    We were luckily in a situation where we could pay and, had we been told in advance, it probably wouldn't have been as bitter to swallow- we had expected problems, remember. We just stopped expecting them after 3 months of reassurances that we were being very reasonable by looking well under our approval budget.

    I think, at this point, with a pre approval letter, and no extenuating circumstances- no changes in credit situation or utterly insane loan officers with no grasp of reality- that it's perfectly reasonable to expect everything to be fine though. Just keep in touch with the loan officer and make sure that everything is going smoothly :)
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  • image Mrs07:

    Gwen has a very interesting story, I had never heard of that happening before.

    I would assume most later-denials stem from changes to the credit history or income levels of the buyer during the house-hunting and pre-closing process, like they finance a car or buy an housefull of furniture or get fired or something. 

    In the process of getting all your paperwork together for the loan, they may ask for odds and ends.  If you can't produce that paperwork, I suppose your loan would fall through.

    This makes sense, but is not what happened to me at all. I provided all the documentation they required, plus more so there is no reason why I would have been denied. I think part of the problem is my mortgage consultant did not have the ability to show the property as a condo in her "system". When she tried to enter it as a Condo, it was denied. Either way, it caused a lot of unnecessary stress because as of this morning, my loan is approved.

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  • Yes this can and does happen more than you'd expect. As pp said, typically border line credit has more to worry about that an individual with perfect credit. Although, once the loan gets to underwriting, anything can happen. Many times the denial comes from reasons that have nothing to do with credit. A number of issues about the house and/or property can be reason for denial.

    For example, in the last year, I'll give you some reasons why some of my clients were denied for a loan AFTER they received a pre-approval and AFTER they found their dream home and AFTER they put in their offer, had inspections and started packing...

    House sits in flood zone, septic system not up to code, got a new credit card and charged $500, property used well water when public water was available, chipping/peeling paint on house, foundation cracked and on and on and on....

     Please keep in mind, each situation is different and each buyer, seller and property will be completely different transactions. Just keep in contact with your lender and real estate agent. They will (should) keep you notified of any guideline changes that may affect your purchase. Good luck!

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