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Why did my mortgage fall through even though I was pre-approved?


Deciding to buy a new home is exciting! One of the first things most buyers do is reach out to a bank or mortgage broker to find out how much they’ll be approved for so they can start shopping around for a home that fits their budget. But many don’t realize that their mortgage pre-approval is not a guarantee that they’ll get a loan for that exact amount.

What is a mortgage pre-approval?

Don’t confuse a mortgage pre-qualification with a pre-approval. A pre-qualification is generally a quick and tentative estimate of what a lender may be willing to offer you (often done online or with a simple spreadsheet), but it does not commit a lender to actually providing you with a loan.

A mortgage pre-approval is a formal process where your mortgage lender commits to financing your home purchase based on your actual credit and financial information (and other property-specific conditions). They will determine how much they are willing to lend you and what interest rate they will charge based on your current financial situation. This includes doing a credit check and verifying the financial information you provide, including your income and length of time spent at your current job. They’ll also look at the money you’ve saved for a down payment and closing costs, and any debts you may have (credit cards, student loans, car loans or leases, lines of credit, etc.).

Your lender will let you know the maximum amount they would be willing to offer you to help you determine the budget for your new home and estimate how much your monthly payments might be. Depending on your financial situation and amount of cashflow you’d like to have, you may want to look at houses that are less than your total pre-approved amount. Remember, your pre-approval price is not guaranteed – your mortgage will still need to be approved based on the property you are buying and your financial situation at that time.

So, once you receive preapproval for a mortgage, don’t take out a line of credit, car loan, store credit card, etc., as this may affect the amount you’re actually approved for when you apply for your mortgage. Always talk to your Realtor and mortgage lender first!

Qualifying for a mortgage

Once you’ve found your dream home, you’ll have to provide the property information to your lender and prove you can afford the amount you’re asking for. You may also need to pass a financial “stress test” to show you can afford your mortgage payments at a qualifying interest rate that is higher than your actual interest rate (in case rates increase down the road).

You may be refused a mortgage even if you’ve been pre-approved. Mortgage approvals are property specific, so they’ll want to verify that the home meets certain standards. When making an offer on a home, your Realtor will help you insert specific financing conditions in your Purchase Contract to ensure you’re protected while awaiting approval from your lender.

Written by CIR REALTY

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