Buying a house is the American dream shared by millions of Americans. And, while you may have to get a mortgage loan to fulfill that dream, you’ll probably need to get a home loan approval as well to make that dream become a reality. But, despite the many variables that can affect your home loan approval, here’s a list of a few of the more common reasons your home loan might not be approved.
Housing brokers often refer to prequalified approvals when they are referring to a home loan being conditional. While it’s true that some sellers have had their home loan applications declined for various reasons, sometimes this is an error on the part of the lender. In some instances, the seller’s financial record comes into play when he or she is trying to get prequalified approval for a home loan. Because sellers have usually had a history of paying their mortgages, lenders will consider them more stable than other potential borrowers. This makes them a better risk for lending money than someone with a shaky financial history, such as a recent bankruptcy.
Many people have heard of a conditional approval, but what exactly does this term mean? Basically, it refers to a situation in which the buyer (you) must prove in writing that you meet the qualifications for financing. Usually, the terms of this type of conditional approval are laid out in the lending company’s contract. If you’ve ever applied for a mortgage or other type of financing, then you know how this works. Lenders require much more than just a clear desire to purchase a home before they grant conditional home loan approval; they also need to be sure you’ve followed their instructions in a detailed manner.
To illustrate, let’s say you apply for a mortgage and you’re initially approved, but then later the lender changes their mind and now require some additional information from you. For example, perhaps you failed to provide documentation detailing your income and expenses when you applied. Or perhaps you didn’t provide verification that you already have a job. If you fall into either of these categories during your conditional approval, then the lender will require you to provide a secondary, or “additional” application, which usually requires some more documentation and, sometimes, an even tougher interview. In all likelihood, the underwriter will deny your request for conditional approval, again indicating that the underwriter feels you are not a good risk to lend money.
When the lending company receives your second request for conditional approval, the process becomes much easier. The first thing the underwriter will do is verify the employment and income information you’ve provided on the first application. Then, if he or she grants your request for conditional approval, he or she will require you to provide verification of those items with your most recent tax return, recent pay stubs, and so on. In order to increase your chances of being approved for a home loan, you will want to provide the supporting documentation the lender asks for, but make sure it is complete and correct and accurate. It never hurts to have a backup plan just in case things don’t go as planned.
Once your conditional approval has been approved, the next step is to verify employment and income information with your current employer and, possibly, your future employer as well. Many lenders require a verification of employment after receiving an initial application, but many won’t hold it against you if they find out later that you did not disclose this information, which can be a problem if you are applying for an FHA loan. After receiving the final application, the lender will review it and make the decision based on your original application and all of the supporting documentation provided. This means that although the actual conditional approval may come after you submit your financial statements and verify employment and income, it’s actually possible to have the approval process begin almost immediately if you so choose.
Another reason why it is so important to submit your forms properly is because the prequalified approval may very well be your only option should your credit history or income history do not meet the guidelines set forth by your lender. If your credit score or debt-to-income ratio is simply too poor, then your only option will be an FHA-insured, or “verifiable” loan, but even these will typically come with higher fees and rates than traditional loans. Even if your credit score or debt-to-income ratio meets the guidelines, however, it still doesn’t mean that the mortgage approval process will be easy. In fact, it could turn out to be quite difficult to get prequalified approval for a FHA loan when your income and credit ratings don’t meet the requirements. Your lender will consider all of the factors involved in deciding whether or not to approve you for a particular loan, including the risk of lending money based on your past credit and loan experiences, the interest rate, the payment history, the down payment, and so on.
You should know that your initial mortgage approval, even conditional approval, will likely not be released until sometime after you have filled out and submitted all of your required documents. Once you have met all of the necessary income and debt requirements, the mortgage approval process will move ahead and you will receive your conditional approval (based on what you provided to the underwriter). However, your conditional approval (based on what you provided to the underwriter) will remain in effect even if your credit and financial information do not meet the underwriters’ stated requirements. conditional approval only lasts as long as it is in writing and signed, and then you will need to either re-submit all of your requested documents or agree to the terms and conditions set forth by your lender. After your conditional approval is released, your mortgage approval will become permanent.