Ruby McKenzie
Getting pre-approved is an excellent way to get a leg up on other buyers because it shows sellers that you’re a serious homebuyer and are ready to buy.
However, it’s important to remember that you can get denied after pre-approval for a number of reasons. The most common are changes in your financial situation between pre-approval and closing.
Changes in your financial situation
Getting pre-approved for a home loan is an important step in your home-buying journey. It gives you an idea of what price range you can afford, and it also lets lenders know that they are likely to approve your application for a mortgage.
It is also an indication that you are ready to start looking for a home. However, it is still a good idea to be diligent in how you manage your finances, as a change to your financial situation could lead to your pre-approval being rejected.
A change in your job, for example, may affect your loan approval. Your lender will want to verify that your new job is paying you enough to meet your new mortgage payments. To ensure this, they will request two pay stubs to show your income.
Another way your financial situation can change is through a significant medical event, such as an illness or accident. This is a common reason why mortgage applications are rejected, so it is a good idea to report any sudden changes in your health as soon as you notice them.
You should also keep your debt-to-income ratio low, which is one of the most important things to do to prevent a mortgage denial after pre-approval. This means making sure you don’t take on any additional debts, such as buying a car or making large purchases, before closing on your home.
In the meantime, you should keep your expenses down to a minimum and add to your savings on a regular basis. This is especially important if you are planning to use this money to pay for a down payment on a home, as you will need to have this saved up for at least three months before you can close on your home.
Your financial circumstances can change for a variety of reasons, such as a job loss, a reduction in income, a change in marital status or unexpected medical bills. Fortunately, the FAFSA form allows you to submit documentation that shows these changes to your school’s financial aid office so they can adjust your financial aid package accordingly.
Changes in your credit score
Getting pre-approved for a mortgage is an important step in buying a home. It allows you to find the right lender and get an interest rate that works for your budget. It also gives you an idea of what you can afford to spend and how much house you can afford.
During the pre-approval process, you’ll provide documents that verify your income. These may include tax returns or pay stubs. The lender will also review your credit history and score to determine if you’re a good candidate for the loan.
Your credit score is based on factors such as your repayment history, the types of loans you have, and the length of your credit history. You can improve your credit score by avoiding debt, keeping a low credit utilization ratio, and establishing good habits like paying bills on time.
If you have a large balance on your credit card or if you’ve opened several new accounts recently, your score may drop temporarily. But your score will recover once you have made on-time payments and kept your credit utilization low.
You can also improve your credit score by keeping a low debt-to-income ratio and making a commitment to minimizing debt in the future. The best way to do this is by avoiding making any large purchases between getting pre-approved and buying your home.
Another thing that could hurt your score is if you open a new credit account just before you put an offer in on a home or when you close on it. The new credit card can lower your score because it will count as a hard inquiry, which reduces your score temporarily.
However, you should be aware that a hard inquiry can stay on your credit report for 12 months. If you have a bad habit of applying for new credit when your score is low, you can fix that by disputing any inaccurate information on your credit report or by taking steps to minimize your debt before a hard inquiry takes place.
A hard inquiry will also drop your score if you’re not careful when shopping around for a mortgage. However, if you only apply with one lender for a mortgage, the number of hard inquiries will count as just one.
Changes in your debt-to-income ratio
Your debt-to-income ratio (DTI) is one of the most important factors that lenders use to determine whether you’re a good candidate for a loan. It’s also a critical step in determining if you can afford the monthly mortgage payment on your new home.
Your DTI is calculated by dividing your total debt payments — such as credit cards, student loans, car payments, and other recurring financial obligations — by your gross income. The lower your DTI, the less risky you are to lenders.
Typically, lenders want your debt-to-income ratio to be below 36% when you apply for a mortgage. But some lenders will allow you to get a qualified mortgage with a debt-to-income ratio up to 43%.
If you have high debt, paying it down can help to reduce your DTI. However, you’ll need to make sure your credit score isn’t affected by your low balances.
Keep track of your DTI on a regular basis. This will help you keep tabs on your progress and see what changes you can make to improve your score and reduce your DTI.
Reductions in your debt can come from a few different sources, including making smaller mortgage payments and increasing the amount of money you put toward your existing debts. Refinancing your mortgage can also make it easier to meet your loan requirements by reducing your monthly payment.
You can even change jobs to increase your monthly income. But be aware that you’ll need to show that your new job pays at least as much as your old one did before you can be pre-approved for a mortgage.
Another way to increase your income is by finding a side hustle that helps you save money on recurring costs. It could be a hobby or a night-time or weekend job that produces small amounts of cash.
The easiest way to improve your DTI is to pay off as much of your current debt as possible, but that’s a difficult task for many people. If you don’t have the time or energy to pursue this strategy, a side hustle may be your best option.
Changes in your home price
Home prices are a great way to gauge what you can afford as a first-time buyer or an existing homeowner. The cheapest way to do this is to take an online home appraisal test or ask for your local tax assessor’s opinion of what your property is worth based on its current value. Using this information to your advantage is the key to buying your dream home.
The best way to get the most out of your money is to save as much as possible and then keep track of your spending so you know exactly where you stand. This will allow you to keep an eye on your credit score so you can make the necessary adjustments before you close on that house of your dreams. The other requisite is to find a good lender that can match your specific needs and provide you with the mortgage that is right for you.
