Preapproval Doesn’t Guarantee Your Mortgage Approval

 In today’s hot housing market, where inventory is low, demand is high and mortgage rates are at record lows, securing a mortgage preapproval has never been more important.

Obtaining a preapproval is highly recommended before you even begin house hunting so you understand what you can comfortably afford to spend on a property. During this process, your lender will undertake a thorough assessment of your finances and creditworthiness to determine whether you meet the requirements to secure financing. If you’re preapproved, you’ll receive documentation verifying that you have the financial means to make an Offer to Purchase.

This is a conditional commitment from your lender to grant you the mortgage you seek but in no uncertain terms does it represent a final mortgage approval. While the conditions of a preapproval will typically be valid for 90-120 days, it’s important during this period not to make any significant changes to your current situation. When it’s time to draw up the Offer to Purchase, your lender will want to verify that you still meet the qualification criteria as well as assess the property’s value and suitability. If there are changes that could possibly derail the process, you could be denied a mortgage despite having been preapproved.

Maintain a healthy credit score

Your credit score is one of the most important factors in obtaining a mortgage approval so avoid situations that could alter it negatively. If your credit rating drops, your risk level increases in the eyes of your lender, which means you may no longer qualify at the amount for which you were preapproved. It’s important to demonstrate a consistent pattern of paying your bills on time and managing your debt responsibly. Exercising wise financial decisions will ensure your credit remains in good standing.

Keep debt levels low

Rising debt is a significant red flag for lenders and will adversely affect your debt-to-income ratio (DTI), a key determinant in the mortgage financing qualification process. A high DTI implies instability and potential issues with loan repayment so you want to keep it low. Avoid taking on new debt, even a small amount, such as a line of credit, personal loan or additional credit card, and be sure not to accrue a higher balance on your existing cards or lease/finance a vehicle. An increase to your debt level, no matter how insignificant, will almost certainly jeopardize your chances of approval.

Ensure consistent employment and income

If possible, avoid making any changes to your employment status once you’ve been preapproved. Most lenders will require you to have at least two years of consistent income and stable employment so, if you can, hold off on any career decisions until after the deal closes. There are some exceptions where a similar career with similar income will likely not pose a problem to your application, but a brand new field with less stable income will not bode well. Also, if you lose your job or your wages are reduced, it may be wise to reconsider buying a home until steady employment resumes.

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