3 reasons your mortgage might fail
Here’s why a home loan that looks like it’s on the right track could end up getting pulled.
Many borrowers who get approved for a mortgage will close that loan several weeks later without a problem. But some borrowers do not complete the closing process. On the contrary, their mortgages fail for various reasons. Here are some scenarios where your loan can be withdrawn.
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1. You lose your job
You must meet certain criteria to get approved for a mortgage loan. These include having a good credit score, a low debt ratio, and a stable job with an income high enough to cover your current monthly payments.
Your mortgage lender will generally verify this information at the time of your application and before you close. If something changes for the worse, your lender could opt out. So if you are made redundant before your mortgage closes, you risk having that loan withdrawn. The only way that this will not happen is if you are applying jointly with someone who has an income high enough to cover the loan amount. For example, if you lose your job by $ 50,000 a year, but your spouse earns $ 200,000 and that salary alone is enough to qualify for your mortgage, you will be fine.
2. Your job is changing
You will need to provide proof of a regular salary to reassure your lender that you will be able to meet your payments. So if your job changes, your mortgage could fail, even if your new salary is comparable to the old one. The reason comes down to stability. If you are new to a job, your lender may worry that it won’t work or won’t last and withdraw your loan.
However, changing jobs halfway through the closing process is not always a deciding factor. If your income remains stable or increasing and you are able to get a letter from your new employer certifying that your employment is expected to be long term and the business is stable, your lender may agree.
3. The house you are buying is not appraised for enough money
Your lender wants to make sure that the home you are buying is worth enough money to cover your loan balance. If you don’t pay off your loan, your lender will have to sell your home through foreclosure to be paid off. If that isn’t worth enough to cover your loan balance, that will be a problem. This is why home valuation is an integral part of the closing process. And if your home isn’t appraised for a high enough amount, your mortgage will likely fail. You may need to make a larger down payment or ask your seller to lower the price to keep the sale on track.
Sometimes you can do it all right – increase your credit, pay off debt, save a ton of money – all while ruining a mortgage. But now that you understand some of the factors that lead to mortgage withdrawal, you can try to work around them. You can’t help but be fired at the wrong time, but you can, for example, avoid changing jobs until your mortgage approval is complete. And while you may not be able to influence an appraisal, you can offer a back-up plan in case the house isn’t worth what your seller thinks it is.