Avoiding Mortgage Rejection: 3 Critical Steps to Secure Your Approval
Few things feel as frustrating as investing time, energy, and hope into finding a new home, only to face rejection during the mortgage approval process. In this week’s video, Jay and Josh dive into an important story that reveals the crucial steps every buyer should take to prevent a mortgage application from falling through at the last minute.
The Story: A Shocking Denial Despite Multiple Pre-Approvals
Imagine this: you’ve secured a pre-approval from multiple lenders and are ready to make an offer on your dream home, confident that everything is in place. This was the exact situation for one couple who felt assured of their financial footing. But things took an unexpected turn when they faced rejection – not from one, but from multiple lenders, despite their pre-approvals.
After sitting down with Josh, it became clear that an essential piece of the puzzle had been missed. The couple’s income had recently changed, something that went unnoticed during their pre-approvals with other lenders. None had verified current income; they had relied on previous years’ earnings without asking for updated documentation. This oversight led to a heartbreaking outcome when their application fell apart due to an income discrepancy.
The Three Critical “Legs” of Mortgage Approval
When it comes to mortgage approval, there are three critical factors, or “legs,” that hold the application steady: income, credit, and down payment. These three elements must be strong and stable, or the entire application could come crashing down. Here’s how each one plays a role:
1. Income
For a successful mortgage approval, lenders need to verify your ability to repay the loan. That means reviewing your income carefully, which includes verifying current employment, stability, and how much you’re earning. Changes in income, such as switching jobs, reducing hours, or losing overtime, can affect whether you meet the qualifying criteria, especially if there’s a significant gap compared to previous years.
2. Credit
Your credit history and score reflect your reliability with debt. Lenders review your credit profile to assess risk, looking for on-time payments and manageable debt levels. Having a solid credit history helps keep your application strong, as lenders are more likely to approve borrowers with proven financial discipline.
3. Down Payment
The size and source of your down payment affect your mortgage options. Larger down payments often come with lower rates and fewer restrictions, while smaller down payments may require additional insurance. It’s essential to have documentation proving where your down payment funds are coming from to avoid unnecessary complications.
Why Traditional Pre-Approvals Can Fall Short
Traditional pre-approvals often focus on basic criteria, sometimes neglecting to dig deeply into your financial situation. They may rely on reported income from previous years without confirming recent changes. This approach can lead to a false sense of security, as it did for this couple, whose income shift made them ineligible for the mortgage amount they thought they were pre-approved for.
How to Make Sure Your Mortgage Approval is Rock Solid
To avoid unexpected denials, here are the steps you should take:
- Submit Updated Documents: Provide your lender with your most recent income documentation, credit report, and proof of down payment.
- Verify Your Financial Stability: Avoid any major changes between pre-approval and closing. Changes in employment, taking on new debt, or large purchases can disrupt your approval.
- Work with an Experienced Broker: A knowledgeable mortgage broker will conduct a thorough review, confirming that all aspects of your application are solid and meet lender requirements.
Gain Confidence and Avoid Rejection
With the right preparation and understanding of what lenders need, you can approach your home purchase with confidence, knowing that your approval is as solid as possible. Watch the full video to learn more about what goes into a reliable pre-approval process and how you can avoid costly surprises during the mortgage process.
For more mortgage tips, make sure to subscribe to our newsletter and YouTube channel. Don’t let a simple oversight keep you from your dream home!
