When it comes to mortgages, it can be a long and confusing process and we are witnesses to this every day at Benson Mortgages. However, we are on a mission to make the market more accessible to the masses. Today, we are discussing what a pre-approval guarantee or letter actually means; does it mean that you will get a home?
In short, no. In order to close a deal on real estate, there are numerous factors that need to be addressed. Not only could the financing fall through, there could even be another buyer who outbids you at the last moment. Essentially, a pre-approval actually means that the lender has assessed your finances to see what mortgage you can afford. Furthermore, it also freezes the interest rate so long as you buy a home within a certain time period after the letter.
In addition to this, we should also point out that this isn't a binding agreement that you can fall back on should the deal fall through. Instead, it is their approval at this one moment in time. When it comes to buying a home, certain circumstances may change and this could see you declined despite the pre-approval. With this in mind, we have compiled some of the main reasons why applicants are denied even after a pre-approval guarantee;
Change in Credit
Although you don’t need perfect credit in order to buy your home, each lender will have their own guidelines as to what is considered acceptable. Whilst getting pre-approval, you should always know your credit score because one negative item could pull you beneath the surface after a pre-approval. After the pre-approval, keep an eye on your score and remember to pay all bills on time.
Change in Employment
Next, a change in job is also a big reason for denial because some lenders will require a stable income with a certain amount of time in your current job. If you lose your job completely, you become a much higher risk to mortgage companies so bear this in mind. If you’re planning a change in career, the lack of job security in a new role may push the lender away somewhat.
If you have already received your pre-approval, do not take out any loans or new debts until after your home has been secured. Sadly, many make this mistake each year whether it is buying a car or any other reason.
With some providers, they still ask for a bank appraisal before purchasing a property and this has been known to bring up a few problems. Although it sounds strange, some mortgages or lenders will also have specific restrictions on properties. For example, there are a couple that prevent buyers from obtaining a property near a gas station.
Change in Guidelines
Finally, the mortgage company could change their guidelines. Recently, we saw a big example of this when a company lifted the lower limit for credit scores to 620 (from 600). Initially, this caused problems for many customers who had their pre-approval already but were now being rejected.
As long as you keep these points in mind, you should be ok to continue but a pre-approval does not secure your purchase of a property. If you have any questions or would like some help from a company who has experience working with various lenders (including private), feel free to contact an expert at Benson Mortgages today!