5 reasons your mortgage will be denied after preapproval

Getting a preapproval letter doesn’t guarantee a mortgage. It just provides a conditional loan offer based on assumptions about your finances and the property.

However, by recognizing signs your mortgage will be denied, you can address these issues early and stay on track with buying a home. Read on to learn how.

What is a mortgage preapproval?

Mortgage preapproval is the process of determining how much money you can borrow to buy a home. Typically, lenders will request some basic details about you, your finances, and the home before issuing a preapproval letter.

Why would a mortgage loan be denied after preapproval?

Preapproval means you’re likely eligible for a mortgage, but it isn’t a guarantee. A lender could still deny the loan if new risks or issues appear before closing, including changes to your finances, the property, or your application.

What are the signs your mortgage will be denied after preapproval?

Your mortgage may be denied after preapproval for any of the following reasons:

1. Incomplete or late paperwork

Missing or late paperwork can keep lenders from verifying important information, stalling mortgage approval.

To avoid this, submit all required mortgage documents on time. These can include:

• Pay stubs
• Tax returns
• Bank statements
• Proof of assets
• List of debts
• Gift letters

2. Title or legal complications

Liens, ownership disputes, and other legal issues regarding the property and its title may cause your mortgage application to be denied after preapproval.

After all, the property serves as collateral on the loan, so lenders want to know it’s unencumbered by other legal claims and may refuse to fund it until all issues are resolved.

3. Major financial changes

Any changes to your finances before closing could prevent mortgage approval by changing the lender’s underwriting assumptions. Consider the following changes that may pose a risk:

• Taking on new debt
• Missing debt payments
• Making large withdrawals from accounts
• Changing jobs (even for a promotion)
• Having your credit score drop

4. Property-related issues

Most lenders require you to get an appraisal (similar to but different from a home inspection) to determine the property’s value. If the appraisal comes in lower than expected, the lender may reduce the amount they’re willing to lend, forcing you to come up with the difference.

Similarly, any structural damage or zoning issues that impact the property’s use and value could make the lender reconsider the loan.

5. Fraud or misrepresentation concerns

Any discrepancies between the information you submitted for loan preapproval and later findings could lead to mortgage denial. This includes both misstatements and errors.

For example, omitting important financial information, such as a past bankruptcy or the loss of a job, could lead to loan denial and constitute mortgage fraud.

How can you avoid getting denied after preapproval?

Your best chance of stopping your application from getting denied after preapproval is to take appropriate precautions:

• Submit all required documents on time, including pay stubs, tax returns, and bank statements.
• Maintain financial stability by avoiding new debt, missed payments, and large withdrawals.
• Verify the property for liens or other legal issues before closing.
• Inspect the home using a checklist to identify structural problems, zoning issues, and other concerns early.
• Organize your paperwork and monitor your finances to keep the mortgage process on track.

Can you switch lenders after your mortgage application is denied after preapproval?

Yes, you can switch lenders if your mortgage is denied after preapproval.

The bottom line: Take steps to avoid application denial after preapproval

Getting preapproved for a mortgage is an exciting first step toward homeownership, but it’s not the finish line.

Anything from incomplete paperwork to financial changes could derail your application before closing. However, you can avoid this by staying organized, maintaining financial stability, and communicating openly with your lender throughout the process.

Ready to get started? Start the preapproval process with Rocket Mortgage^® today.