No homebuyer wants to hear the words, “Mortgage loan denied in underwriting.” The good news? A denial doesn’t have to be the end of the road for obtaining a mortgage. By understanding the warning signs your mortgage will be denied, you can take the right steps to get your homebuying journey back on track. Key takeaways
Getting a mortgage offer can be an exciting milestone in the homebuying process. But it’s not a done deal just yet. Even after a lender makes a mortgage offer, they still have the ability to decline your application during the underwriting process.
So can a mortgage really be declined after you’ve received an offer? Unfortunately, yes. Here’s what you need to know about mortgage offers, reasons an offer could be revoked, and tips to avoid this frustrating situation.
What Exactly is a Mortgage Offer?
A mortgage offer (also called a loan commitment or approval) is a written agreement from a lender stating they will lend you money to purchase a home. This offer is made after the lender reviews your application, credit, and other financial details.
Receiving a mortgage offer means the lender is willing to move forward as long as the information you provided holds true. But it doesn’t guarantee you’ll get the loan.
Why Would a Mortgage Be Declined After Offer?
There are a few key reasons a lender might revoke your mortgage offer:
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You provide inaccurate information: Even minor mistakes on your application could make the lender question trusting you with hundreds of thousands of dollars.
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Your financial situation changes: If you take on more debt, change jobs, or your income drops after getting a mortgage offer, this could lead to a denial.
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The appraisal comes in low: If the home appraises for less than your loan amount, most lenders will want you to pay the difference or they may decline your loan.
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Your credit score drops: Lenders recheck your credit right before closing. A lower score could mean a denial.
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You can’t verify funds for closing costs/down payment: Lenders require paper trails for large deposits and cash to close. Missing documentation can cause issues.
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Undisclosed debts surface: Mortgage lenders run final credit checks to uncover debts you didn’t include on your application. Omitting liabilities may be seen as fraud.
Tips to Keep Your Mortgage Offer Valid
Follow these rules after getting a mortgage offer to avoid last-minute headaches:
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Don’t change jobs or income sources: Wait until after closing to switch employers or alter how you get paid.
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Avoid new debts: Don’t open new credit cards or take out loans. Pay down debts instead.
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Monitor your credit: Keep an eye on your credit reports and dispute any errors immediately.
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Save down payment in your account ASAP: Have these funds seasoned in your bank account 2-3 months before applying.
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Be upfront about changes: If issues do pop up, communicate with your lender right away. They may still approve you.
What to Do If Your Offer Is Revoked
If your worst fears come true and your mortgage gets declined after offer, stay calm. Here are your options:
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Request a written reason: Ask for details on exactly why you were denied so you can pinpoint the problem area.
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Dispute any inaccuracies: If your credit report or financial details are wrong, contest them with the lender and credit bureaus.
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Get a cosigner: Adding a cosigner with better credit/income could help you requalify.
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Change loan programs: An FHA or VA loan may have easier requirements than a conventional mortgage.
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Work with a different lender: Your current lender may deny you while another could still approve your application.
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Improve your finances: Take time to boost your credit, save more cash, or pay down debts, then reapply.
Tips to Avoid Denial in the First Place
Prevention is the best medicine when it comes to mortgage declines. Here are proactive steps you can take:
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Boost your credit score above 700 before applying
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Keep your debt-to-income ratio below 36%
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Save up a down payment of at least 10-20%
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Work with an experienced loan officer familiar with your situation
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Get preapproved so you know your actual mortgage budget
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Only apply for a loan amount you comfortably qualify for
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Maintain stable income and employment for at least 2 years
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Gather funds for closing costs and down payment at least 2 months in advance
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Be honest and double check your application for accuracy
The Takeaway
While rare, it is possible for a mortgage offer to be rescinded during underwriting. This disappointing situation can be avoided by being cautious about changes to your finances, staying in close contact with your lender, and improving your credit standing before applying. With preparation and patience, you can make your dream of homeownership a reality.
You can’t verify source of funds for your down payment or closing costs
Lenders must verify the source of money you use toward your down payment and closing costs. Large cash deposits without documentation may raise red flags and trigger a loan rejection.
7 signs your mortgage will be denied
If you’ve taken on new debt during the loan closing process, it can impact your debt-to-income (DTI) ratio — a key factor lenders use to measure how your income compares to your debts. Lenders use the DTI ratio to assess whether you can afford the mortgage payments on a loan. Applying for new credit can push you over the 43% DTI ratio maximum preferred by most lenders.
Declined Mortgage – Why some applicants get rejected
FAQ
Can a mortgage be declined after an offer?
Mortgage declined after agreement in principle
But it doesn’t guarantee you a mortgage, and it is possible to be refused by a mortgage provider after they’ve given you an agreement in principle.
Can a mortgage fall through after signing?
Yes, a loan can still fall through after you’re cleared to close. Clear to close means your lender has established you’ve met all the requirements to close on the loan. However, a number of the obstacles discussed above could still cause a loan to fall through before closing day, even if you’re clear to close.
Can a lender pull out after mortgage offer?
Lenders can withdraw a mortgage offer, but there must be a valid reason for the withdrawal. This can happen at any time before, or even after, exchanging contracts. Usually, mortgage offers are only withdrawn if something major changes and it doesn’t often happen out of the blue.
Can you be denied a mortgage after being approved?
However, even though prospective homebuyers get pre-approved for a mortgage before shopping for homes, there’s no 100% guarantee they’ll successfully get financing. Mortgages can get denied and real estate deals can fall apart — even after the buyer is pre-approved.