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When a Loan Origination Doesn’t Go Through: Part One

| Home Buyer Guidance

If a seller has accepted your offer on a house, you may assume the rest of the process is easy. All you have to do is wait for closing day and then receive the keys to your new home, right? Not so fast—many surprises may pop up along the way, potentially delaying closing or stopping the loan completely. While it may be relatively easy to resolve problems with the house you want to buy, sometimes issues can be more complex.

The Importance of Preapproval

A common issue for buyers is that they don’t always understand the difference between prequalification and preapproval and may use the two terms interchangeably. Prequalification is beneficial for when  you are just starting the process and want to see how much of a loan you could get. No paperwork is provided to the lender. With preapproval, you have provided W-2 forms and other paperwork that have been reviewed by an underwriter.

Taking the time to get preapproved helps to reduce potential issues. After getting preapproval, you can proceed with confidence and peace of mind. In most cases, if you have gone through this process, you won’t have anything to worry about. Any trustworthy lender will advise you to take this step before you start looking at homes or getting serious about buying.

Preapproval Doesn’t Solve Every Problem

While preapproval gives lenders a basic picture about your financial status, it doesn’t guarantee final approval. In some cases, new information may be uncovered when underwriting begins to dig deeper into your finances.

For example, you may be on the title to a property and forget to mention it. You may be listed with your kids who purchased a property or on the title for your parents’ home. While this doesn’t necessarily mean you can’t qualify for a mortgage, it will necessitate further investigation.

Other issues that can arise include:

  • Problems with past credit history
  • Overstated income
  • Inability to document income or money in bank accounts

Many of these issues can be resolved, allowing the loan process to continue. However, it could delay the process and in some instances, the qualifying amount. For instance, if you overstated your income, once the amount has been changed to accurately reflect your salary, it may show that your debt-to-income ratio is too high to qualify for the house you want to buy.

How to Prevent Problems

The best way to keep your loan on track is to prevent issues from occurring in the first place. Before beginning the home search, talk to a trusted lender to find out what documentation and information you will need to provide. Make sure you have all paperwork in hand when seeking preapproval or filling out an application. Keep copies of everything so that you will have quick access if it should be requested again. By taking these steps at the beginning of the loan process, you’ll eliminate many of the issues that can arise during underwriting, helping to ensure a smooth path to closing day.

Take the time to read over the application and make sure you have included all of your accounts, assets and liabilities. If your credit history contains any negative information, be prepared to explain it.

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