Yes. You can definitely be denied for a mortgage loan after previously being approved.
The biggest difference between being pre-qualified and pre-approved has to do with the level of scrutiny – not the level of certainty.
When getting pre-qualified, the lender will take a quick look at your financial situation, and throw out a number that they would be willing to lend you. This can be done over the phone and is very informal. When getting pre-approved, the lender will have to go deeper. Meaning, the lender will pull your credit report and you will have to provide the pay stubs, taxes, among other things, so your income can be verified.
But neither of these things guarantees you will get the loan. The only time you can be 100% certain of your mortgage approval is when you close the deal. Up until that time, there are plenty of things that can derail the process. So you will have to be careful with your finances once you’re pre-approved up to the closing date.
The Pre-approval Process Explained
Getting pre-approved for a mortgage loan is a good idea for several reasons.
- It helps you identify any problems you have in terms of mortgage approval.
- It helps you get a real estate agent, since most of them won’t work with buyers until they’ve been pre-approved.
- It helps you limit your house-hunting process to the types of homes you can actually afford.
- And it makes sellers and their real estate agents more inclined to take you seriously. This is important when it comes time to make an offer.
This is why we recommend that every home buyer gets pre-approved before shopping for a home. It’s a quick and easy process with plenty of benefits.
The pre-approval process itself is very similar to the final approval. In fact, they overlap in many ways. When you get pre-approved by a mortgage lender, they will start gathering a variety of financial documents. They will have you fill out a mortgage application, provide your tax records for the last couple of years, and show verification of income. They will also check your credit scores to see if you meet the minimum requirements for a mortgage loan.
Based on all of this research, the lender will tell you what size loan you’re qualified for. They may also quote you an interest rate, though it’s not required at this stage. A few days after you submit an application, the lender should also provide you with a Good Faith Estimate. This document gives you an estimate of what your closing costs will be.
But the pre-approval is not a guarantee. Therefore, it’s possible to be denied for a mortgage even after you’ve been pre-approved. Why? Because the lender will check many of those financial requirements again, when you get closer to closing day.
I Got Pre-approved…Now What?
It’s Best to Maintain the Status Quo
The best thing you can do between getting pre-approved and your closing date is to maintain the status quo. By that, we mean keeping everything the same from a financial angle.
- Don’t tap into your savings account.
- Don’t switch jobs.
- Don’t do anything that could reduce your assets or increase your debts.
- Continue to put as much money aside as possible, in case your closing costs are higher than estimated.
If you do these things, you should be able to keep the mortgage process on track. But if you have any major changes in these areas, you can still be denied for a mortgage after being pre-approved.