Buying a home can be an emotional rollercoaster. Although rare, some buyers make it through obtaining a mortgage pre-approval, finding a home, getting an offer accepted, and submitting a formal mortgage application before learning that they are unable to get approved for a mortgage. Naturally, this can be quite heart breaking and stressful, but it’s not necessarily the end of the road. Below are a few common issues and what to do if your mortgage application is denied.

Find Out the Reason

There could be many reasons that your mortgage application was denied since every mortgage application and property being purchased is unique. However, there are a few common reasons for mortgage denials in Massachusetts:

Appraisal Issues

If your home did not appraise for greater than or equal to the purchase price, your lender would typically inform you and give you the opportunity to work it out with the seller. They simply wouldn’t go straight to denying the mortgage. Although price is the most common appraisal issue, there are other potential problems. Be sure to ask for full details on what it is. In some cases, the issues can be corrected. However, in rare cases, you may need to move on to another property.

Issues with Your Personal Finances

When you obtain a mortgage pre-approval, lenders only perform a quick check of your income, debts, and credit report. Upon submitting a formal mortgage application, all of your finances are reviewed with a fine tooth comb. At this point, mortgage underwriters may come across issues. Here are a few common ones:

  • Your income or debt figures changed from when you submitted for a pre-approval.
  • Your credit history/report changed.
  • Your income or employment history is not sufficient.
  • Certain information cannot be verified (i.e. late filed tax returns).
  • There is inconsistent information (tax returns do not match IRS records).
  • You have unusual activity in your bank accounts that can not be explained or verified.

What to Do If Your Mortgage Application Is Denied

Understanding the reason that your mortgage was denied will help you overcome the issue and pursue your dream of buying a new home. If the problem was property-specific, then you may simply need to move on with identifying a new home to purchase. If the issue is with your personal finances, be sure to understand exactly what the problem was so that you can work on addressing it. Some items are quick fixes and you may be able to request a little more time from the seller to resolve it. For more complex problems, you may need to terminate the current purchase transaction, work on addressing the issues, and then continue with your home search later. Either way, a mortgage denial is not always the end of the road,…it’s simply a detour. Working with the right real estate and mortgage professionals can help you determine what to do if your mortgage application is denied.