November 23, 2021
Do you know what can stop your home loan or result in your being denied a mortgage?
There are multiple factors that can complicate the mortgage process and you should know about the ones you can control and those issues that may be beyond your ability to anticipate.
What kills a home loan dead in its’ tracks? One serious issue is associated with the appraisal. To buy a home with an FHA mortgage, you need to select a property that has a remaining “economic life” that will last the entire duration of the mortgage.
OR you need to buy a fixer-upper with an FHA Rehabilitation loan to simultaneously buy and renovate the property to bring it up to local building code and FHA minimum standards.
But no matter which way you go, if your home is located near certain known natural disaster areas (not all of them are bad enough to stop your mortgage) your lender may not approve your mortgage without additional considerations like you paying for specific hazard insurance related to the weather-related or disaster-related issue.
What else can stop your home loan? Aside from the seller backing out, or the buyer backing out, your loan will temporarily stop if the house appraises lower than the sale price.
If you are applying for an FHA mortgage loan, in such cases you’ll be required to either walk away from the loan, renegotiate the asking price with the seller, or pay the difference in cash at closing time.
Once you have made this choice, you can begin moving forward again. The thing to know about when the appraised value is lower than the sale price of the home? You must pay the difference in cash and it cannot be financed.
Another thing that stops some home loans in their tracks? Borrowers who get approved for the loan and begin moving toward their closing date only to discover that their lender has checked their credit a second (or even a third) time.
This is not a problem for many borrowers UNLESS the borrower has applied for another line of credit between getting approved or pre-approved for the loan and the closing date.
Do not do this. Stay away from all credit applications once you have committed to purchasing a new home. You’ll want your lender to have no problem justifying your mortgage with your income, credit history, and your debt ratio, but applying for new credit means the lender may have to redo the debt ratio calculations to see if you can still afford the new mortgage.
Another issue to consider? Changes in employment status. It’s best to avoid changing jobs, careers, or the nature of your employment until after your closing date if at all possible. The lender is required to verify your employment status and having that change in mid-loan could complicate things in ways that make it harder to get the loan.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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