You’ve been pre-approved for a home loan, but now you’re unsure where to go from here. You know that you want to buy a house, but navigating the real estate world can be a tricky. A great first step is to get in contact with a real estate agent so that they can help you narrow down your homeownership needs. From there, you can start your journey toward finding your dream home, which can take a while — so patience is key.
Today, we’re going to discuss how to put an offer down on a house and what steps must be taken before you can get the keys. In addition, if your home search takes longer than you originally expected, you might end up being denied your loan once you decide to officially put down an offer on a house. We’ll talk about why that might be and what you can do about it.
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What Happens After You Get Pre-Approved for a Mortgage?
After you’ve been pre-approved for a mortgage, you can start the fun part — shopping. Look around for a home that is within the price range you and your lender discussed. Take the time to tour some houses and possibly meet with a real estate agent who can help you narrow down your search. You most likely already know what it is that you’re looking for, so now you just have to find something that fits the mold.
Making an Offer on a House
Once you have narrowed it down and you’re sure that you’ve found the one, you can put down an offer on the house. It’s pretty common for your real estate agent to do the work for you and communicate directly with the seller or the seller’s agent. They’ll take your offer over to the seller and then they’ll come back with an acceptance or a rejection. If your offer has been accepted, congratulations, you can move onto the next step. However, if your offer was rejected, you might need to come up with a new offer and try again. Otherwise, it might be time to look at another house entirely.
Appraisal and Inspection
If your offer is accepted, you’ll have to have an inspection, this isn’t normally optional. Since the home will technically be securing your mortgage loan, your lender, needs to verify that the property isn’t damaged or at high risk of losing value. You’ll need to contact an inspector and have them check the home to see if there are any safety hazards. Often times, they will offer a deeper inspection option, which is often a good idea. You could find issues that would have been completely overlooked and could cost you a bundle to fix in the future. Regardless, the inspector will let you know if it is within current safety standards.
The mortgage company, bank, or other lender will send over an appraiser as well to ensure that your potential home is worth what they’re going to be loaning you. This is also not an optional step, but again, it’s in your best interest.
Because these are usually required by the bank or lender as a condition for approving your loan, you shouldn’t be caught off-guard by having your mortgage rejected or amended based on problems with the house or a low appraisal value. These are opportunities for you to adjust your offer based on the new information; if you know the seller is asking too much for a house, you can’t expect your lender to enable you to overpay.
After all of the above steps have been completed, your bank will process your application for your home loan and they will draw up the paperwork for your mortgage. As long as your finances haven’t changed since you applied for pre-approval, this step should be smooth sailing.
You’ll then wait for a date of closing and you’ll sit down with your lender on that day to tie up all loose ends. They’ll go through your entire mortgage contract to make sure that you understand the agreement and have you sign on the dotted line. Once that is done, you should get your keys and can finally call yourself a homeowner.
Pre-Approved for Mortgage But Denied Loan
In some cases you might be pre-approved for a home loan, but could be denied a loan once you’re ready to finally make an offer on a home. In most cases you should get the okay on a loan you’re looking for as long as nothing major changes in your life and you don’t wait too long in between getting your pre-approval and actually putting an offer on a house.
Why Pre-Approval Doesn’t Guarantee You’ll Get Your Home Loan
Pre-approval checks your credit, financial status, and your history of paying back loans at the exact time that you file for pre-approval. There is no way for the lender or bank to know what your situation will look like down the road or if you’re thinking about making a major change in your life. The circumstances that you come in with, are the ones that will be taken into consideration when you apply for pre-approval.
Common Reasons for Denial of Mortgage
What usually happens in a situation like this, is that some big changes have happened in your life. Expected or not, sometimes we fall upon financial hardships or we are forced to change jobs or our plans change altogether. Perhaps you discarded the idea of owning a home for a while and now, all of a sudden, you have decided that buying a home really is the best idea for you. Well, if you were pre-approved a while ago and haven’t necessarily taken care of your credit score since then, you might be in a very different place when it comes to loan approval.
If you have started a new job since your pre-approval, you could also be denied a loan. It could be that you are actually making less money than you used to or just the fact that it’s a fresh job could weigh you down. Lenders and banks want to know that you have a steady, reliable source of income that isn’t going to periodically change. So, a tenured position looks much better than a fresh one that changes often.
Lastly, if the status of your other loans has changed drastically, that could put you in a completely different financial spot. If you have applied for other loans in between the time of pre-approval and making an offer or if you have paid off more loans during that time, your credit score could have altered quite a bit. Taking on more loans than you can handle does not look good when applying for a new home loan. If the bank already sees that you have brand new loans that you’re working on, they might not want to hand you over a new one, especially such a large one. Similarly, if you have never taken on any debts before, you may not have much of a credit score for lenders to refer to when setting terms or even approving you.
In addition, paying off all of your loans doesn’t necessarily always look great either. It’s good to have at least a line of credit — an ordinary credit card will suffice — to show that you’re able to handle ongoing payments and the responsibility that comes along with a loan. If you pay off all of your debt, your credit score can no longer be positively affected by the choices that you make. If your credit score is stagnant, with no loan activity for too long, your credit score will no longer improve, and may limit your ability to qualify for the best mortgage terms. This is why it’s always a good idea to at least keep something like a credit card account open in order to always be adding new positive information to your credit history. This way, your credit score will consistently be influenced by good information and it will stay in the range that you really need when you’re looking to buy a home.
My Mortgage Has Been Rejected. Now What?
If you have been affected by one of the scenarios from above, it’s time to get to work if you’re looking for your dream home. It may take some time, but you can get back to the best place possible in order to be approved for the loan you want.
Start by taking a look at your employment. As we talked about, banks and lenders want to see that you can keep a job and maintain steady income to support your mortgage. If you just started a new job, try and wait until you’ve worked there for about six months before you apply for a loan again. This will give you some time to save up a down payment if you need to and you’ll get comfortable with the new paychecks that you have coming in. Your lender will likely be able to tell you what kind of employment history they’re looking for, but this area shouldn’t hold you back as much other aspects of being approved could.
If you’ve been affected by taking on new loans, try and really buckle down and get those paid off as much as you can in the course of six months. If you’ve accepted a large loan, this could take more than six months to get it down into a range that would work well alongside your home mortgage, but six months is always a good place to start. You can check with your lender and ask them how low they would like to see it, then you just have to get to work.
Finally, if you’ve paid off all of your debt, it is a good idea to think about getting a small loan, or a credit card. Using it every once and awhile and paying it right off will look good on your credit history, which will in turn boost your overall credit score. If you’ve been without any credit on your history for too long, you might need to wait a while (again six months is a good place to start) before you apply for your loan once again.
Talking to your lender about your current situation compared to their expectations for a loan will help you to understand the changes you might need to make if you want to be approved for a loan. If you happened to be denied a loan, don’t worry! You can always fix the issue and come back at a later time. Once you’ve got everything in order and you’re approved for the loan, you’ll just have to make an offer, have the home inspected, and wait for final approval from your bank. After final approval is finished, it’s just a matter of finishing up the paperwork. If you’re determined to own your own home, there’s no reason that you can’t achieve it. You might have to put in some hard work on your finances, but in the end you can expect to be rewarded with keys to your very own house.
Looking for tips and guides to help raise your credit score and lower your interest rate? Head over to the Fiscal Tiger credit score resource and learning center. If you need to dispute errors on your credit report? Use our handy dispute letter templates.
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