What to Do When Your Mortgage Falls Through on Closing Day

Taking out a mortgage is often the most common way to finance a home purchase. However, many people don’t realize that the mortgage application process can be quite unpredictable. It’s not uncommon for a mortgage to fall through even after receiving the initial approval from a lender. In fact, statistics show that around 20% of buyers experience delays or cancellations right before closing.

In this post, we’ll explore the reasons a mortgage might fall through on closing day and how you can mitigate your risks effectively.

Unverified Mortgage Preapproval

One significant reason a mortgage falls through is unverified preapproval. Some lenders issue “preapproval” letters based on information that hasn’t been thoroughly checked. This process is sometimes called prequalification and is less rigorous than actual mortgage approval.

For instance, many buyers receive preapproval letters without a credit check or a detailed look into their financial situation. This leads to a shock when the lender later conducts a more in-depth review and either denies the application or approves it for a lower amount. In some cases, this change can be as much as 15% less than initially offered.

To avoid this frustrating situation, seek lenders who provide real preapproval, which includes a complete examination of your financial details. Ask about their criteria and ensure they check your credit, income, and debt levels comprehensively before issuing a preapproval letter.

Changes in Your Financial Situation

Another common issue that can jeopardize your mortgage is a change in your financial situation after you’ve received initial approval. Before finalizing a loan, lenders usually do a second check on your finances.

For example, if your debt-to-income ratio (DTI) suddenly increases—such as financing a new car with a monthly payment of $400—or if your credit score drops by more than 30 points because you missed a payment, you risk losing your mortgage approval. Even changing jobs or opening a new credit account can raise red flags.

To safeguard against this possibility, it is vital to maintain your financial stability throughout the mortgage process. Avoid making significant purchases, opening new credit accounts, or changing your job until after your mortgage closes.

Your Action Plan

If your mortgage falls through on closing day, understanding your options is crucial. Here are some steps to navigate this challenging situation:

1. Communicate with Your Lender: Contact your lender as soon as possible to discover why the denial occurred. They can offer insights to help rectify the situation or suggest alternative paths.

   
   

2. Review Your Financial Situation: Assess your finances carefully. If there are actions you can take to improve your credit score—like paying down debt—implement those quickly.

   
   

3. Consider Alternative Financing Options: If your existing lender can't assist, explore other lenders and mortgage programs. Some may be more willing to work with your circumstances.

   
   

4. Seek Professional Advice: Consult with a financial advisor or mortgage broker. They can provide tailored advice and strategies that suit your specific situation.

   
   

5. Stay Calm and Patient: It’s easy to feel anxious when your mortgage falls through, but remaining calm will help you make better decisions. Take your time to explore options thoroughly.

   
   

Steps for Preventing Future Issues

While predicting every potential issue during the mortgage process is impossible, these steps can help minimize risks in the future:

• Get Fully Preapproved: Always aim for full mortgage preapproval rather than just prequalification. This means your lender has thoroughly analyzed your financial situation and is more likely to approve your loan.

  
  

• Maintain Financial Stability: Avoid drastic financial changes during the mortgage process. This includes making significant purchases, changing jobs, or accumulating new debt.

  
  

• Stay in Touch with Your Lender: Keep open communication with your lender. Regular check-ins can keep you informed about your application status and any emerging issues.

  
  

• Educate Yourself: Knowledge is power. Take time to research and understand the mortgage process. The more informed you are, the better decisions you can make.

  
  

Final Thoughts

Experiencing a mortgage falling through on closing day is stressful and discouraging. By understanding the reasons behind these occurrences and taking proactive steps, you can better prepare for a smoother home-buying experience.

Remember to communicate with your lender, maintain financial stability, and seek professional advice. With the right approach, you can transform a setback into a learning opportunity, paving the way for future success.