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A pre-approval is a great way to expedite property purchase. A mortgage preapproval is nothing but an indication by a lender after an assessment of your finances, that it is willing to grant you a home loan subject to fulfillment of certain conditions. In addition to giving you a clear idea of your purchasing capacity, if you meet the conditions of your pre-approval, you could save a lot of time on the final approval of your mortgage. But there’s a caveat. There are certain circumstances under which a mortgage could get declined despite a pre-approval. Here’s a quick look.
1. Job Change
Job stability is an essential criterion for lenders. Changing your job implies that you are yet to establish yourself at your new workplace. Further, a lot of companies have a mandatory probation period. During this period, the employer retains the right to terminate employment without notice. In addition to a job change, a loss of employment may also lead to declining of an applicant’s home loan.
2. Change in financial circumstances
A change in financial position due to emergency expenses is also viewed adversely by lenders. Examples of sudden expenses include illness or responsibility of another dependant like an old parent or birth of a child. If these expenses have a significant impact on your overall net-worth, a lender is quite likely to shy away from granting you final approval.
3. Reduction in income from additional sources
A decline in revenue from additional sources like rent, or a side hustle could also impact your final approval chances. To be on the safe side, if you anticipate a decline in income from these sources, its best to ask the lender to not to take them into account while granting your pre-approval.
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4. Dip in Credit Score
Changes in your spending habits like a surge in online purchases, too many late or missed payments (phone, gas or utility bills) or applying for too much additional credit gets recorded in your credit file. A massive dip in your credit score could lead to the lender rejecting your home loan application.
5. The property doesn’t meet evaluation criteria
If the property you are looking to purchase fails the evaluation criteria or has other concerns like pest issues or inadequate council approvals, your lender is unlikely to proceed with your mortgage request.
6. Expiry of your pre-approval
A pre-approval usually has a 90-day shelf life. If you are unable to go ahead with a purchase within this time frame, you will need to apply for a new pre-approval.
7. ‘On-spot’ or system-generated approval
A lot of lenders provide an ‘on-spot’ or system-generated pre-approval in a matter of minutes. Since this kind of pre-approval is not based on a thorough assessment of your financial position, it may not be very reliable. The possibility of rejection on your final mortgage application with this type of pre-approval may therefore be relatively high. It’s best to apply for a pre-approval that is granted after a thorough assessment by the lender’s credit team.
To make the most of your pre-approval and avoid common borrower mistakes, engage a mortgage broker. Not only will a mortgage broker handle all your paperwork but will also guide on which pre-approvals are reliable and are likely to result in a final go-ahead of your home loan application.
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