Ask The Expert: Last Minute Loan Decline- What to Do

Q. Can a lender decline financing once I’m pre-approved and have paid for an appraisal? My lender is telling me my credit score has dropped by one point, and they won’t approve the loan.

19118268A. Being pre-approved doesn’t necessarily mean you will get the final approval. Pre-approval usually lasts for a set amount of time — commonly 60 days. After this point, the bank’s pre-approval will lapse unless you renew it, and you must start the process again. If the appraisal of the property comes back too low, the bank will not approve the loan, even if you are pre-approved. Also, if there is any change in your financial circumstances between pre-approval and approval, the bank may decide not to lend to you.

Several things factor into credit standing. Each time a credit check is run, just that action of running a credit check impacts the credit score.  If you apply for a loan with multiple lenders, the credit score will be run repeatedly. Opening and closing accounts or making major purchases also affects credit standing

While I can’t be 100% sure, from the way you asked your question, I believe your situation points out one VERY important step that buyer’s agents and mortgage brokers forget to point out to their clients.
The lender will always run a credit check at the time they do their initial pre-approval. But what buyers often forget is that the lender can also check your credit again before funding the loan. If there is a decline significant enough, you can, and will, lose your approval and ability to qualify for the loan as stated. This is why I always tell my clients not to make ANY significant purchases (i.e. new car, new appliances or big screen TV) during escrow. Those type of purchases or credit dings can cost you the home.

If this was the case, I am sorry that you had to find this out the hard way. Perhaps you and your agent can find a way to resolve this. The lender often will give you workarounds, such as additional down payment to qualify.

In the meantime, check out this free guide to what you must know about obtaining financing:

What You Should Know About Your Mortgage Loan Application: A Guide

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