Why Some Credit and Mortgages Get Cancelled

May 03, 2017 (0) comment

In this segment we will discuss why some credit and mortgages tend to get cancelled. To begin with, we know that home buyers and sellers follow routine legal and formal processes that are involved in the transaction of a residential property. As a home seller, you are sometimes responsible for certain pre-sale repairs, and as an owner there may be cases where you want to expand or add on to your existing property. In these cases, as the resident, you may be responsible for putting forward deposits on supplies (or services) and perhaps you have to shell out several thousand dollars to for necessary inspections or permits. After due diligence and all of your preparation, your loan officer calls you up to tell you the good news – your loan approval came through.

Naturally, you would feel excited and announce your progress to friends, family and colleagues. You feel sure that this is a done deal and you are ready to add on that extra bedroom or remodel the kitchen! You schedule the movers to get your stuff out of the way, you plan how to pack and even check out where you’ll be staying during construction… Then it all goes to pot.

You receive a call from your lender and he or she tells you, “Unfortunately, your loan cannot be funded. Your application was declined.”

The shock would take some time to sink in, but the truth is that you cannot get that loan that you were so ready for after all! You wonder – what went wrong, it was a done deal so what happened? You were so sure it was all fine when the deal went off, now what can you do to save this?

Unfortunately this scenario happens too often and with too many people. The good news is that this situation is usually preventable and you can rectify it.

The most frequent scenario is that, the loan originator makes the initial credit report, and after that, you (the borrower) withdraw some of your extra credit. We know that calculations on debt and income, which are an important requirement to grant a credit, always depend on the initial credit report. Most lenders have a system that monitors the borrower’s credit and it triggers an alert each time the borrower opens a new account or withdraws additional credit. Alerts may also be triggered when creditors agree to debt cancellation, known as debt forgiveness. Remember that whenever one borrows excessive credit or is unable to pay back an obligation, it can worsen a person’s credit scores. In fact, a lesser middle credit score can result in a higher loan cost, and if it falls below an expected line it may result in a denial.

The best thing in your favor is not to buy any new furniture, new car or anything excessive (meaning expensive) or luxurious. Stick to your normal grocery shopping and keep your credit scores or qualifying ratio just right so that it can get you a credit or mortgage grant.

Another reason for cancellation of some credit and mortgages is that the lender may need proof of permit for the additional room you need. The local municipal authority will inspect and approve the permit, so if there is no need then it will be a major road block.

If you plan to change jobs while you wait for the credit or mortgage approval, never open your mouth at work. Lenders always call the current employer to confirm your job status before funding your loan. Of course they do… they do everything they can to mitigate their risk of not getting paid back!

One reason why some credits and mortgages do not get approved is that the borrower is a fraud with fake tax returns. Always provide the lender with the same documents you provide the IRS. Lenders validate your documents with the tax authority and if there is a problem with verification, they will decline your application immediately.

To reduce the risk of failure of getting funding, clear all the risks that can lead to a cancellation of your mortgage or credit application. As to be expected, the more of your own cash you can put into the project or purchase, the better things will be on you over the long-term.

Auggie Capistrano

Chief Staff Writer at FHA Loan Search
Auggie Capistrano is an award-winning reporter and editor with more than 15 years of experience in journalism and personal finance. Auggie's background includes covering mortgage news and providing home buying tips for the Texas, California, New York, and Florida markets. He has a B.B.A. in Real Estate Finance and a Master's Degree in Journalism.

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