What Happens If You’re Turned Down for a Mortgage?

When I reflect on my earlier years in real estate, way back to some of the first homes I ever bought in my life, it amazes me that I did not know if I would get turned down for a mortgage. That thought just never occurred to me, although in retrospect I don’t know why not. I suspect that my reasoning was I had a job, a steady income and I could afford to make the payments, even if it meant I would have to eat Ramen noodles.

That’s not the case in mortgage land anymore. Borrowers can’t just decide that they can afford to buy a house and go do it like charging that Jimmy Choo bag to your Nordstrom credit card. Nowadays, a borrower needs to prove that she can qualify for a mortgage, and she might get rejected. The qualifications levels are more stringent, ratios are tighter, rules stricter.

This means it makes a lot more sense to get a preapproval letter before one starts house hunting. Not only does it give a borrower peace of mind, but it means a person won’t dash out, find the perfect home, fall madly in love with it, and then be informed she can’t have it. It also gives the seller a sense of security that once she accepts the purchase offer, the buyer will be able to perform. Desire and ability are two different animals.

But a preapproval letter, unless it’s been through underwriting, is really more like a pre qualification letter. It’s just a general idea of what a person can do. It’s still no guarantee that a borrower won’t get turned down for a mortgage. As a top listing agent in Sacramento, I see many so-called preapproval letters instantly ignite in flames before my eyes just as we are getting ready to close. There are so many things that can go wrong in underwriting it can make your head spin.

A preapproval letter does not mean you won’t get turned down for a mortgage. It’s a good idea to work with a top-notch mortgage lender.