3 Things That Could Cause a Mortgage to Fall Through

by Maurie Backman | Updated July 19, 2021 - First published on April 30, 2021

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An African /American couple looks at each other worriedly. They sit in front of financial documents and a computer.

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Mortgages aren't guaranteed to close. Here are a few reasons yours may not.

Getting approved for a mortgage is something to celebrate. But you may want to hold off on doing that happy dance until your home loan actually closes. Here are three reasons why a mortgage lender might pull a home loan before it's completed.

1. You lose your job

When you apply for a mortgage, you're required to provide proof of an income -- generally by submitting copies of a few recent pay stubs. You may also need to provide your lender with a letter from your employer verifying that you're an employee in good standing. But remember, mortgages don't close overnight. In some cases, it can take 60 days to finalize a home loan, and a lot can happen during that time. If you lose your job during that period, your lender may not be willing to move forward with your mortgage.

That said, losing a job doesn't guarantee that your mortgage will fall through. If you're applying for a mortgage jointly with a spouse and his or her income is enough to cover your loan, then you may be okay. But if you're applying for a mortgage solo, losing your income source could be a major problem.

2. Your home doesn't appraise for a high enough value

Before your mortgage is finalized, the home you're looking to buy will need to go through an appraisal. During that process, an independent assessor will look at the property and determine what its market value is. But if your home doesn't appraise for a high enough price, you could be forced to increase your down payment, or your mortgage could be pulled.

Say you're looking to take out a $300,000 loan. If the home you're seeking to buy only appraises for $275,000, your lender could rescind its offer. Why? If you stop making your mortgage payments, your lender's only remedy will be to foreclose on your home and sell it to get its money back. But if that home can't sell for a high enough price to cover your mortgage balance, your lender is apt to have a problem with that.

3. You take out another loan

One of the things mortgage lenders look at when evaluating home loan candidates is their debt-to-income ratio. This ratio measures your existing debt relative to your income. If your lender determines that your ratio is low enough at the time of your application, but you then take out another loan before your mortgage closes, it could drive that ratio up. Once your lender sees that, it may pull your loan for fear that your newly-added debt will put too much of a strain on your income and cause you to fall behind on your mortgage.

Getting approved for a mortgage does not mean that your loan is guaranteed to close. Unfortunately, circumstances outside your control could cause a home loan to fall through, like losing your job or having your home appraise for too low a sum. On the other hand, you probably can avoid taking on more debt before your mortgage closes. So knowing to hold off on a large purchase could spell the difference between finalizing that home loan or having it yanked away.

For more information on the mortgage process, read our guide on how to buy a house.

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