Can Mortgage Offers be Withdrawn?

Can Mortgage Offers be Withdrawn?

The process of searching for a home and applying for a loan can be a long one. When you finally get your mortgage approved, you may feel the urge to celebrate the end of the journey. The vast majority of mortgages will proceed as planned to closing, but, take note, there are some circumstances where your mortgage offer can be withdrawn, or the more technical term: “rescinded.” Here we will explain the more common circumstances where this may happen, and what you can (or can’t) do to prevent it.

So, When Is the Loan Final?

Getting pre-approved doesn’t mean the loan is set in stone. Most approvals have a caveat explaining the agreement is not final until the loan is funded. With a home purchase, this usually occurs the day before closing or on the day of closing. For a refinance, funding takes place within three days of closing. Funding is when all documentation is complete and the funds for the loan have been disbursed to the seller (in the case of a purchase) or to the payoff of the prior loan (in the case of a refinance). Once you make it through funding, your mortgage is truly final.

Circumstance 1: Your Finances Change

There are many ways your financial circumstances can change in a way that influences your loan. Many of these changes are preventable, with only a few being outside your control. 

A quick way to get your approval rescinded is to exaggerate on your application. Your lender will do the research and require the documents necessary to find out the true state of your finances. Overstating your finances will only slow down the process, and put you in a position of possibly having more mortgage than you can afford. Under some circumstances, lying on your application can even be a crime. 

Another negative change you can control is a change to your credit due to large purchases, maxing out credit cards, or taking out a loan after your apply. A significant purchase such as a large home appliance or car will immediately change your Debt to Income ratio (DTI). A shift in this ratio can disqualify you from your previously approved loan amount. Don’t make any large purchases or take out any loans until after your mortgage is funded and complete.

There are also financial changes you, often, can’t control that can result in losing your offer, such as sudden job loss. In this circumstance, however, you may also want to hold off on making the largest purchase of your life. 

Circumstance 2: Problems With Public Records

During the loan approval process, your lender will do a public records search. This is to make sure you don’t have any lingering financial obligations or significant issues that change your creditworthiness for the loan you were approved for. If you haven’t disclosed pertinent public records in your application, they can still be found. Some of the items the lender will take into consideration are: 

  • Bankruptcies
  • Foreclosures
  • Short Sales
  • Judgments 
  • Tax Liens
  • Child Support
  • Federal Student Loans Delinquencies

If these are discovered, the lender will likely rescind the offered amount. When it comes to your application process, honesty is truly the best policy. 

Circumstance 3: Interest Rates Rise

There are some circumstances you can’t do anything about, as you cannot control the economy and market. Another reason a lender may withdraw their offer is if interest rates rise between approval and closing. A rise in interest rates may cause your lender to believe you can no longer afford the loan in current circumstances. While you can’t do anything about market shifts, you can try to put yourself in a financial situation that still allows you to be a good borrower even when shifts happen. 

We Can Get You Through The Process

At the Reed Team, we have the experience, education, and connections in the industry to give you the best chance of moving from home shopping to closing as quickly as easily as possible. If you have any questions about the mortgage process or want to begin your home buying journey with your best foot forward, reach out to us here, or contact us at 949-392-6400.