What Can Stop Your Home Loan?

December 5, 2021

What can happen during your mortgage loan process that will stop the loan or cause you to be denied the loan? Plenty of things may complicate the mortgage loan process. It is a very good idea to be familiar with the issues you can control that will help avoid problems down the road between the application and your closing date.

Things That Stop a Mortgage

There is a major issue that can stop some home loans--problems with the FHA appraisal. If you want to purchase or refinance a home with an FHA mortgage,  that property should have a remaining economic life that can extend to the end of the loan term.

But a home that can’t pass an appraisal is not necessarily off the market for you IF you choose to buy a fixer-upper property. You can do this by applying for an FHA Rehabilitation loan. These loans permit the applicant to buy and renovate the property the same time. You’ll need to have the property brought up to code as well as FHA requirements.

Disaster Zones

An issue that can complicate a home loan is a situation where the home you want to buy is located near natural disaster areas.

Keep in mind that not all of these areas are considered to be risky enough to deny a home loan but in such cases, your participating FHA lender may not approve the loan without additional considerations. One such consideration? Obtaining hazard insurance related to the weather-related or disaster-related problems.

If you have insurance but flood damage is not specifically mentioned (“rising water” is one industry term) you do NOT have flood damage coverage.

Other Issues

Aside from a scenario where your seller chooses not to sell the home after all, another issue to be aware of is the situation where a home appraises for lower than the sale price--in such cases the lender will either ask you to pay the difference in cash at closing (no financing allowed for the overage) or you will need to renegotiate with the seller. You can also simply choose not to go through with the loan.

Another scenario to be mindful of--being approved for the FHA mortgage loan or refinance loan and moving toward your closing date.

This time period is NOT the time to be applying for new credit--your mortgage lender can and will check your credit more than once during the home loan approval process. If you have new lines of credit appearing in the lender’s credit check after loan approval, you may find the lender has to re-qualify you depending on circumstances.

Changes in employment status is another potential problem for some applicants. Do your best to avoid major job changes until your loan has closed.

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