When lenders preapprove you for a mortgage, they draw upon factors such as your credit score, income and expenses to determine the amount you qualify for. However, a situation that pops up for some buyers right before closing is this: The preapproval amount does not match what the buyer actually qualifies for now. In fact, the current amount is smaller than the original, and the house may no longer be within the buyer’s reach.
How does this happen?
Your credit score changed
In many cases, when the amount changes, it is because of your credit score. For instance, perhaps a medical office finally sent a hefty bill to collections in the time between your prequalification and your planned closing date. Now that you owe an extra, say, $10,000, lenders see you as more of a risk and may offer you less mortgage money.
There are other ways your score could have dropped. You may have closed the credit card accounts that have been active for the longest. Now that your official credit history has been shortened, there is less “known” information on how big of a risk you are. Someone who has been a good credit risk for the past 20 years is generally preferable to someone who has been a good credit risk for only the past five years.
Alternatively, you may have purchased a car and taken out a loan to finance it. Even financing a furniture purchase could adversely affect your credit score.
What you can do
The best thing to do is to keep your financial situation the same after you prequalify for a loan. Avoid any sizable purchases or payments, even if you pay for them in cash instead of financing them. This is because the lender may ask to see updated bank statements and might notice that you have fewer cash reserves than you did before. Do not close any credit accounts, and hold off on big life changes such as a divorce.
