The need to secure a loan to purchase a home is a given for most home buyers.
While waiting for a mortgage approval might be stressful, you will usually feel a sense of relief after the approval has been granted.
But can a mortgage be revoked after funding? In some situations, it seems that it’s a possibility.
The reasons for this can vary, but they can include changes in your financial condition or even variables beyond your control, such as fluctuations in interest rates, among other things.
Can A Mortgage Be Revoked After Funding?
Yes, your mortgage lender can revoke your mortgage loan after funding.
A mortgage closing is often the culmination of a months-long process that includes house hunting, finding a lender, and going through the mortgage underwriting process. However, you are not out of the woods just yet on closing day.
Lenders may refuse to grant you a mortgage if your financial situation has deteriorated significantly. Here are some reasons why a mortgage loan could be denied at closing.
The most common reason a mortgage loan can be revoked is financial issues. This is especially true of those that significantly impact your financial situation. This is often due to job loss or some huge update to your credit report.
Another reason your approved mortgage gets revoked is if mortgage lenders discover that you have exaggerated your income or other credit factors.
Frequently a mortgage lender will rescind an already approved mortgage loan before it can be funded.
During the loan underwriting process, the underwriter will look over your income, employment, credit history, and assets to determine whether you qualify for the loan.
If the underwriter approves your application, you will be able to proceed to the closing table. However, lenders will typically conduct a second review of your financial situation at some point between the time of approval and the day of closing to ensure that nothing has changed.
If you lose your job or switch employers, or if the lender cannot establish contact with your manager, your mortgage loan may be terminated. If your employment status has changed by the time the lender contacts your employer, they may have doubts about your ability to repay the loan.
Lenders use your debt-to-income ratio (DTI) to determine how much of your income is dedicated to debt repayment each month. Generally speaking, lenders prefer a back-end ratio of 43 percent or less. And if your DTI is too high or increased (probably because you added more debts and credit during your approval), your mortgage loan may be revoked.
Lastly, your mortgage may get revoked after funding if you do not have enough to close the costs. Most borrowers require enough funds to cover the down payment, closing costs, and a few months’ worth of living expenses in advance of a home purchase.
Once you have submitted your mortgage application, the lender should provide you with a “cash to close” dollar amount. However, you may be denied the loan if you do not have sufficient funds on the day of closing. That can happen when a buyer expects to make a certain amount of money from the sale of their home, but the transaction falls through.