Can You Be Denied a Mortgage After Preapproval? What North Texas Homebuyers Need to Know

“I was preapproved, how can my mortgage be denied now?”

I hear this from shocked buyers regularly, and it’s one of the most devastating moments in real estate. You’ve found your dream home in DFW, negotiated the perfect price, maybe even started planning where the furniture goes, then your lender drops the bomb that your loan won’t close.

Here’s the truth most agents won’t tell you: mortgage preapproval is not a guarantee. It’s a conditional commitment based on preliminary information, and between preapproval and closing day, dozens of things can derail your purchase. Understanding these landmines, and knowing how manual underwriting might save your deal, could be the difference between getting your keys and losing your earnest money.

The Reality Check: Yes, Mortgages Get Denied After Preapproval

Preapproval means a lender reviewed your credit, income, and assets and believes you should qualify for financing. But that’s very different from final approval, which involves human underwriters conducting forensic-level examinations of your entire financial life.

The gap between these two stages creates vulnerability. Preapproval uses automated systems that perform surface-level checks. Final underwriting? That’s where experienced professionals verify every dollar, every job detail, every explanation. They’re looking for problems automated systems missed, or changes that occurred after preapproval.

Think of it this way: preapproval is like getting accepted to college based on your application. Final approval is showing up, going to class and getting the degree. One is based on what you say; the other is based on what you can prove.

The Top Reasons Mortgages Die After Preapproval

1. Credit Disputes: The Hidden Approval Killer Most Buyers Don’t See Coming

This is the sneakiest disqualifier, and most buyers have no idea they’re walking into it.

When you dispute something on your credit report, that old medical collection, that cable bill from three apartments ago, credit scoring models can temporarily exclude that account from calculations. Your score jumps. You qualify for the loan. Everyone celebrates.

Then underwriting reviews your credit report, sees the disputes, and everything stops.

Here’s what actually happens: A buyer disputes a $3,500 collection, and their score rises from 595 to 625, just above FHA’s minimum requirement. They get preapproved. Two weeks before closing, the underwriter requires the dispute to be removed before proceeding. The score drops back to 595. The buyer no longer qualifies. The deal dies.

Many loan programs require lenders to address disputed tradelines. Fannie Mae has specific guidelines about how disputed accounts must be handled, particularly when those disputes could be artificially inflating credit scores. FHA may trigger manual underwriting when non-medical disputes exceed certain thresholds.

The trap: Many buyers start disputing accounts while house hunting, thinking they’re cleaning up their credit. Credit repair companies may dispute legitimate debts hoping creditors won’t respond in the 30-day window. This creates temporarily inflated scores that collapse under underwriting scrutiny.

If you’re buying in Ellis County and your credit has disputes, you need to have honest conversations with your lender before you start writing offers. Some situations can be worked through with manual underwriting. Others need time to resolve properly.

2. Employment Changes: Even “Good” Job Moves Can Kill Your Loan

Lenders verify your employment right up until closing, sometimes 24-48 hours before you’re scheduled to sign. A job change, even to better-paying work, can trigger immediate denial if it involves:

• Switching from W-2 employee to 1099 contractor
• Moving to commission-based income without two-year history
• Any employment gap
• Reduction in guaranteed base pay or hours

Real example: A software engineer gets preapproved at $450,000. Two weeks later, he accepts a new position with a $20,000 salary increase. Sounds great, right? Except the new role is 1099 contract work. The lender denies the loan because contractor income typically requires two years of tax returns to establish stability.

Even within the same industry, switching from salaried to variable income creates underwriting problems. Lenders want to see consistent, verifiable income patterns. Breaking that pattern, even for more money, introduces risk they won’t accept.

3. New Debt: That Car Purchase Just Torpedoed Your Debt-to-Income Ratio

You’re preapproved with a 41% debt-to-income ratio, solidly within conventional loan guidelines. Then you finance a new car at a great rate. Your DTI jumps to 48%. You’re done.

Underwriters pull credit again before closing. Every new obligation, credit cards, personal loans, buy-now-pay-later accounts, furniture financing for your “new” house, gets factored into your qualification. Even seemingly small monthly payments can push you over the edge.

The math is unforgiving: On a $400,000 purchase in Midlothian, a $500/month car payment could reduce your buying power by $75,000-$100,000 depending on other factors. That’s not a rounding error, that’s the difference between qualifying and not qualifying.

4. Property Issues: Sometimes It’s Not You, It’s the House

Even with perfect borrower credentials, property problems sink deals:

• Appraisal shortfalls where the home value is below contract price
• Condition issues on FHA/VA loans (peeling paint, safety hazards, structural concerns)
• Title problems like unresolved liens or boundary disputes
• Non-warrantable condos due to high investor concentration or HOA litigation

I’ve seen buyers lose dream homes in Red Oak because the property couldn’t meet FHA’s minimum property standards. The buyers were perfect. The house wasn’t. Game over.

This is why working with agents who understand which properties will have financing challenges matters. Not every cute house on Zillow will actually close.

5. Asset and Reserve Issues: Where’d That Money Come From?

Underwriters examine bank statements with forensic intensity, looking for:

• Large unexplained deposits
• Insufficient documented funds for down payment, closing costs, and reserves
• Recent withdrawals that deplete required reserves
• Cash deposits without paper trails

The problem scenario: A buyer gets $15,000 cash from selling a car to a friend. They deposit it to boost their down payment funds. The underwriter sees it and requires full documentation of the source. Without a bill of sale, title transfer, and clear proof the cash came from legitimate sources, that money can’t be used. If it was critical to meeting down payment requirements, the loan fails.

Traditional underwriting guidelines require paper trails for large deposits, usually anything over 50% of monthly income. That birthday cash from grandma? Might need a gift letter. Sold some stuff on Facebook Marketplace? Better have receipts and transfer records.

Credit Disputes: Why They’re So Dangerous (And What to Do About Them)

Let me be crystal clear about this because it’s where I see deals die most often: credit disputes can artificially manipulate your credit scores in ways that create false preapprovals.

How Disputes Mislead Automated Systems

When you dispute an account with the credit bureaus, they add a “dispute remark” to that tradeline. Certain FICO scoring models treat disputed accounts differently, they might reduce the impact of negative payment history or exclude balances from utilization calculations. Your score increases, sometimes dramatically.

Automated underwriting systems see this inflated score and issue a preapproval. But when a human underwriter reviews the file, they see the disputes and require resolution before proceeding.

What Different Loan Programs Require

Conventional loans often require lenders to investigate disputed accounts, especially derogatory ones, and may need updated credit reports with disputes removed before relying on the score.

FHA guidelines may require additional scrutiny or manual underwriting when non-medical disputed accounts exceed certain thresholds.

VA and other programs typically require detailed documentation on disputed accounts, particularly when those disputes mask recent derogatory activity.

The Cruel Irony: Removing Disputes Tanks Your Score

Here’s where buyers get trapped: when disputes are removed, negative information gets fully factored back into scoring models. Scores can drop significantly, sometimes below program minimums.

A buyer who qualified with a 640 score might drop to 605 once disputes are resolved. Now they don’t qualify for conventional financing, and FHA becomes their only option (if they meet those requirements).

This is where manual underwriting and compensating factors become your lifeline.

Manual Underwriting: The Secret Weapon That Can Save Your Purchase

Manual underwriting is human-driven loan evaluation used when automated systems can’t issue approvals or when borrower profiles are complex. Instead of algorithms making decisions, trained underwriters review your complete financial picture and apply guidelines with more nuance.

When Manual Underwriting Gets Used

Common triggers include:

• Applications receiving “refer” or “caution” responses from automated systems
• Files with credit disputes or recent derogatory credit history
• Borrowers with limited credit depth or non-traditional credit
• Higher DTIs that might still work with strong compensating factors
• Complex income situations (self-employment, multiple income sources, irregular pay)

How It Actually Works

Enhanced Documentation Requirements

Manual underwriting means more paperwork, significantly more. Expect to provide:

• Extended income and employment history (24+ months of tax returns, profit-and-loss statements, 12-24 months of bank statements)
• Detailed written explanations for late payments, collections, or any derogatory marks
• Rent or mortgage history verification via canceled checks or landlord letters
• Thorough asset documentation with complete paper trails for large deposits

Emphasis on Compensating Factors

The underwriter weighs risk against strengths called compensating factors:

• Larger down payment than minimum required
• Significant cash reserves (multiple months of mortgage payments)
• Long, stable employment history in the same field
• Low “payment shock” (new housing payment similar to current rent)
• Conservative credit use and clean recent payment history

Real Example of Manual Underwriting Success

A buyer came to me with:

• DTI at 46% (above typical automated thresholds)
• Two disputed collections and some older late payments
• Twelve months of on-time rent verified by landlord
• Six months of PITI reserves in savings
• Seven-year work history with same employer

Automated underwriting wouldn’t approve this file. But through manual underwriting, focusing on the strong compensating factors and demonstrated recent financial responsibility, we got approval. The buyer closed on their Waxahachie home.

The Trade-Offs

Manual underwriting isn’t magic, it comes with considerations:

• Longer timelines: Manual reviews take more time than automated approvals
• Stricter behavior monitoring: No tolerance for late payments or new debt through closing
• Potentially higher costs: Some lenders price manually underwritten loans differently due to perceived risk

But when the alternative is losing your home, these trade-offs can become acceptable.

Why Some Lenders Approve When Others Won’t: Understanding Overlays

Not all lenders interpret guidelines the same way. Beyond baseline Fannie Mae, Freddie Mac, FHA, or VA requirements, individual lenders add their own risk management rules called overlays.

Strict Overlay Lenders

Some large or conservative lenders:

• Set higher minimum credit scores than programs actually require
• Limit maximum DTI ratios below what guidelines technically allow
• Won’t use manual underwriting at all
• Refuse to proceed until all disputes are removed and scores re-verified

For buyers, this creates frustrating inconsistency. The same borrower profile might get approved by one lender and denied by another, even using the same loan program.

Flexible Lenders Open to Manual Underwriting

Other lenders, including many regional banks, credit unions, and mortgage brokers:

• Actively utilize manual underwriting when appropriate
• Consider non-traditional credit and nuanced explanations for past credit issues
• Allow higher DTIs when compensating factors are strong
• Work collaboratively to restructure debt, down payment, or add co-borrowers to meet guidelines

This is why lender selection matters as much as your financial profile. For North Texas buyers, especially those with anything nonstandard in their background, working with lenders who embrace manual underwriting can make or break your home purchase.

I work with both Denise Donoghue at The Mortgage Nerd and Andrew Bryan at Miramar Mortgage Broker specifically because they understand how to navigate complex buyer situations and use all available tools to get deals closed.

Texas-Specific Factors That Can Affect Your Approval

Texas adds unique considerations to the mortgage process:

• Homestead and cash-out rules that affect refinances and equity access under Texas Constitution Article XVI
• Property-specific requirements around title, surveys, and certain land uses
• Local market conditions influencing appraisal risk and collateral concerns

While these don’t directly relate to buyer behavior, they influence how cautiously lenders approach Texas transactions and how thoroughly they scrutinize files.

Your Prevention Checklist: Protecting Your Approval From Preapproval to Closing

The Absolute Must-Do’s

Freeze your financial profile completely: No new credit cards. No car purchases. No personal loans. No co-signing for anyone. No furniture financing for your “new” house. Nothing.

Maintain employment stability: Don’t change jobs. Don’t switch to contractor status. Don’t reduce your hours. Don’t start that side business you’ve been thinking about. Wait until after closing.

Keep perfect payment history: Pay everything on time. Set up auto-pay on all accounts. Late payments discovered during final underwriting review kill deals.

Document everything: Keep pay stubs, bank statements, and explanations for any large deposits. If you get a bonus, keep the documentation. If you transfer money between accounts, document why.

Communicate before making any financial decisions: Thinking about a new car? Ask your lender first. Job opportunity? Call your lender before accepting. Planning to move money around? Get approval from your loan officer.

Handle credit disputes strategically: Work with your lender to determine if and when disputes should be removed, and understand how that might impact your scores and qualification.

The Absolute Never-Do’s

• Don’t open new credit accounts of any kind
• Don’t run up balances on existing credit cards (keep utilization under 30%)
• Don’t deposit large amounts of cash without documentation
• Don’t ignore requests from your lender for additional documentation or explanation letters
• Don’t assume preapproval equals final approval, act like you’re still being evaluated (because you are)

The mindset shift: From preapproval to closing, you’re essentially on probation. Any deviation from the financial profile that got you preapproved creates risk. Minimize risk by freezing everything.

What to Do If You Get Denied After Preapproval

Step 1: Get Complete Clarity

Request the formal adverse action notice from your lender (they’re required to provide this under ECOA). Ask for a detailed explanation of exactly why your file was denied, not generic reasons, but specific factors that triggered the decision.

Step 2: Identify the Core Problem

Common core issues include:

• Credit score dropped below program minimums after disputes were removed or new derogatories appeared
• DTI increased due to new debt or income changes
• Property failed to meet collateral or appraisal standards
• Income or assets couldn’t be fully verified to underwriting requirements

Step 3: Targeted Solutions Based on the Problem

For credit dispute issues: Work with a lender experienced in manual underwriting. Strategically resolve disputes, understand the score impact, and build a file based on compensating factors.

For DTI problems: Pay down targeted debts to reduce monthly obligations. Reduce credit card utilization. Adjust purchase price or increase down payment to lower the loan amount. Add a co-borrower if appropriate.

For income verification issues: Gather more thorough documentation. Build longer track record in new employment. Consider adding co-borrower with verifiable income.

For property issues: Renegotiate purchase price if appraisal came in low. Request seller make repairs to meet minimum property standards. Change loan programs (conventional to FHA, FHA to VA, etc.). In worst cases, walk away and find a different property.

Step 4: Consider a Different Lender

If denial was driven by strict overlays or refusal to consider manual underwriting, moving to a more flexible lender might solve the problem, assuming your situation still fits within baseline program guidelines.

Critical timing consideration: Most purchase contracts include financing contingency deadlines. If you’re denied close to your deadline, moving to a new lender might not be possible within your contract timeline. This is why early identification of potential issues and lender selection matters enormously.

Why Working With an Agent Who Understands Underwriting Changes Everything

In North Texas’s competitive market, you need MORE than someone who can unlock doors and write offers. You need an agent who:

Understands how preapproval, underwriting, and lender overlays actually work so they can identify potential problems before you’re under contract.

Provides proactive guidance to help you avoid behaviors that trigger post-preapproval denials.

Has strong relationships with lenders who are comfortable with manual underwriting and complex borrower profiles.

Knows which properties will create financing challenges before you fall in love with them.

A knowledgeable local agent can:

• Help you structure timelines giving lenders adequate time for manual underwriting if needed
• Encourage early, honest conversations about disputes, income complexity, or past credit issues
• Protect your earnest money by building appropriate contingencies and realistic financing timelines into offers
• Connect you with lenders who will work hardest to get your deal closed

The North Texas Market Reality

I track every major development and infrastructure changes affecting Ellis County home values. I know which builders work with which lenders. I understand which loan programs work best for properties in different areas.

This intelligence matters when you’re trying to close a mortgage. The agent who just pulls listings from the MLS and hopes for the best? They won’t catch the red flags that derail financing. They won’t know which lenders in North Texas actually excel at manual underwriting. They won’t understand why that cute house in Red Oak might not qualify for FHA financing.

Market intelligence prevents financing problems, it doesn’t just help you find houses; it helps you successfully close on houses.

Bottom Line: Preapproval Is the Beginning, Not the End

Mortgage preapproval opens the door to homebuying, but it doesn’t guarantee you’ll make it through closing. Between preapproval and getting your keys, your financial profile must remain stable, your credit must stay clean, your employment must stay consistent, and the property must meet all program requirements.

Understanding what can go wrong, and how manual underwriting and compensating factors can overcome obstacles, gives you the strategic advantage. You’re not just reacting to problems; you’re anticipating them and positioning yourself five steps ahead.

If you’re buying in Ellis County or anywhere in North Texas, and you want an agent who understands the difference between preapproval and final approval, who knows which lenders will fight to get complex deals closed, and who can help you navigate the chaos that is modern mortgage underwriting, let’s talk.

Because in this market, information is currency. And the more you understand about what actually gets mortgages approved, not just preapproved, the better positioned you are to successfully close on your North Texas home.

Learn more about winning buyer strategies(click the image below)

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Bobby Franklin, REALTOR®
Legacy Realty Group – Leslie Majors Team
📲 214-228-0003 | northtexasmarketinsider.com