Yes, a bank can decline a loan after approval. Most mortgage approvals are conditional, meaning the commitment holds only if your finances, the property, and the accuracy of your application stay intact through closing day. Lenders re-verify almost everything in the final stretch, and a change in any of those areas can undo the deal — even hours before funding.
Knowing what typically triggers a last-minute denial, and what the law requires the lender to tell you if it happens, is the best way to protect both the loan and the money you have already put on the table.
What Can Trigger a Denial Between Approval and Closing
Lenders pull an updated credit report shortly before closing to confirm nothing has shifted. Financing a car, opening a store card, or running up existing balances during this window can raise your debt-to-income ratio past the lender’s threshold and cancel the approval. For conventional loans sold to Fannie Mae, DTI ceilings generally run from 36 percent up to 50 percent depending on how the file is underwritten and the strength of your credit and reserves.1Fannie Mae. B3-6-02, Debt-to-Income Ratios A single new monthly obligation can push you over.
Employment is checked again too. Fannie Mae requires a verbal verification of employment shortly before the note date.2Fannie Mae. Verbal Verification of Employment Losing your job, resigning, or switching from salary to commission can create unacceptable risk for the lender. For part-time work, overtime, seasonal income, and self-employment, lenders generally look for at least two years of consistent history before counting the income toward qualification.3Department of Housing and Urban Development. Mortgagee Letter 2022-09 A drop in base pay or missing overtime on recent pay stubs can lower your qualifying income enough to break the approval.
Problems With the Property
The home has to hold up its end. If the appraisal comes in below the purchase price, the lender bases the loan amount on the lower figure. Agree to $400,000, appraise at $380,000, and you are looking at a $20,000 gap you have to cover in cash, renegotiate with the seller, or watch the loan die.
If you think the appraiser missed the mark, you can file one Reconsideration of Value per appraisal report, submitting evidence such as comparable sales the appraiser did not use.4Fannie Mae. Reconsideration of Value (ROV)
A title search run before closing can also turn up tax liens, judgment liens, or contractor claims that keep the lender from holding a first-priority interest. Serious physical problems — a failing roof, foundation damage, safety hazards — can disqualify the home from standard financing altogether.
Inconsistencies Between Your Application and the Records
Underwriters compare every claim on your application to independent sources. IRS Form 4506-C lets the lender pull your tax transcripts directly from the IRS to check against the income you reported.5Internal Revenue Service. Form 4506-C IVES Request for Transcript of Tax Return If your application says $95,000 and your returns say $72,000, expect a denial.
Deposits get scrutiny too. Fannie Mae treats any single deposit over 50 percent of your monthly qualifying income as a “large deposit,” and if you cannot document the source with a gift letter, sale record, or similar paper trail, the funds may not count toward your down payment or reserves.6Consumer Financial Protection Bureau. Submit Documents and Answer Requests From the Lender Unreported obligations that surface in public records, such as alimony or child support, also change the DTI math.
An Expired Rate Lock or a Policy Change
Rate locks typically run 30, 45, or 60 days.7Consumer Financial Protection Bureau. What Is a Lock-In or a Rate Lock on a Mortgage If closing slips past the deadline, extending the lock costs a fee, and some lenders treat an expired commitment as the end of the process — requiring a new application, a fresh credit pull, and updated income documents. Even a one-day delay can force that reset.
Outside your file entirely, a shift in the secondary market can make a specific loan product less profitable, and a lender may withdraw approval by tightening internal guidelines or dropping the product. Your finances can be unchanged and the loan can still be canceled.
Protecting Your Earnest Money If the Loan Falls Through
A last-minute denial does more than end the transaction. Home inspections and appraisals are not refundable, and your earnest money — the deposit you put down when the seller accepted your offer — is the larger risk.
A financing contingency in your purchase contract gives you a defined window to secure a mortgage. If you cannot close within it, you can cancel the contract and get your earnest money back. Without the clause, or after the contingency deadline has passed, the seller can keep the deposit as compensation for taking the home off the market.
If your lender signals trouble, tell your real estate agent right away. Acting inside the contingency window is what preserves your right to walk away with the deposit.
What the Lender Must Tell You If It Denies the Loan
Federal law sets specific requirements when a lender takes adverse action on your file.
The Adverse Action Notice
Under Regulation B, the lender must notify you within 30 days of receiving your completed application. The written notice has to either state the specific reasons for the denial or tell you that you can request those reasons within 60 days.8eCFR. 12 CFR 1002.9 – Notifications This applies to every applicant on the loan.
Credit Score Disclosure
When the denial rests on a credit report, the notice must also give you the credit score the lender used, the key factors that affected it, and the name, address, and phone number of the credit reporting agency that supplied the data, along with a statement that the agency did not make the lending decision.9Office of the Law Revision Counsel. 15 U.S.C. 1681m – Requirements on Users of Consumer Reports You then have 60 days to request a free copy of your credit report from that agency.10Office of the Law Revision Counsel. 15 U.S.C. 1681j – Charges for Certain Disclosures
What to Do After a Denial
Start with the adverse action notice. The specific reasons listed tell you what has to change before you reapply — a lower DTI, a higher score, a documented deposit, a longer income history.
If the denial relied on inaccurate credit report data, you can dispute the errors with the credit reporting agency and the company that furnished the information. The agency has to investigate and correct anything confirmed as wrong.11Consumer Financial Protection Bureau. What Can I Do if My Credit Application Was Denied Because of My Credit Report Once the file is cleaner, you can reapply.
For a low appraisal, request a Reconsideration of Value before giving up on the transaction.4Fannie Mae. Reconsideration of Value (ROV) For a DTI or income problem, paying down debt, documenting more history, or adding a co-borrower can reset the qualification math with the same lender or a new one.
If you believe the denial involved discrimination, you can file a complaint with the Consumer Financial Protection Bureau online or by calling (855) 411-CFPB (2372). Have dates, amounts, and details ready before you file.12Consumer Financial Protection Bureau. What Can I Do if I Think a Mortgage Lender Discriminated Against Me