A buyer is pre-approved for a mortgage based on their current income and debt service ratios. However, they later decide to purchase a property requiring a significantly higher mortgage amount. Which of the following factors would MOST likely lead to their mortgage application being denied despite the initial pre-approval?

Question: A buyer is pre-approved for a mortgage based on their current income and debt service ratios. However, they later decide to purchase a property requiring a significantly higher mortgage amount. Which of the following factors would MOST likely lead to their mortgage application being denied despite the initial pre-approval?

Answer options:

• A 3% increase in the posted benchmark qualifying rate during the underwriting process. ✅ Incurring an additional $500 monthly car lease payment and a $10,000 credit card balance.
• A recent decrease in the property's appraised value by 5% compared to the purchase price.
• The lender's internal policy requiring a slightly higher credit score for properties above a certain value.

Correct answer: Incurring an additional $500 monthly car lease payment and a $10,000 credit card balance.

Explanation: Significant new debt liabilities, such as a large car lease payment and credit card balance, would directly and negatively impact the borrower's debt service ratios (GDS/TDS), which are critical components of mortgage qualification. While other factors might influence the outcome, a drastic change in debt burden is a most likely cause for denial after pre-approval. This aligns with financial institution's risk assessment practices.