Can a Car Accident Affect My Mortgage Application?

As most of our readers already know, there are a multitude of factors that can adversely affect your chances of applying for a mortgage, such as a DUI conviction. It’s only natural for one to ask whether a car accident can also affect your chances of getting a successful mortgage application.

The quick answer is that getting involved in a car accident cannot be grounds for the denial of your mortgage application. However, getting involved in a car accident can adversely affect your chances in an indirect manner. This depends heavily on whether or not you have an on-going lawsuit related to the car accident. To understand this better, we first need to understand the concept of risk assessment.

What Is Risk Assessment?

Risk assessment refers to the process of determining the likelihood of loss on an asset, loan, or investment. This is an important process for lenders because this helps them determine whether an investment (or loan/mortgage) is worth their while. In essence, it helps them determine which applicants are more likely to complete repayment of the mortgage. Underwriters base their decision primarily on an applicant’s risk. If the potential risk outweighs the profits, then the mortgage application is likely to be denied.

How Is Risk Related to a Lawsuit?

Applicants who are involved in an on-going lawsuit almost always get their mortgage applications denied. This is because the risk to the lender is determined heavily by your ability to pay the judgment in case you lose the case. 

Lawsuits affect several aspects of an individual’s life, both directly and indirectly. It’s for this reason that not only are there strict standards to be met before a claim is filed, but also that people hire specialized lawyers like this Uber accident attorney in order to maximize their likelihood of getting a favorable outcome.

Lawsuits are expensive to support and sustain, as are the penalties that are associated with them. While a car accident itself may not outright disqualify you from a mortgage application, it can create underwriting problems for you, even when you aren’t involved in a lawsuit yet.

Are There Exceptions?

If you’re involved in a car accident, and you’re able to settle things out of court, either through your insurance companies or through a mutual agreement, then the car accident will not have an adverse effect on your mortgage application.

There are also instances when an applicant that’s involved in a lawsuit may still have their mortgage approved. An applicant’s risk can be mitigated or minimized depending on the type of insurance and the amount of insurance that the applicant has, such that even when the courts should rule against the applicant, they will simply be asked to present evidence of the insurance to the underwriter.

Mortgage applications are mostly about risk mitigation. High-risk applicants are less likely to get approved than low-risk applicants, and while a car accident does not necessarily disqualify you from applying for a mortgage, an on-going lawsuit can significantly increase your risk.

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