Right before Thanksgiving, Kenny Kendal, 27, had everything lined Right before Thanksgiving, Kenny Kendal, 27, had everything lined up.

He had been living with his aunt and uncle, but had decided it was time to get his own place. He signed a contract for a town house he could afford in Old Irving Park, and found two friends who would rent his extra bedrooms and help with the mortgage. Everything was in place to close before Nov. 30, the original deadline for the first-time home buyers’ tax credit.

And then the bomb fell. The underwriter said the town house was worth less than the agreed-upon price. The deal was off.

Kendal could keep on living with his relatives, but his future roommates had already given notice to their landlords. Every day they called him for updates and every day he had to say he didn’t know. He didn’t know if he would be able to buy a home at all.

“I was the biggest jerk in the world for about a week and a half,” he says. “I’m a first time buyer. I had no clue what was going on.”

Neither did his real estate agent, Eric Rojas, a broker with Prudential Rubloff in Lincoln Park.

“[We] couldn’t believe it,” Rojas said. “The lender said this was the first time that an on-the-ground appraisal had been rejected in this fashion.”

The home’s sales price, $225,000, had already been approved by the lender and was confirmed by an appraiser who had walked through the property. It was a terrific deal. While it was an older home and had no garage, it recently had undergone $60,000 worth of renovations, including a new kitchen, new bathroom, new windows and other improvements.

Even more attractive, a few weeks earlier, a previous buyer had signed a contract for a higher price, which was approved by a different underwriter. The town home became available again when the previous buyer lost his job.

But Kendal’s underwriter, who never saw the property, compared it to a home that was “a dump that sold as a short sale,” Rojas said, thus bringing down the appraised value and kiboshing the loan.

Times have changed

While Kendal’s situation was especially surprising, last-minute blow ups are becoming increasingly common for buyers and sellers when underwriters won’t approve their loans.

Before a mortgage lender can approve your loan, your application is sent to an underwriter. Underwriters have to assess how much risk a lender is taking to give you a loan. They typically look at your credit history, your capacity to repay the loan and what collateral they can count on if you don’t.

Back in the good old days (the ones that caused the housing industry crash) you could pass all three tests if you were more or less breathing and the property seemed to exist. Since the value of just about every property was going up, there was almost no risk in giving you a loan. If you defaulted, the lender still made a profit.

If you haven’t bought or sold property in the past few years, you probably never gave a thought to the underwriting. It was just some paperwork.

Appraisals were another foregone conclusion. Not so long ago, it was fairly common practice for a lender or Realtor to recommend using an appraiser who had been advised on the agreed upon price. It was understood that the appraisal should match the price and comps were found to make it sound logical. That doesn’t happen anymore, thanks to a new “code of conduct” from Freddie Mac and Fannie Mae, which buy home loans.

While one of the goals of the code of conduct was to inspire more reliable appraisals by taking the pressure off appraisers to aim high, the unintended results have been problems like Kendal’s.

Many active Realtors have recent war stories about loan applications getting rejected for one reason or another, due to various changing loan regulations. There was the buyer who put 30 percent down on a new, mid-priced townhome who could not close because new loan guidelines say that 70 percent of the units have to be sold before a conventional loan will be issued, and only 28 percent were already sold. And there was a buyer of new construction whose loan was approved one week and rejected the next.

Don’t let it happen to you

How can you avoid a last-minute loan rejection? Here are some tips from Rojas and other professionals:

• Start by getting your credit rating up. There are many sources of information on how to do this, including a video on credit scores at DebtAdvice.org. Or use the Consumer Tools at www.nfcc.org.

• Tell the truth, the whole truth and nothing but the truth on your loan application. Loans are being rejected for minor discrepancies between your financial information and what comes back through the Giant Computer in the Sky.

• Use a lender recommended by your Realtor or whom you can meet in person. Or, as Rojas says, “somebody you can reach across the table and grab their neck.” Shopping online for rates is fine as a starting point, but sometimes those are teaser rates that don’t pan out. If the Internet ad doesn’t lead you to someone you can meet in person, you might not get the results you want.

• Do your due diligence on the property you want to buy. If it’s in a condo building, you’ll need an experienced Realtor who knows what’s going on with the building and who will contact the condo association for information. If there are any lawsuits, or upcoming special assessments pending, your lender or underwriter may deny the loan. And you may not want that property, either. “If there is a lawsuit, even a tiny lawsuit,” adds Rojas, “you can’t get private mortgage insurance, so you’ll have to be able to put 20 percent down.”

• For sellers, you’ve heard this before – listen to your Realtor and price your property realistically for today’s market. Your Realtor will have checked likely comps and will explain her reasoning. Talk to several Realtors before deciding who will represent your property, but simply picking the one who has the highest price may be pound foolish if the buyer’s loan can’t get approval.

• For condo buyers planning to use FHA financing (and that’s just about the only loan product that doesn’t require a hefty down payment), don’t waste your time lusting after a building you can’t buy into with an FHA loan. To qualify, a building must have had an association for at least a year, have the majority of its units occupied by the owners, and meet other FHA criteria.

Happy birthday

Fortunately for Kendal, his mortgage broker didn’t lose her cool; she submitted his loan application to other lenders. And despite the fact that his application had a red flag from having been turned down once already, he found a new lender.

A few days after Thanksgiving, on his birthday, Kendal found out the loan had been approved. His future roommates have relaxed and everybody’s packing.