Tips And Steps To Take In Avoiding Home Loan Denial

This ARTICLE On Tips And Steps To Take In Avoiding Home Loan Denial Was UPDATED On July 7, 2017

Tips And Steps To Take In Avoiding Home Loan Denial mainly relies on the loan officer.

  • There is no reason why mortgage applicants should get a mortgage denial if they were properly qualified.
  • A borrower should be fully qualified prior to the loan officer issuing a pre-approval letter.
  • The number one reason in avoiding home loan denial is that the pre-approval is rock solid.
  • Mortgage Borrowers get denied all the time by lenders.
  • Again, the number one reason for last minute mortgage denials is due to the loan officer not properly qualifying borrowers.

Steps To Take If Denied For Mortgage

As mentioned earlier, the main reason for a mortgage loan denial is due to the borrower not being properly qualified prior to issuance of pre-approval. The pre-approval stage of the mortgage process is the most important step.

  • What were the reasons the mortgage lender gave for mortgage denial? 
  • Borrowers who were denied for a mortgage loan due to not meeting mandatory mortgage guidelines, the mortgage process should have not gone forward.
  • However, being denied for a mortgage loan from one lender should not discourage borrowers from applying else where for a mortgage.
  • Another big reason for last minute mortgage denials is because lender has lender overlays.

Transferring To Another Lender

Every mortgage lender has different mortgage underwriting criteria. Most lenders have lender overlays. Overlays are mortgage guidelines that in addition to the minimum lending guidelines by FHA, VA, USDA, FANNIE MAE, FREDDIE MAC.

  • One mortgage lender might require a minimum credit score of 640 as a overlay on credit score when HUD Guidelines On Credit Scores only require 580.
  • A large percentage of mortgage lenders will not accept a debt to income ratio greater than 45% to 50% due to Overlays On Debt To Income Ratio.
  • FHA allows debt to income ratio of 46.9% front end and 56.9% back end DTI.

Qualifying For Mortgage

Some mortgage lenders will not accept open collections and require collections be paid off. This is because they have FHA Lender Overlays on Collections And Charge Off Accounts.

  • Yet, other mortgage lenders who have no overlays on collections and charge off accounts will have no issues.
  • FHA Lenders with no overlays will accept open collection accounts.
  • Some FHA Lenders with overlays on collections and charge off accounts may have a maximum collection/charge off limit.
  • Other lenders with overlays on collections and charge off accounts may require a payment plan to be in effect before they approve a borrower.

Lender Overlays

Banks have much tougher mortgage underwriting and credit criteria than mortgage bankers due to their lender overlays. Every lender can have their own overlays. It is not against the law to just go by HUD Guidelines.

  • I have helped countless of mortgage loan borrowers who have gotten denied for a mortgage loan.
  • Borrowers who get denied for a mortgage loan can transfer their mortgage application and FHA Case Number to a different lender.
  • There are many lenders with no FHA Lender Overlays.
  • A mortgage broker can be a home buyers representative in getting in matching borrowers with a lender with no overlays.
  • There are mortgage bankers who are Fannie/Freddie Direct with no lender overlays on government and conventional loans.
  • Mortgage brokers get paid by the wholesale mortgage lenders.

Home Buyers needing to get qualified with a lender with no overlays, please contact us at 1-800-900-8569 or email us at

2017 Mortgage Blog Update

This mortgage blog post has been reviewed and updated on July 7, 2017.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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