Having good credit, good income, and assets are the key ingredients for mortgage loan approval. Most home buyers with these three key factors will qualify for a mortgage loan. They should have no problem in going through a smooth mortgage approval process. There should be no delays mortgage approval process.
- However, there are things during the mortgage process that can halt the mortgage process
- Suspense in the mortgage process can cause delays and major headaches
- The credit report may contain items that can halt and cause delays mortgage approval process
- There are also other factors that can delays mortgage approval process such as the following:
- recent overdrafts in bank statements
- disputing derogatory credit items
- borrowers who quit their jobs prior to closing on their loan
In this article, we will discuss and cover on Delays Mortgage Approval Process Can Be Avoided
Credit Disputes On Credit Report Delays Mortgage Approval Process
Home Buyers can have perfect credit on the credit report. But borrowers with credit disputes on derogatory credit tradelines with a balance of $1,000 or more that is a non-medical collection account delays mortgage approval process. Mortgage approval process and file will be placed on suspense.
- Government And Conventional Mortgage Guidelines are strict when it comes to credit disputes, no matter how long a collection account is
- The mortgage approval process will be halted until borrowers either pay off the credit dispute or have the credit dispute retracted
- It takes time to retract a credit dispute
- But mortgage lender can do it faster via a rapid rescore which can be quite costly
- A rapid rescore costs $30 per credit bureau
- So each credit dispute retraction will cost you $90 if a dispute is with the three major credit bureaus
- Consumers with multiple credit disputes, it can add up
A major problem with retracting a credit dispute is that it will lower credit scores.
- This can be a problem for borderline borrowers where a drop can mean that they might no longer qualify for a loan program
- Disputes with medical collections or non-medical collections without a balance are exempt from this rule
Overdrafts In Bank Statements
Most mortgage lenders will deny borrowers with overdrafts in their bank statements in the past 12 months.
- Lenders will require 60 days of bank statements
- Lenders will ask for updated bank statements throughout the mortgage approval process
- Updated bank statements will be required prior to the mortgage underwriter issuing a clear to close
- An overdraft in your updated bank statement can be cause for a mortgage loan denial
- Even a $5 dollar overdraft is considered serious
- Make sure to monitor bank account during the mortgage approval process
- Have overdraft protection placed on all checking accounts
New Credit Accounts And Credit Inquiries
The mortgage lender will do a soft credit pull prior to issuing a clear to close.
- Consumers who applied for new credit after submitting an official mortgage application, credit inquiries will show on credit report
- Every credit inquiry will show a red flag
- If the mortgage underwriter is about to issue a clear to close and does a quick soft credit pull but a bunch of credit inquiries show up on credit report, borrowers will need to write a letter of explanation on each credit inquiry
- This will cause a delay in getting a clear to close issued
- If borrower purchased new items such as a car or furniture, this new debt will need to be added in debt to income ratio calculations
- New monthly payments added can make debt to income ratios exceed the maximum permitted
- Being over the debt to income ratio cap can be a reason for a mortgage loan denial
- Do not apply for new credit nor make any purchases such as an automobile purchase or furniture purchase during the mortgage process
Late Payments And Public Records Popping Up Prior To Soft Credit Pull
There are times where an old collection account or a judgment that has not been recorded shows up when the mortgage underwriter does a soft credit pull.
- If this happens, the issue needs to be fixed before the mortgage underwriter can proceed in issuing a clear to close
- The old collection account is not a problem if the balance is under $2,000
- If the balance is over $2,000, 5% of the balance will be used to calculate the debt to income ratio
- Collection accounts do not have to be paid
- But new FHA guidelines require that non-medical collection accounts with a balance of $2,000 or more than the mortgage underwriter take 5% of the unpaid balance towards the calculation of the debt to income ratios
- If borrowers can get a written payment agreement that is less than 5% of the unpaid balance of the collection account, the new minimum payment agreement will be used in lieu of the 5% with no seasoning requirement
Cases Where Credit Scores Drop During The Mortgage Process
Credit scores can drop during the mortgage approval process. The initial credit scores will be used until the mortgage loan is closed.
- However, there can be issues if mortgage underwriter does a soft credit pull prior to issuing a clear to close
- If they see recent late payments that have been recorded after mortgage loan application and credit report have been submitted it can be an issue
- Borrowers need to religiously pay all of the monthly payments until they close on the mortgage loan
Automated Underwriting System Findings will be pulled throughout the mortgage process.
Homebuyers who need to qualify for a mortgage with a direct lender with no mortgage overlays on government and conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays.