Delays Mortgage Approval Process Can Be Avoided
In this blog, we will cover how delays mortgage approval process can be avoided. One of the most stressful things that can happen to homebuyers is delays mortgage approval process. There should be no reason for delays mortgage approval process. Usually delays mortgage approval process is due to the loan officer not qualifying the borrowers correctly when issuing the pre-approval.
Another reason for delays mortgage approval process is that the mortgage processor did not scrub the file correctly before submitting it to underwriting. One recent case where a borrower could not get a clear to close was because the wholesale representative of the wholesale mortgage lender told the wrong information to the loan officer. In the following blog, we will cover delays mortgage approval process.
What Are Reasons For Delays Mortgage Approval Process
Having good credit, good income, and assets are the key ingredients for mortgage loan approval. Most homebuyers with these three key factors will qualify for a mortgage loan. They should have no problem 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.
Delays Mortgage Approval Process Due To Missing Documents
One of the biggest reasons for delays mortgage approval process and delays in the home closing date is that the mortgage processor did not do a good job preparing the file for underwriting. An experienced mortgage processor will take their time until the borrower’s package is fully complete before submitting it to the underwriting queue. It is not acceptable for any mortgage processor to submit files to underwriting with missing pages, paperwork that is not legible, or documents with missing pages.
Another factor that can delays mortgage approval process is submitting files to underwriting with recent overdrafts in bank statements. Submitting files without carefully reviewing the borrower’s credit reports for credit disputes. There are instances when borrowers purchase big-ticket items during the mortgage process where they no longer qualify due to surpassing the debt-to-income ratio threshold. Some borrowers quit their jobs prior to closing on their loan causing delays mortgage process approval.
Credit Disputes on Credit Report Delays Mortgage Approval Process
Homebuyers can have perfect credit on their 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. The mortgage approval process and the file will be placed in 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 lenders 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. For consumers with multiple credit disputes, it can add up.
What Happens If Borrowers Have Credit Disputes During The Mortgage Process?
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. Zero balance credit disputes are exempt from being removed from the mortgage process. Any credit disputes that the date of last activity is 24 months old or older are also disputes from being retracted.
Overdrafts In Bank Statements During The Mortgage Process
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 your 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. For consumers who applied for new credit after submitting an official mortgage application, credit inquiries will show on the 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 the 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 the borrower purchased new items such as a car or furniture, this new debt will need to be added to 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 when 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.
Delays Mortgage Approval Process Because Credit Scores Decrease
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 the 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 mortgage brokers licensed in 48 states with over 190 wholesale mortgage lenders with no overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at email@example.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
December 15, 2022 - 5 min read