What To Do If Mortgage Borrowers Gets Home Loan Denial

What To Do If Mortgage Borrowers Gets Home Loan Denial

This BLOG On What To Do If Mortgage Borrowers Gets Home Loan Denial Was UPDATED On December 18th, 2017

Solution To A Home Loan Denial:

There is no reason why any mortgage borrowers should get a home loan denial and/or stress during the mortgage process.

  • The main and number one reason for a home loan denial by a mortgage underwriter is because the borrower was not properly qualified
  • One of the biggest issues we have in the mortgage industry is that loan officers issue pre-approval letters without fully qualifying borrowers
  • Home Buyers trust their loan officers and lenders and rely on the pre-approval letter and the validity of it
  • Armed with the pre-approval letter, home buyers hire real estate agents and enter into a home purchase contract

They make arrangements in moving as follows:

  • Enter into a real estate contract
  • Pay sellers side earnest money
  • Pay for home inspection
  • Pay for home appraisal
  • Change address with the U.S. Postal Service
  • Pack belongings and sell clutter
  • Enroll children to new school and terminate enrollment with current school

Home Buyers get  pre-approved for a residential mortgage loan by a loan officer who represents the following:

  • Bank
  • Credit Union
  • Mortgage Banker
  • Mortgage Broker

Mortgage Process

Home Buyers need a pre-approval from a mortgage lender or a mortgage broker in order to start shopping for a home purchase.

  • A pre-approval means that a borrower has been fully qualified for a particular loan program
  • Home Buyers, Sellers, realtors all are under the assumption that a pre-approval letter is a go ahead and green light to enter into a real estate purchase contract the home buyer will close
  • Unfortunately, there are pre-approval letters issued by loan officers in a hurry where the borrower is not fully qualified

Issuing pre-approval letters without fully qualifying a borrower is the main reason of a mortgage home loan denial and stress during the mortgage process.

  • A pre-approval letter should only be issued after the borrower is fully qualified and is going to close the loan
  • There is no reason for a last minute loan denial and/or stress during mortgage process if the borrower has a solid pre-approval

Home Buying Process

This is how the home buying and mortgage process work:

  • Once they enter into a purchase contract, the buyer submits it to their loan officer
  • Since the loan officer already pre-approved the home buyer, the loan officer will just get updated docs and assign the file to a mortgage processor
  • The processor then processes the loan and gets it ready to submit it to the lender’s mortgage underwriting department
  • A mortgage underwriting gets assigned to the file and the borrower gets denied for home loan after going through the mortgage approval process

Why did the borrower go through the mortgage process and get a mortgage loan denial ?

  • What happened? 
  • What do you do? 
  • What is your next step?

According to statistics by the MBA, Mortgage Bankers Association, 30% of all purchase mortgage loans are denied and about 50% of all refinance mortgage applications get a mortgage loan denial. This is not the case with The Gustan Cho Team at USA Mortgage because all of our pre-approvals are full credit loan approvals that are fully underwritten and signed off by our mortgage underwriters.

Solutions To Home Loan Denial

In the event borrowers get a mortgage loan denial, it is not the end of the world. Not all mortgage lenders have the same mortgage lending requirements on government and conventional loans. Most lenders have overlays on government and conventional loans. The Gustan Cho Team at USA Mortgage are direct lenders with no lender overlays on government and conventional loans.

  • There is a reason why the banker, credit union, mortgage banker, or mortgage broker decided to proceed with  mortgage application process
  • The chances are borrowers get an automated approval via Fannie Mae’s Automated Underwriting System
  • Many borrowers get mortgage loan denial due to the mortgage lenders overlays and the loan officer made a mistake in not knowing all of their company’s overlays
  • Just because a mortgage lender does not approve borrowers does not mean that they do not qualify for a mortgage loan
  • Over 75% of our borrowers are folks who have gotten a mortgage loan denial from other lenders due to the other lender not properly qualifying the borrower
  • All of our mortgage applications that get pre- approved is because all of our borrowers go through the full mortgage underwriting process
  • Our pre-approvals are full conditional loan approvals and are signed off by our underwriters
  • As long as the mortgage loan borrower gets an approved/eligible per DU FINDINGS and can satisfy AUS conditions, USA Mortgage will close the loan
  • We are direct lenders with no lender overlays just go off AUS Findings 

Why Did I Get Home Loan Denial?

Mortgage Borrowers who got a home loan denial should find out the reason or reasons why the mortgage lender denied the mortgage loan.

  • Was it because their overlays?
  • Or was it because the mortgage applicant did something wrong like missed a credit card payment, quit their job, bought a car, or maxed out credit cards during the mortgage process
  • Did borrowers have credit disputes on credit report?
  • Retracting credit disputes can drop borrowers credit scores significantly
  • There is a fix for everything and we can help borrowers get a mortgage loan approval
  • Getting us the reason for the home loan denial by the borrowers previous mortgage lender will help save us time to find a solution to get borrowers approved the second time around

Some Reasons For Home Loan Denial

There are many reasons why a mortgage lender will get you a home loan denial.

  • One of the common reasons of mortgage home loan denial can be due to  high debt to income ratios 
  • If mortgage loan originator did not lock mortgage rate, a spike in interest rates can automatically disqualify higher DTI borrowers due going over the DTI cap required
  • Back End FHA debt to income ratios at 56.9% with lenders with no mortgage lender overlays
  • Another way we can solve borrowers with higher debt to income ratios is buying down the rate
  • Adding non occupied co-borrowers is another solution for higher debt to income ratio borrowers
  • Other reasons for mortgage loan denial is where the borrower has maxed out their credit card
  • When the mortgage lender does a soft pull prior to issuing a clear to close, the borrowers credit scores plummets and debt to income ratios goes above the maximum allowed
  • Other reasons are when the borrower are the following:
    • Cannot get a Verification of Employment for overtime income
    • Cannot produce the proper documents requested by the mortgage underwriter
    • Cannot source the down payment
    • Has recently bounced a check, has a recent late payment
    • Just got sued
    • Dozens of other reasons

Again, there are fixes for everything so do not be discouraged in the event of a mortgage loan denial.  Mortgage Borrowers who got a mortgage loan denial, please contact The Gustan Cho Team at 262-716-8151 or email us at gcho@usa-mortgage.com. Visit us at www.gustancho.com

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