Last Minute Mortgage Denial By Mortgage Underwriters

This Article Is About How To Avoid Last Minute Mortgage Denial By Mortgage Underwriters

The number one reason for last-minute mortgage denial is because the borrower was issued a pre-approval letter without being properly qualified.

  • Loan Officers should not issue pre-approvals
  • All of our pre-approvals at Gustan Cho Associates are solid and have been thoroughly reviewed by the loan officer
  • This is why we close 100% of all of our pre-approvals
  • Gustan Cho Associates has no last-minute mortgage denials
  • Many home buyers think that a mortgage loan pre-approval is a done deal and that the mortgage loan will fund and close
  • The pre-approval process is the most important stage of the mortgage process
  • One of the biggest reasons for stress during the mortgage process is because the loan officer issued a pre-approval letter without properly qualifying the mortgage borrower

In this article, we will discuss and cover Last Minute Mortgage Denial By Mortgage Underwriters.

Fully Underwritten Mortgage Pre-Approvals Issued By Lenders

TBD Subject Property Mortgage Pre-Approvals are pre-approvals that has been fully underwritten by a mortgage underwriter. Borrowers who have had major prior credit issues and/or manually underwritten FHA and/or VA loans are often submitted as a TBD Subject Property Mortgage Underwrite. It is a full mortgage underwrite without the subject property. It normally takes about three days to seven days for conditional loan approval. The conditional loan approval is also the pre-approval:Last Minute Mortgage Denial

The majority of mortgage loan applicants who get pre-approved will close on their home loan:

  • However, and unfortunately, many loan officers issue a pre-approval letter without having it underwritten
  • What these loan officers are doing is issuing a pre-qualification letter and not pre-approval

A pre-qualification letter is just a letter of intent that loan officers feel confident that the mortgage loan applicant is qualified and meets mortgage guidelines and feels that the lender is willing to proceed with the mortgage approval process.

When Is The Pre-Approval Letter Issued?

Often times, loan officers issue pre-approval after the mortgage loan applicant completes the mortgage loan application.

  • The mortgage loan originator runs a credit report and reviews the credit history and credit scores
  • The loan officer also runs the mortgage application and credit report through the Automated Underwriting System.
  • If the findings of the automated approval render an approve/eligible, the mortgage applicant is pre-approved
  • This holds true as long as the mortgage loan applicant can satisfy the conditions of the automated approval findings

Such conditions may request the following:

  • verification of rent
  • remove credit disputes
  • verification of funds
  • other conditions

For lenders, like myself, with no lender overlays, we just go off automated findings and do not require any overlays:

  • As long as the mortgage applicant can meet all the conditions of DU FINDINGS, we can close and fund the mortgage loan

Many of our pre-approvals at Gustan Cho Associates are fully underwritten and issued and signed off by our mortgage underwriters

Avoiding Last-Minute Mortgage Denial

One of the best ways of avoiding last-minute mortgage denial is for the mortgage lender to qualify and process the mortgage loan applicant initially before submitting the mortgage loan application to underwriting. Reasons For Last Minute Mortgage Denial

This means collecting all documentation up front such as the following:

  • tax returns
  • W-2s, bank statements
  • letter of explanations
  • bankruptcy paperwork
  • foreclosure documents
  • divorce decree
  • child support paperwork
  • other documents
  • Collecting documentation is not everything
  • The mortgage loan originator and/or mortgage processor should review the tax returns to make sure there is not a lot of unreimbursed expenses where it will disqualify the mortgage loan applicant
  • Review the 60 days bank statements to make sure there are no overdrafts or large unsourced deposits
  • Do verification of employment to confirm the borrower’s wages, overtime income, and bonus income
  • Scrutinize the mortgage file so there will be no glitches or questions during the mortgage underwriting process
  • Submit the file to processing and underwriting

Once the mortgage underwriter issues a conditional loan approval, the file goes back to the mortgage processor. The mortgage processor will start clearing conditions listed on the conditional loan approval.

Reasons For Last Minute Mortgage Denial

There are many reasons for last-minute mortgage denial.

  • The mortgage application process starts with the borrower applying for a mortgage loan by completing the mortgage loan application and signing it as well disclosures

The borrower is then requested to submit documents pertaining to the mortgage loan underwriter to review such as the following:

  • two years tax returns
  • W-2s, recent paycheck stubs
  • 60 days bank statements and other documents that pertain for the mortgage loan underwriter to underwrite and process the mortgage loan application
  •  

The mortgage loan underwriter then issues a conditional mortgage loan approval if the borrower meets all underwriting guidelines.

A conditional mortgage approval does not guarantee a clear to close.

Clearing Conditions For Clear To Close

Once the mortgage underwriter issues a pre-approval, the borrower will shop for a home. While borrowers are shopping for a home, the pre-approval letter will contain mortgage conditions. Clearing Conditions For Clear To Close

The key word here is conditions:

  • As long as the mortgage loan borrower can provide all of the conditions stated by the mortgage underwriter then the clear to close is issued
  • Some of the reasons for a last-minute mortgage denial are when verification of rent is requested but the borrower cannot provide it
  • Or the borrower has been late on their rent payments in the past 12 months
  • Other issues are the higher debt to income ratios due to higher homeowners insurance, or homeowners association fees, or high unreimbursed expenses

For borrowers counting on overtime income or part-time income or bonus income, a mortgage denial can happen if through the verification of employment the employer states the overtime, part-time, or bonus income is not likely to continue.

What Happens If I Get A Mortgage Denial?

Most lenders will tell borrowers that there is an issue in approving the loan for a clear to close. Lenders will give borrowers a chance to correct the problem before issuing a mortgage denial. Unfortunately, there are other mortgage lenders who will just issue a mortgage loan denial.

  • For example, if the homeowners insurance or homeowners association fees are higher than listed on the original mortgage loan application
  • Due to the higher fees you surpass the debt to income ratio caps, borrowers can correct it by paying off debts such as paying off credit card balances, paying off a car note, etc. so they can qualify

Borrowers who need to qualify for a mortgage with a national mortgage company with a lender with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

Related> Denied for a mortgage by a bank?

Related> Why does one lender issue denial while another lender issues approval?

3 Comments
  1. Clare Smith

    Credit score is around 560. Needing a mortgage ASAP. Checking all options – wanting to do as much online as I can so I don’t have to get too much time off work.

  2. William Grady

    Good morning,
    I am in the process of trying to start to look for a house the summer or later this fall. Here is my situation, I am married but my wife will not go on the loan due to her credit issues. My middle credit score is a 584 because I have credit cards that are near limits that I plan on paying off in the next month or so. My DTI right now is high because of the credit cards and I have a car loan and bike loan. I am also on a payment plan for the IRS of 100.00 per month , I am not current as of right now but my next payment is due on the 20th and I plan to get back making regular payments on that. My base pay is 25.40 that started on the Jan 1st . My base pay was 24.72 and with overtime I earned according to my last paystub a little over 65,000. Overtime is pretty consistent for me and over the years my income has increased beyond my annual salary because of it. So basically what I need to know even though my credit probably is not ideal at this point , if you could tell me what I need to do in order to get there. Thanks so much. Email is the most ideal communication for me because I am on the road mostly throughout the day. I look forward to hearing from you.

  3. Mandy Tillison

    Good morning,
    My husband and I are trying to get ready to qualify to buy in the next few months.
    Do your lenders look at FICO 8 or the other models for approval? I ask because my FICO 8 is going up but the FICO 2,4,5 is lower. We may have to wait another year if that’s the case. We are still low for FICO 8 at 580 now but after I pay off all my credit cards next month I know it will go up more.
    Just curious. I also have to get my student loan off the covid suspension so that my payment amount shows on the report.
    We have moved in with in-laws in a new area where we want to buy to save the down payment. I would expect to have 10k at the end of April with 2k of that from my 401 k.
    Would love to chat soon

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