Choosing Lender With No Overlays When Denied For Mortgage
Choosing Lender With No Overlays When Denied For Mortgage
This BLOG On Choosing Lender With No Overlays When Denied For Mortgage Was Written By Michael Gracz of Gustan Cho Associates Mortgage News
Not all mortgage lenders are created equally.
- Just because home buyers need to qualify for FHA, VA, USDA, or Conventional Loans does not mean they can qualify with all mortgage lenders
- Unfortunately, many home buyers go to a lender and are told they do not qualify for FHA Loans because their credit scores are not 620
- The lender they went to does not tell them that they do not meet FHA Guidelines and that actually the borrowers do qualify for FHA Loans but not with that particular lender
- FHA Guidelines on credit score requirements are 580
- Most lenders will have higher credit score requirements called lender overlays
- Lender overlays are additional lending requirements above and beyond the minimum agency requirements of FHA, VA, USDA, Fannie Mae, Freddie Mac
Importance Of Choosing Lender With No Overlays
Gustan Cho Associates Mortgage Group at Loan Cabin Inc. is a direct lender without mortgage overlays on government and conventional loans.
- Lender overlays do get in the way of thousands of Americans obtaining mortgages
- Overlays are extra guidelines set by financial lending institutions above and beyond the HUD, VA, USDA, Fannie Mae, and Freddie Mac guidelines
- It is important for borrowers with less than perfect credit or other credit/income issues to consult with a direct lender with no overlays
- See LENDER OVERLAY BLOG for more details
Today we will discuss a client the Gustan Cho Associates Mortgage Group were able to approve recently. For the purpose of this blog, we will use the name Brian Smith as the borrower and Brenda Smith as the co-borrower.
Importance Of Pre-Approval Letter
Brian and Brenda had trouble obtaining an FHA loan with two lenders before they reached out to Michael Gracz of Gustan Cho Associates Mortgage Group at Loan Cabin Inc.
- The first lender sent them a pre-approval letter after reviewing their income and asset documentation
- That was solid enough for them to put an offer on a house in the suburbs of Chicago
- At this stage, Brian and Brenda put down $2000 in NON-REFUNDABLE earnest money and paid $350 for a home inspection
- They also ordered their FHA appraisal for $550
- From this pre-approval letter they have spent $2900 out of pocket
- We all know buying a home can be nerve-wracking, this is the point when their story gets complicated
- The number one reason for a last minute loan denial or stress during mortgage process is because the loan officer did not properly qualify borrowers
- Loan Officers should not issue pre-approval letters
- The true definition and term of pre-approval is that a certified mortgage underwriter has fully reviewed all mortgage docs and has fully underwritten the borrowers
- Once the underwriter feels that the borrower is fully qualified after reviewing and underwriting the file, the mortgage underwriter will sign, date, and issue the pre-approval letter
A pre-approval letter is a full loan commitment and an offer to lend by the mortgage company. There should be no reason why borrowers with a solid bona-fide pre-approval should get denied or stress during mortgage process.
Who Issues Pre-Approval Letter?
A Loan Officer should never issue a pre-approval letter. Loan Officers can issue pre-qualification letters where home buyers can shop for home. Home Buyers should never enter into a real estate purchase contract without a solid pre-approval letter that has been underwritten and signed, dated, and issued by a mortgage underwriter. There is no reason why a pre-approved client should ever be denied a mortgage.
Lets continue on with our case scenario:
- Lender number one sent the pre-approval letter after receiving AUS findings saying approve eligible
- The Loan Officer counted ALL of Brenda’s income, including overtime
- This was a mistake
- Brenda has only been at her FULL TIME W2 earning job for 9 months
- She does not have a two-year history of receiving overtime income
- Under HUD 4000.1 FHA Handbook, borrowers must have a two-year history showing they have received overtime pay in order for the income to count as qualified income
- Not only that, the likelihood of overtime income to continue for three years is very crucial
- This is verifiable through VOE or verification of employment forms
- This is a standard form in the mortgage industry
- There are many third-party verification options such as the work number to gather verification of employment information
- If the borrowers’ information is not available through the third-party verification, the mortgage company must obtain a manual verification of employment
- This must ITEMIZE how employees are paid
Borrowers File Needs To Be Fully Processed And Underwritten Before Being Issued Pre-Approval
Home buyers and sellers trusts that when a lender issues a pre-approval, they are issuing a commitment to lend. Unfortunately, many mortgage companies call a pre-qualification letter a pre-approval letter. To avoid a potential last minute loan denial and/or stress during mortgage process, make sure that the pre-approval has been signed off by a mortgage underwriter and not a loan officer. A pre-approval letter should never be issued if the borrowers file has not been fully processed by a mortgage processor and an underwriter has not underwritten the file:
- Example, it must break down hourly pay, and overtime or bonus income
- As long as a two-year history can be established, the overtime income can count
- Back to our story, the loan went to underwriting stage with lender number one
- The underwriter removed Brenda’s overtime income and the AUS system was now coming back with refer eligible findings for debt income ratios and credit score profile
- Lender number one does not allow manual underwriting
- A loan must be downgraded to a manual underwrite when the AUS system shows Refer/ Eligible findings
- This was not a lender with no overlays since they did not allow manual underwriting
Choosing Second Lender After Being Denied For Mortgage
Most folks do not hesitate to just choose the next lender in line without doing much research when denied by their original first lender. By this time, most buyers and sellers are stressed so they take a realtors advice and transfer their file to the next lender on a list:
- This is when Brenda and Brian contacted lender number two
- A lender who does allow manual underwriting
- Keep in mind the appraisal was back by this stage in the process
- An FHA appraisal can be transferred with the FHA case number from lender to lender
- Since the appraisal was added to loan file with lender number two, they started underwriting right away
- During the manual underwrite and the verification of employment stage, the underwriter concluded they would not be able to approve the loan
- This was due to the fact Brenda was a stay at home mother for the past 4 years prior to starting her job 9 months ago
- That underwriter failed to offer the true solution to closing this loan
Final Solution After Being Denied By Multiple Mortgage Lenders
Most of our borrowers have almost given up in trying to get qualified for a mortgage after being denied by multiple lenders. A large percentage of our borrowers search the internet for solutions and find us from the countless of five star national reviews and testimonials Gustan Cho Associates Mortgage Group has.
- This is when Brian and Brenda contacted the pros of Gustan Cho Associates Mortgage Group, who is a true lender with no overlays
- When we state that we are a lender with no overlays, we have ZERO OVERLAYS on all of our agency mortgage programs
- The missing key to the puzzle is borrowers only need to reestablish a full time W2 job for SIX months to count her income
- AS LONG AS Brenda had a two-year history AT SOME POINT IN HER LIFE PRIOR TO HER JOB GAP, that income can be counted
- As part of the manual underwrite, the processor was able to verify her full time two year working history as a babysitter while she was in college
- We were able to verify and DOCUMENT her history babysitting with the family
- Brian and Brenda could not be happier now that they were able to close the loan
- It takes true underwriting experience to get loans to the finish line
Brian and Brenda has gotten a full loan commitment to lend by one of our fine mortgage underwriters and is expecting to close in the coming days. They could not be any happier in finding and choosing a true lender with no overlays.
Qualifying With Lender With No Overlays
Gustan Cho Associates at Loan Cabin Inc., there are very few situations we have not seen before!
- We underwrite all files up front before any of these situations come up
- If Brenda and Brian would have came to us to start, this added stress would not have happened
- We use the TBD UNDERWRITING PROCESS for all clients who come to us to start
- Right now, about 75% of our clients come from other lenders, either who issued a denial or are just not offering the customer service expected
- We take our jobs serious as there are a lot of moving parts when you buy and sell a home
- We know that you will be spending a lot of your time and money on your new home
The Gustan Cho Associates are experts with guidelines, and if you do not qualify today, we will create a custom plan for you to qualify in the near future! Michael Gracz is the top Senior Loan Officer and National Sales Manager at Gustan Cho Associates Mortgage Group. Mike Gracz can be reached at 630-659-7644 or text for faster response. Michael Gracz of Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays.