Mortgage Denial After Conditional Approval

This ARTICLE On Mortgage Denial After Conditional Approval Was Updated On March 23rd, 2017

There are multiple process in the home loan application and approval process.

  • Whether you are a home purchase or refinance borrower, the mortgage application process is the same. 
  • Before you sign any paperwork, your loan officer will have you complete a 4 page application, also referred to as the 1003. 
  • Your loan officer will then run credit and review your credit scores and your credit report.  
  • He or she will then run your application and credit report through the Automated Underwriting System for an automated approval
  • With an automated approval and once all of your documents such as two years tax returns, two years W-2s, recent paycheck stubs, 60 days bank statements, and other documentations is complete, the file will be submitted to the processing department of the lender and a processor assigned
  • Once the processor makes sure that all pages of every document provided is complete, the file is submitted to the underwriting department and an underwriter gets assigned.

Underwriting Process

A loan underwriter will be assigned to your mortgage file.

  • The role of the underwriter is to make sure the loan applicant meets all guidelines and has the ability to repay the monthly payments of the loan. 
  • The role of the underwriter is to review the borrower’s financials, tax returns, W-2s, employment history, prior bad credit, prior bankruptcies, prior foreclosures, prior deed in lieu of foreclosure, prior short sales, prior late payments, recent credit inquiries, bank statements, reserves, assets, liabilities, and other documents that pertains to the mortgage loan borrower. 
  • Underwriters will also review divorce decrees, child support paperwork, alimony paperwork, and any other documents. 
  • Once the underwriter feels comfortable that the loan borrower meets all minimum lending guidelines, the underwriter will issue a conditional approval.

What Is A Conditional Approval?

A conditional approval is issued by an underwriter once the borrower has met all the conditions for the loan program applied.  A conditional approval will convert to a loan commitment once the conditions have been cleared. The processor will submit the file for a clear to close once the borrower signs the loan commitment and turns in all final conditions for a CTC.

Clear To Close

A clear to close is issued when the underwriter has signed off all final conditions on the loan. Once a clear to close is issued, the file is now ready to fund and docs are prepared by the closing department. The closing department works closely with the title company in getting the final Closing Disclosure prepared. Once the final CD, closing disclosure, has been prepared and signed off, the closing date is scheduled. Due to TRID, a home loan cannot close until three days after the clear to close and disclosures of the CD. There are many times when borrowers get mortgage denial after conditional approval and sometimes a denial after a CTC.

Mortgage Denial After Conditional Approval

As mentioned above, just because you get a conditional approval does not mean that you are guaranteed to close on your home loan.

  • After you are issued a conditional approval, you need to provide the conditions that the mortgage underwriter requests. 
  • Examples of conditions may be verification of rent, verification of employment, updated bank statements, letters of explanations, conditions on appraisals, title, gift letters, or more documents that is needed like bankruptcy papers, divorce decree, foreclosure verification on recorded dates, and other items.
  • Examples of reasons for mortgage denial after conditional approval are when the mortgage underwriter pulls credit prior to issuing a clear to close and discovers that the borrower has made a major purchase where it now offsets the maximum debt to income ratio 
  • Other examples of mortgage denial after conditional approval is when the underwriter needs to do a verbal verification of employment and finds out that the borrower just quit his or her job.
  • Underwriters can requests verification of rent but the borrower cannot provide 12 months of canceled checks because some months the borrower has paid in cash. 
  • All of the above examples can be reasons for mortgage denial after conditional approval.

Related> Changing lenders during approval process

Related> Conditional mortgage approval

Related> Timeline from pre-approval to clear to close

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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