Mortgage Denial After Conditional Approval And How To Avoid It

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This ARTICLE On Mortgage Denial After Conditional Approval And How To Avoid It Was UPDATED And PUBLISHED On November 25th, 2019

Mortgage Denial After Conditional Approval
Gustan Cho Associates

There is multiple processes in the home loan application and approval process.

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

In this article, we will cover and discuss Mortgage Denial After Conditional Approval And How To Avoid.

Underwriting Process

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
    • other documents that pertain to borrowers
  • Underwriters will also review
    • divorce decrees
    • child support paperwork
    • alimony paperwork
    • any other documents
  • Once the underwriter feels comfortable borrower meets all minimum lending guidelines, the underwriter will issue a conditional approval

What Is 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.

  •  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

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

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 borrowers are issued a conditional approval, they need to provide the conditions underwriter requests
  • Examples of conditions may be the following:
    • 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 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 find 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

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