Mortgage Denial After Conditional Approval And Prior To Closing

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This ARTICLE On Mortgage Denial After Conditional Approval And Prior To Closing Was PUBLISHED On July 27th, 2020
Mortgage Denial After Conditional Approval And Prior To Closing does happen.
  • Over 75% of our borrowers at Gustan Cho Associates are borrowers who had a Mortgage Denial After Conditional Approval And Prior To Closing
  • The number one and biggest reason for a Mortgage Denial is because the loan officer did not properly qualify the borrower
  • The loan officer may have taken the application, reviewed the documents, and gotten an approve/eligible per automated underwriting system (AUS)
  • However, the lender the loan officer works at may have lender overlays the loan officer did not realize
  • For example, HUD, the parent of FHA, requires a borrower to have a 580 credit score for a 3.5% down payment FHA home purchase loan
  • The borrower should have no issues getting an approve/eligible per AUS with a 580 credit score and if they meet all other HUD Agency Guidelines
  • However, the lender may have lender overlays on credit scores where they may require all of their borrowers have a 640 credit score
  • Case scenarios like the above are very common
  • This is why it is very important the loan officer qualify the borrower thoroughly prior to issuing a pre-approval letter
  • The pre-approval step of the mortgage process is the most important stage of the overall mortgage and home buying process
  • There  are other reasons for Mortgage Denial After Conditional Approval And Prior To Closing that we will be covering in this blog

In this ARTICLE, we will discuss and cover Mortgage Denial After Conditional Approval And Prior To Closing.

Reasons For Mortgage Denial After Conditional Approval And Prior To Closing

There is absolutely no reason why a homebuyer should get a mortgage denial after approval and prior to closing.

  • The number one reason for a mortgage denial by a lender is because the loan officer did not properly qualify a borrower
  • The loan officer should not just check to see if the borrowers meet the minimum agency mortgage guidelines, but also check the lender’s overlays
  • Lender overlays are additional mortgage guidelines that are above and beyond the minimum agency lending guidelines of FHA, VA, USDA, Fannie Mae, Freddie Mac
  • For example, a borrower with credit scores of 580 and timely payments in the past 12 months may get an approve/eligible per automated underwriting system
  • Gustan Cho Associates has no lender overlays on government and FHA loans and can approve and close this borrower all day long
  • However, a lender may deny this borrower because they may have higher credit score requirements such as 640 FICO or higher
  • The higher credit score required by this lender is called overlays
  • Over 75% of our borrowers at GCA Mortgage Group are folks who either could not qualify at other lenders or gotten a last-minute mortgage denial due to the lender’s overlays

There are various other reasons for a mortgage denial after conditional approval prior to closing which we will discuss in this article.

News Of A Mortgage Denial After Conditional Approval And Prior To Closing

Most borrowers trust their loan officers when they get a pre-approval letter that the pre-approval is solid.

  • Homebuyers would not think of ever getting a Mortgage Denial After Conditional Approval And Prior To Closing
  • The news of a mortgage denial during the mortgage process can be devastating and stressful
  • However, it does happen causing undue stress to borrowers
  • Over 75% of our borrowers at Gustan Cho Associates are folks who either got denied by another lender or are stressing during the mortgage process
  • There are instances where a home loan is denied at the day of the closing
  • However, a loan denial prior to closing or on the day of the closing is not the end of the world

There are steps to take and proceed with transferring the mortgage to a different competent experienced lender.

Here Are Common Reasons For A Mortgage Denial After Conditional Approval And Prior To Closing

The number one reason for a last-minute mortgage denial is the loan officer not properly qualifying the borrower. The loan officer writing up a hasty pre-approval letter and kickstarting the home buying and mortgage process is still very common. However, there are other reasons for mortgage denials. Here are some other common reasons for mortgage denials during the mortgage process:

  • Outstanding derogatory credit popping up on the credit report without notice
  • A sudden drop in credit scores during the mortgage process
  • Issues with the home appraisal and/or title issues 
  • Job loss during the mortgage process
  • Fraud
  • Undisclosed debts
  • Bank overdrafts

Transferring Lenders During The Mortgage Process

There can be countless reasons for mortgage denials during the mortgage process. The reason for the denial can be either the buyer’s or sellers’ faults. Or both. If everyone is on the same page, they can work together in putting their heads together in getting the denial reversed. Or, in most cases, the file needs to get transferred to a different lender. In the event, if the borrower needs to change lenders, this is a very simple process. FHA and VA appraisals will transfer. Therefore, a new appraisal is not required. However, a good thirty days will be required if you decide to change lenders during the mortgage process. It can be two to three weeks if everything goes smoothly. However, expect a delay of 30 days if you transfer mortgage lenders.

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