What To Do If Borrowers Got Mortgage Denial From Bank
This BLOG On What To Do If Borrowers Got Mortgage Denial From Bank Was UPDATED On January 23rd, 2019
Most first time home buyers normally go to their local bank to see if they qualify for a residential mortgage loan.
- Banks are full service lending institutions
- Banks cater to the general public in lending the following types of loans:
- Auto loans
- Home loans
- Personal loans
- Business loans
- Commercial loans
- Offer other financial services such as the following:
- Saving accounts
- Checking accounts
- Retirement accounts
- Investment accounts
- Credit cards, and such
- Unfortunately, banks have many mortgage lender overlays when it comes to approving mortgage loans
What Are Mortgage Lender Overlays?
Lender overlays are when a mortgage lender has additional requirements on top of the minimum mortgage lending guidelines by FHA, VA, USDA, Fannie Mae, and Freddie Mac.
- For example, minimum credit score requirements for a 3.5% down payment FHA loan program is 580 per HUD lending guidelines
- A lender with no overlays and that go strictly by DU FINDINGS of approve eligible will approve you for a 3.5% down payment FHA loan
- This holds true as long as borrowers meet the rest of HUD Guidelines
- However, most banks have their own overlay on credit scores
- Even though FHA may require 580, banks can have overlays on credit scores where they require 640 credit scores
Lenders With No Overlays
There are direct mortgage lenders with no overlays where they will just go off Automated Underwriting System Approval Findings. However, most banks and mortgage companies has lender overlays on the following:
- Credit Scores
- Debt To Income Ratio
- Collections And Charge Offs
- Credit Tradelines
- Overlays On FHA Loans During And After Chapter 13 Bankruptcy
The Gustan Cho Team at Loan Cabin Inc. is a direct lender with no overlays on government and conventional loans.
Reasons For Mortgage Denial From Bank
A mortgage borrower should never get a mortgage denial from bank or stress during the mortgage process. The main reason for last minute mortgage denial from bank or stress during mortgage process is because borrowers were not properly qualified. A loan officer should not sign off on a pre-approval letter. All of our pre-approvals at Gustan Cho Associates at Loan Cabin Inc. are fully underwritten TBD Property Underwriting Approvals and signed of by our mortgage underwriters.
- Also, many borrowers get mortgage denial from bank because most bankers require no late payments after bankruptcy or foreclosure
- Other reasons borrowers get denial from bank is because they do not have enough credit tradelines and no rental verification
- Not having two continuous years of employment is another reason for mortgage denial from bank
- All the reasons I have given above are examples of overlays
- That does not mean every bank has these overlays
- Most of the banks that I know of do have them
- Another example of mortgage denial from bank is that most banks want to see borrowers with no open collections
- Open collections is not a FHA mortgage lending guideline
- Borrowers can still qualify and get a mortgage approval with open collections
- Another thing you need to be aware of is that paying off an open collection will severely drop your credit scores
Seek Other Lenders If Mortgage Denied From Bank
Borrowers who got a mortgage denial from bank or other mortgage company with overlays, please contact us anytime 7 days a week at The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. We close 100% of all of our pre-approvals because all of our pre-approvals are fully underwritten and signed of by our mortgage underwriters.