Mortgage Denied After Pre-Approval By Underwriters

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Reasons Why Mortgage Denied After Pre-Approval By Underwriters Was UPDATED On April 17th, 2019

Why Mortgage Denied After Pre-Approval By Underwriters

Qualifying for a residential mortgage loan today is different than it was a few years ago.

  • There is no reason why mortgage denied after pre-approval
  • Getting mortgage denied after pre-approval causes stress not just to home buyers, but home sellers and their families
  • As long as the loan officer does their due diligence and qualifies borrowers correctly, there is no reason for mortgage denied after pre-approval
  • Loan officers need to understand both the federal guidelines as well as their company’s lender overlays
  • The number one reason of mortgage denied after pre-approval is because loan officers issued pre-approval to borrowers without properly qualifying borrowers
  • A loan officer should not sign off on a pre-approval letter
  • All pre-approvals at Gustan Cho Associates are fully underwritten and signed off by our mortgage underwriters
  • All of our pre-approval close because they are full credit approvals signed off by our underwriters

All of our mortgage pre-approvals at Gustan Cho Associates are full TBD PROPERTY UNDERWRITING APPROVALS .This is the reason we close 100% of all of our pre-approvals

Qualifying For Home Loans Today

Qualifying For Home Loans Today

After the historical real estate and credit meltdown of 2008, the whole mortgage industry went through a major overhaul.  Fannie Mae, Freddie Mac, FHA, VA, USDA, and portfolio mortgage lenders set up new mortgage lending guidelines.

  • New government minimum mortgage lending guidelines were implemented
  • Thousands of mortgage lenders have closed their doors
  • Many mortgage lenders that survived the Great Recession of 2008 looked for more ways of not to do a loan than trying to make the loan work
  • Millions of folks were forced to file bankruptcy or go through a foreclosure due to the loss of their business or jobs
  • Entire industries were almost wiped out
  • Some industries wen extinct due to the Great Recession of 2008
  • Many mortgage loan programs such as no doc and stated income mortgage loan programs were completed shut down
  • However, NON-QM Loans have come back in full force recently
  • Bank Statement Mortgages for self-employed borrowers are now very popular and was launched last year
  • Income, credit, and debt to income ratios are the three most important factors in determining whether or not you qualify for a mortgage loan
  • Just because borrowers do not qualify for a mortgage with one lender does not mean that they do not qualify with a different lender with no mortgage overlays
  • I will explain to you in a later paragraph why other lenders will qualify borrowers for a mortgage when others cannot

Minimum Mortgage Lending Guidelines

what is the Minimum Mortgage Lending Guidelines

There are two types of mortgage lending guidelines.

  •  The first is the minimum mortgage lending guidelines set by Fannie Mae, Freddie Mac, VA, USDA, and HUD ( For FHA loans)
  • The second type of mortgage guidelines are called mortgage lender overlays
    • Mortgage Overlays are lending guidelines which surpass the minimum federal lending guidelines and vary from mortgage lender to lender
  • Lenders can set much tougher lending requirements or overlays than the minimum required
  • Many borrowers are told that they do not qualify for a mortgage
  • This is not because they do not meet federal minimum mortgage guidelines but because of  lender’s overlays set by the particular mortgage company
  • Unfortunately, many lenders that tell borrowers that they do not qualify for a home loan is not due to the federal minimum guidelines but because of their own mortgage overlays
  • Borrowers told they do not qualify for a mortgage by a particular lender, find out why.
  • If it because of their overlays, then there are lenders with no overlays like Gustan Cho Associates
  • Is it because not meeting federal guidelines or is it because of the mortgage company’s internal overlays

Federal Guidelines Compared To Lender Overlays

what is the Federal Guidelines Compared To Lender Overlays

We will use a few examples why so many borrowers are told they do not qualify for home loans.

  • Minimum credit score requirement for FHA Loan: 
    • Minimum credit scores to qualify for a 3.5% down payment
    • FHA minimum credit score requirements under federal guidelines imposed by HUD is 580
    • Many lenders, especially banks, require a minimum credit score of 640 even though HUD only requires 580
    • This is due to their overlays on credit scores
    • If borrowers are told they do not qualify for a mortgage due to having credit scores under 640, then go elsewhere where lenders do not have overlays on credit scores
    • There are plenty of mortgage companies with lender overlays that will welcome under 600 credit score borrowers
  • Debt to income ratio requirement for FHA Loan: 
    • Maximum debt to income ratios allowed by HUD to get approve/eligible per AUS on FHA loans is 46.9% front end DTI and 56.9% back end DTI
    • Many lenders will have overlays on debt to income ratios
    • Many lenders, especially banks, will cap the back end debt to income ratios to 45% DTI
    • Some will go as low as 43% or lower depending on the mortgage lender
    • Borrowers told they do not qualify for a mortgage due to high debt to income ratios, go elsewhere
    • There are plenty of lenders with no overlays that will be ecstatic to have the business
  • Collection accounts: 
    • HUD does not require borrowers to pay off the old collection and charged off accounts
    • Borrowers can still qualify for a FHA Loans without having to pay off old collection accounts with balances
    • However, many lenders will require that collection and charged off accounts be paid
    • However, FHA does count 5% of the unpaid collection balance as a monthly liability
    • It will count is as a monthly expense when calculating debt to income ratios
    • This is only on non-medical collection accounts with balances greater than $2,000
    • Medical collection accounts with credit balances are exempt from this rule
    • Borrowers told they need to pay off all of collection account balances or get denied for a mortgage loan due to unpaid collection accounts, then go elsewhere
    • Paying outstanding collections and charged off accounts is not required by HUD
    • There are banks where they will not even look at borrowers with collection accounts, whether is paid or unpaid, in the previous 4 years
  • Conventional loans: 
    • Minimum credit score requirements to qualify for a conventional loan is 620
    • However, many lenders will not accept any conventional mortgage loan applicants with credit scores under 680 as part of their lender overlays
  • Gaps in employment: 
    • Many lenders, especially banks and credit unions, will require borrowers to be employed with the same company for at least two years
    • They also do not allow gaps in employment in the past two years
    • This is not a Fannie Mae nor a HUD mortgage lending guideline
    • Borrowers can have gaps in employment and still qualify for a mortgage loan
    • Borrowers who have been unemployed for six months or less and get a new job, then 30 day pay check stubs will be required in order for you to close a mortgage loan
    • A verification of employment will also be required to make sure that the likelihood of continuous employment is likely

Overlays On Gaps In Employment

What is the Overlays On Gaps In Employment

One of the big reasons for mortgage denial after pre-approval by some lenders is that they have overlays in employment gaps. Some lenders will average two years of income when many times it is not necessary. Other lenders do not allow gaps in employment by borrowers:

  • If borrowers has been unemployed or not working for six or more months, federal mortgage guidelines require that they be employed full time for a period of six or more months before they can qualify
  • The can have been out of work for a year or more but as long as they have been employed in a full time job for 6 or more months, they will be eligible to qualify for a mortgage loan
  • All mortgage applicant needs to provide a 2 year work history
  • If a mortgage loan applicant has been employed in a new job for six months and have been unemployed for two years, they need to provide one and one half years of job history prior to the time before their unemployment status started so the mortgage lender has a two year job history
  • A two year residential history is required as well

Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders or gotten a mortgage denial after pre-approval. We have no overlays on government and conventional loans. All of our pre-approvals are full credit loan commitments that is fully underwritten and signed off by our mortgage underwriters. We are experts in helping borrowers with under 600 credit scores and manual underwriting. Borrowers who gotten mortgage denial after pre-approval can easily transfer their FHA and/or VA Home Appraisals so they are not stuck with another appraisal fee. Borrowers who gotten their Mortgage Denied After Pre-Approval, please contact us so we can help. There should be no reason for a Mortgage Denied After Pre-Approval. The main reason for a Mortgage Denied After Pre-Approval is due to the loan officer not properly qualifying the borrower initially.

This BLOG On Mortgage Denied After Pre-Approval Was UPDATED On April 17th, 2019

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