Mortgage Denied With Lender And Taking Next Steps To Get Approved

This BLOG On Mortgage Denied With Lender And Taking Next Steps To Get Approved Was UPDATED On April 25th, 2019

First time home buyer or seasoned home buyers need to choose a mortgage lender to qualify for home loans. Not all mortgage lenders have the same government and conventional loan requirements. All lenders need to meet minimum government and/or conventional mortgage guidelines, however, every lender can have higher requirements called overlays. Mortgage Overlays are additional mortgage guidelines imposed by each individual lender that is above and beyond government and conventional lending guidelines. Borrowers who got their mortgage denied with a lender can go to a different lender with no mortgage overlays and get their home loan approved.

Types Of Lenders

There are various types of mortgage lenders borrowers can get qualified for home loans. There are banks, credit unions, mortgage bankers, or mortgage brokers who originate government and conventional loans. If mortgage denied with lender, borrowers can go to a different lender and see if they can qualify.

First time home buyers need to educate themselves in mortgage basics
Many first time home buyers go to their local banks to qualify for home loans
Some get approved while others get Mortgage Denied With Lender
Just because borrowers get Mortgage Denied With Lender does not mean they will get qualify for a mortgage with different lender
Unfortunately, many first time home buyers who get Mortgage Denied With Lender think they cannot get a mortgage approval elsewhere

Lenders With Mortgage Overlays

Unfortunately, many banks do not recommend first time home buyers who get Mortgage Denied With Lender to other lenders:

The banker normally just tells them that they do not qualify due to certain reasons
Often times they do not give them any corrective measures where their Mortgage Denied With Lender will turn to a loan approval at another lender with no lender overlays
Every mortgage company, banks, credit unions, and mortgage bankers have their own lender overlays
They have their own guidelines on how they accept mortgage loan applications, how they process them, and how they underwrite them
There are lenders who are much more lenient than others
For example, most bankers and credit unions do not allow to correct a problem with high debt to income ratios
For example, if debt to income ratios exceed the maximum allowed by the lender, some lenders will deny the mortgage because exceeded the maximum allowed debt to income ratio cap
Other lenders will not deny the loan application but will give a borrower a chance to lower debt to income ratios
This can be done by either paying down credit cards or paying off a debt or even asking borrowers if they can get a non-occupant co-borrowers

Reasons Why Mortgage Denied With Lender

Over 75% of our borrowers at The Gustan Cho Team are folks who could not qualify at banks or other mortgage bankers or have gotten a loan denial.

Every bank has its own mortgage lending guidelines called lender overlays
Overlays are additional guidelines set by an individual lender that is on top of FHA, VA, USDA, or Fannie Mae’s minimum mortgage lending guidelines
These additional mortgage lending guidelines are called mortgage lender overlays
For example, minimum mortgage guidelines by the Federal Housing Administration to qualify for a 3.5% down payment FHA Loan is 580 credit scores
However, a bank requires 640 credit scores as part of their overlays
A 639 credit score will not qualify for FHA Loans has a 640 score overlays
Another example is that a bank may require collection accounts to be paid off
FHA guidelines do not require to have outstanding collections and/or charged off accounts to be paid off
A bank may require borrowers need verification of rent when Automated Underwriting System does not require it as part of the bank’s mortgage overlays
FHA and/or Fannie Mae guidelines do not require rental verification unless the FINDING on the Automated Underwriting System states so and on manual underwriting
Rental verification can be a mandatory lender overlay by certain banks and mortgage companies
Most banks do not allow borrowers to have any late payments or derogatory credit after prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
Again, late payment or derogatory credit after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale is allowed by FHA, VA, USDA, and/or Fannie Mae/Freddie Mac guidelines
A bank may require a cap on debt to income ratios such as no greater than a 45%
The maximum FHA back to end debt to income ratio cap on FHA loans is capped at 56.9% back end and 46.9% front end to get AUS Approval

Manual Underwriting Due To Mortgage Denied With Lender

Borrowers who got mortgage denied with lender due to getting a refer/eligible versus approve/eligible can get the loan downgraded to manual underwriting. Manual Underwriting is allowed with FHA and VA Loans.

Most banks do not do manual underwrites on VA and FHA Loans
Borrowers not getting an approve/eligible per DU FINDINGS or LP FINDINGS, need to seek lenders that entertain manual underwriting
Only refer/eligible per AUS Findings are eligible for manual underwriting
Rental Verification is required on all manual underwriting
Timely payments in the past 12 months are required on all manual underwrites
A bank may disqualify borrowers for having one or two overdrafts in bank statements in the past 12 months
This can be overlooked by more aggressive mortgage lenders
Borrowers seeking a home loan with bad credit, a bank may not be the best choice
Manual underwrites allows up to 50% DTI with compensating factors
Gustan Cho Associates have no mortgage overlays on government and conventional loans

Credit Unions

Many folks are members of credit unions. Credit Unions may be a great choice for members with good credit.

Again, as with banks, credit unions have overlays
For those with great credit and income and who are members of credit unions may see if they qualify at their credit unions
Credit unions take care of their members who qualify with their guidelines
Credit Unions can offer better terms and rates for their members
Advantages of credit unions are that it can be a one-stop shop for its credit union members
Credit unions not just offer mortgage loans but car loans, savings and checking accounts, and credit card accounts
They are similar to banks but are more lenient when it comes to mortgage guidelines
Credit Unions often have better terms and rates than banks do
Many credit unions do not offer FHA, VA, USDA, mortgage loans

Mortgage Bankers

Mortgage bankers are an excellent source for first time home buyers. However, every mortgage banking company may have different mortgage guidelines:

Mortgage bankers use their own money or a warehouse line of credit to fund mortgage loans to consumers
After funding, mortgage bankers sell their loans after they are done to originating to the secondary market
Again, mortgage bankers have their own mortgage lending guidelines
Mortgage bankers are normally less strict than banks and credit unions
Most banks and credit unions may require credit scores between 640 and 680
There are many mortgage bankers that will qualify borrowers with credit scores as low as 620
Each mortgage banker have their own mortgage guidelines
Just because borrowers get mortgage denied with a lender does not mean they cannot qualify with a different mortgage banker
There are mortgage bankers who are also mortgage brokers
This is the best of both worlds
Borrowers seeking a home loan with bad credit and a mortgage banker who cannot help because they do not meet their mortgage guidelines due to their overlays, mortgage banker can broker mortgage loan to another lender
Only a few mortgage bankers are both mortgage bankers with the ability to broker loans

What Are Mortgage Brokers?

First time home buyers or seasoned home buyers seeking a home loan with bad credit can hire mortgage brokers:

Mortgage brokers are not lenders
Brokers are middlemen between borrowers and f residential wholesale mortgage lenders
Mortgage brokers also have wholesale mortgage lenders that do not have mortgage lender overlays
Most wholesale lenders require a minimum of a 620 credit score but there are lenders who will fund 580 credit score borrowers
There are times where mortgage bankers cannot do a deal but can broker the deal to a wholesale lender

Lender With No Overlays

Over 75% of our borrowers who come to Gustan Cho Associates are folks who got mortgage denied with lender due to that lender overlays. We have no overlays on government and conventional loans.

Here are typical borrowers of The Gustan Cho Team:

FHA and/or VA Borrowers in a Chapter 13 Bankruptcy or recent Chapter 13 Bankruptcy discharge
- Most lenders require a two year waiting period after Chapter 13 Bankruptcy discharged date to qualify for VA and/or FHA Loans
Borrowers with outstanding collections and charged off accounts
- Most banks and mortgage bankers require charged offs and collection accounts paid off
VA Loans with higher debt to income ratios and under 600 credit scores
- VA does not have a minimum credit score or maximum debt to income ratio requirements
- Most banks and lenders want to see 620 credit scores and debt to income ratios no higher than 45%
- The Gustan Cho Team has ZERO OVERLAYS on VA Loans

Borrowers can contact us at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

Get Pre-Qualified Today By Contacting Us