Tips And Solutions When Mortgage Denied With Lender

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Tips And Solutions When Mortgage Denied With Lender

This BLOG On Tips And Solutions When Mortgage Denied With Lender Was UPDATED On April 9th, 2018

By Gustan Cho

First time home buyer or a seasoned home buyers need to choose a mortgage lender 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 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 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 their own mortgage lending guidelines called lender overlays
  • Overlays are additional guidelines set by 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 require 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 does 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 does 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, a 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 past 12 months is required on all manual underwrites
  • A bank may disqualify borrowers for having one or two overdrafts in bank statements in 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
  • The Gustan Cho Team 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 is 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 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 The Gustan Cho Team 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 262-716-8151 or text us for faster response. We are available 7 days a week, evenings, weekends, and holidays.

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