How To Avoid Mortgage Loan Denial By Underwriters

How To Avoid Mortgage Loan Denial By Underwriters

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover and discuss how to avoid mortgage loan denial by mortgage underwriters. Homebuyers depend and rely on a mortgage pre-approval by their lenders.  Once they get a written pre-approval letter from a mortgage lender, buyers then go shopping for a home and enter into a real estate purchase contract on a home. They already have completed a mortgage application. Their credit has been checked. They supplied documents such as two years tax returns, two years W-2s, two months bank statements, and other required mortgage documents. The mortgage loan originator most likely got a Fannie Mae Automated Underwriting System DU approval and everything seems like a go. However,  during the underwriting process, their mortgage loan gets a mortgage loan denial. What went wrong?

Reasons For Mortgage Loan Denial By Underwriters

Every mortgage loan originator has their own style in how they originate and qualify the borrower’s mortgage loan application. The main reason for a mortgage loan denial is due to the fact that the borrower was not properly qualified. There are two types of mortgage guidelines. Federal mortgage guidelines by FHA, VA, USDA, Fannie Mae, Freddie Mac. Mortgage Lender Overlays by individual lenders. Automated Underwriting System Approval is required on all mortgage files unless it is a manually underwritten borrower. However, most lenders have lender overlays, and just because borrowers pass AUS does not mean that the particular lender can do the loan.

Lender Overlays Versus Agency Mortgage Guidelines

Gustan Cho Associates is licensed in multiple states and has no lender overlays on government and conventional loans. We just go off AUS Findings. Unfortunately, not all lenders just go off AUS. The team at Gustan Cho Associates knows that we can get the mortgage loan processed, underwritten, and clear to close and closed with just an Automated Underwriting System Approval.

Over 75% of Our Borrowers at Gustan Cho Associates are Folks Who Could Not Qualify at Other Mortgage Companies

Over 75% of Our Borrowers at Gustan Cho Associates are Folks Who Could Not Qualify at Other Mortgage Companies

Unfortunately, most lenders have their own lender overlays which surpass Fannie Mae’s Automated Underwriting System approval and during the mortgage underwriting process, a mortgage loan denial is possible due to overlays. Over 75% of our borrowers at Gustan Cho Associates are mortgage applicants who have gotten denied by other lenders. The way the team at Gustan Cho Associates qualifies our borrowers who have challenged credit is to go over their case scenarios with a mortgage underwriter and cover every possible hurdle.

Importance of Solid Pre-Approval Letter

All of our pre-approvals are fully underwritten and are a full credit loan approval signed off by our underwriters. One of the main reasons for a possible mortgage loan denial is if the borrower has a high debt to income ratio where every additional income can get the borrower over the maximum allowable debt to income ratios

Here Are Possible Reasons For Mortgage Loan Denial

Here Are Possible Reasons For Mortgage Loan Denial

There are many reasons for a last-minute mortgage loan denial. Maximum debt to income ratios allowable for FHA loans is 46.9% front end and 56.9% DTI back end to get an AUS approval. If the borrower barely meets the required debt to income ratios and there are any additional expenses, it will disqualify the mortgage loan borrower and will trigger a mortgage loan denial per AUS. Most lenders have overlays on debt-to-income ratios.

Examples of reasons for mortgage loan denial are the following:

  • Additional expenses incurred due to the interest rates have gone up
  • The insurance premium is higher than expected
  • Homeowners association fees were not calculated corrected
  • Flood insurance is required
  • Other income cannot be used
  • Borrower applied for additional credit cards and did not tell the lender about it
  • Borrower maximized their credit cards so monthly payments increase
  • Borrowers purchased or traded in their vehicles
  • Borrower changed jobs
  • The borrower had a recent overdraft
  • Borrowers forget to pay their bills on time
  • Another reason for mortgage loan denial is the lender cannot verify the down payment
  • This is because the borrower has used it or funds in banking account cannot be sourced

What To Do If Mortgage Loan Denial?

Borrowers who have been denied by a bank, credit union, or mortgage banker, find out what the reason was. Not all lenders have the same mortgage guidelines. Most lenders have lender overlays. Gustan Cho Associates does not have any overlays on government and conventional loans. If borrowers meet the federal mortgage guidelines but got mortgage loan denial due to lender overlays, the option is to go to a different mortgage lender with no overlays. Borrowers who are working with a mortgage lender with overlays and need a direct lender with no overlays on government and conventional loans, please contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays. As mentioned earlier, over 75% of our borrowers are folks who have been denied a mortgage loan by another lender or are stressing over their mortgage process due to their overlays.

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