Loan Approval After Multiple Mortgage Denial By Lenders

Should I Give Up Applying After Multiple Mortgage Denial By Lenders?

The mortgage application process can be one of the most stressful process a home buyer will go through in their lifetime, especially for mortgage loan borrowers with less than perfect credit, low credit scores, open outstanding collection accounts, charge off accounts, prior bankruptcies, prior foreclosures, gaps in employment, or higher debt to income ratios. The first place home buyers will go to apply for a home loan is their local bank. Banks are not the only mortgage lenders where a home buyer can get a mortgage. There are mortgage companies such as mortgage brokers, mortgage bankers, and credit unions. Not all mortgage lenders have the same mortgage lending guidelines , which are requirements and standards by mortgage loan borrowers. Banks have one of the toughest lending requirements out of all mortgage lenders and most mortgage companies have mortgage lender overlays , which are additional lending requirements that is imposed by individual banks and mortgage lenders that is on top and addition to the minimum mortgage lending requirements set by FHA, USDA, VA, Fannie Mae, and Freddie Mac. Unfortunately, many mortgage loan applicants who go to their local bank to apply for a home loan and are told they do not qualify due to the bank’s lender overlays are not told that they may not qualify with the bank but they can qualify elsewhere. Many of these folks just take the word of the banker and do not bother shopping elsewhere to see if they qualify or not and give up in being a homeowner. However, there are many folks out there who will not take no for an answer and do their own research to look for ways of finding a mortgage lender who can get them a mortgage loan approval so they can have the dream of home ownership become a reality. Over 70% of my mortgage loan borrowers who close on their home purchase loans with me were borrowers who had multiple mortgage denial by lenders. I have the highest respect for these individuals who did not give up after multiple mortgage denial by lenders, and some of my clients had denials by more than a dozen mortgage lenders and still kept on looking and found me, whether through a referral or through the internet, and together we got them closed on their home purchase.

Reason For Multiple Mortgage Denial By Lenders

Not all mortgage lenders have the same qualification requirements. There are two types of mortgage lending requirements. The first and most important are the lending guidelines that are set by FHA, VA, USDA, Fannie Mae, and Freddie Mac. We will be discussing FHA Loans and Conventional Loans on this article since they are the two most popular mortgage loan programs. The second type of mortgage lending requirements are set by the individual banks and mortgage lenders, which is called mortgage lender overlays. All banks and mortgage lenders need to meet the minimum federal mortgage lending requirements for the individual mortgage loan program a borrower is applying for. However, not all mortgage lenders need to follow the minimum mortgage lending guidelines and can set tougher and additional standards and requirements on top of the minimum mortgage lending guidelines. For example, the Federal Housing Administration is a government agency that sets the standards for FHA Loans. FHA is not a mortgage company and does not originate or fund FHA Loans but what they do is insure FHA Loans against borrower default to FHA approved private banks and mortgage companies that originate and fund FHA Loans. In order for FHA to insure FHA Loans originated and funded by private banks and mortgage lenders against default, the private banks and mortgage lenders needs to follow all FHA Guidelines . FHA Guidelines on minimum credit score requirements is 580 FICO for a home buyer to qualify for a 3.5% down payment FHA Loan. However, even though the minimum credit score requirements is 580 FICO, most banks will not accept any FHA mortgage loan applicants who do not have credit scores of at least 640 FICO. The higher credit score requirement is called a FHA Lender Overlay On Credit Scores imposed by the bank. So, for a consumer who has studied FHA Guidelines and has saved up money for a down payment on a home and knows that his or her credit score is at least 580 FICO and goes to a bank to be told they do not qualify, can be discouraging. Then this home buyer will go to another mortgage company and get told that they do not qualify because their standards on credit score requirements are 620 FICO. This happens so many times and unfortunately, this happens to so many home buyers that many of them just give up. The good news is that there are mortgage lenders like myself that will only go by the minimum FHA Guidelines and do not have any mortgage lender overlays. A large percentage of my borrowers are Borrowers With Under 620 Credit Scores .

Another reason why many borrowers get multiple mortgage denial by lenders is due to high debt to income ratios. FHA Guidelines On Debt To Income Ratios allow a maximum debt to income ratio for mortgage loan borrowers with at least a 620 FICO Credit Score to be as high as 56.9% DTI.  However, most banks and mortgage companies have debt to income ratio overlays that cap it at 45% DTI.

Other common reasons why mortgage loan borrowers get denied or do not qualify for a home loan with banks and mortgage lenders is due to gaps in employment in the past two years. Banks and mortgage lenders want to see a solid two year employment history with the same employer by mortgage applicants and frown on those with employment gaps in the past two years. Mortgage lending guidelines allow for gaps in employment in the past two years and borrowers can qualify with gaps in employment in the past two years. If you have been unemployed for six or more months and just got a full time job, you need to have six months of employment history on your new full time job in order to qualify for a home loan. If you have been unemployed for less than six months and just got a new full time job, then you can qualify for a home loan after the start of your new full time job, however, you need to provide 30 days paycheck stubs before the mortgage underwriter will issue a clear to close.

Multiple Mortgage Denial By Lenders Due To Collection Accounts

Many people have gone through periods of bad credit due to extenuating circumstances such as unemployment, loss of business, changes in careers, divorce, medical reasons, or other reasons where it affected their credit. With FHA Loans, you do not have to pay off outstanding collection accounts and charge off accounts with balances. However, most banks and mortgage lenders will have mortgage lender overlays on collection accounts where they want it paid in full prior to taking your mortgage loan application. Many banks and mortgage lenders will not accept anyone who had any derogatory credit accounts and late payments in the past 24 months and some even want the paid collection accounts to be seasoned for at least two years before they will take you on board. If you have outstanding collection accounts and charge off accounts and are told that you do not qualify for a mortgage loan, please contact me at 262-716-8151 or email us at We have no mortgage lender overlays on collection accounts and charge off accounts with balances.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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