Gustan Cho The Mortgage Expert,
Publish On: August 30, 2021
This Article Is About Special Mortgage Loan Programs After Loan Denial By Lender
There are times where borrowers go through stress during the mortgage process or get a last-minute loan denial.
- What do you do?
- Look for another lender?
- Give up?
There are solutions for quick mortgage approval and fast closing. There are lenders who can take another lender’s denial and make a two-week closing possible. In this article, we will cover and discuss Special Mortgage Loan Programs After Loan Denial By Lender.
Choosing Another Lender After Loan Denial
There is no reason for a borrower to get a last-minute mortgage loan denial or stress during the mortgage process. The only and sole reason for a last-minute mortgage loan denial or stress during the mortgage process is due to the loan officer not properly qualifying the borrower initially. There is no reason why a pre-approved borrower should not close. Mortgage borrowers need to qualify for mortgage loan programs by meeting certain credit, debt to income ratios, and other requirements.
There are various special mortgage loan programs for borrowers who get a last-minute mortgage loan denial by another lender. Or are stressing over the mortgage process and need to make a transfer to another lender. Each special mortgage loan program has its own mortgage guidelines. FHA and conventional mortgage loan programs are the two most popular mortgage loan programs in the United States. A pre-approval letter should not be issued to borrowers unless the borrower is fully qualified.
Credit Scores Versus Credit Payment History
Just because one meets the minimum credit score does not mean that they automatically meet credit requirements for mortgage approval. The minimum credit score requirement to qualify for 3.5% down payment FHA Loans is 580. There are times where a borrower may have credit scores of over 640 FICO and not get an approve/eligible per Automated Underwriting System This may be due to late payments in the past 12 months or periodic late payments.
The Automated Underwriting System will take credit scores as well as the overall payment history of the borrower into consideration when rendering a decision on an automated approval. Mortgage loans can close in two weeks with an approve/eligible as long as all the documentation is complete and the borrower already has an appraisal. A pre-approval letter should not be issued unless the borrower is fully qualified. Loan Officers should not just look at credit scores but thoroughly review the borrowers’ overall credit report. No pre-approval letter should be issued unless the loan officer gets an approve/eligible per Automated Underwriting System.
One Day Mortgage Loan Approval
There are special mortgage loan programs that lenders will offer and issue one-day mortgage loan approvals on files that have been transferred from another lender.
Mortgage Lender Overlays
Mortgage Lender Overlays are additional mortgage requirements set by each individual mortgage lender that is higher standards than the minimum set by FHA, VA, USDA, Fannie Mae, and/or Freddie Mac. For example, a lender may require borrowers to allow a 56.9% debt to income ratio for borrowers with 680 credit scores where HUD 56.9% back-end DTI for borrowers with 620 credit scores. The higher credit score of 680 is called a lender overlay by that lender.
FHA loans do allow open collections but borrowers need fair credit scores and timely payment history for the past 12 months. However, a lender may have overlays on collections and charge offs where they require the borrower to pay it off even though FHA does not require it. Rent verification may be required by lenders even though it is not HUD Guidelines. This is a lender overlay on VOR.
A Minimum of 3 credit trade lines may be required by lenders to qualify for FHA loans. Minimum credit tradeline requirements is not an FHA Guideline but rather a lender overlay by individual lenders. No overdrafts in the past 12 months are not permitted: This is not HUD Guidelines. A five-dollar overdraft from six or more months ago can mean a mortgage loan denial. Borrowers need to discuss overdraft issues with their loan officer prior to submitting the loan application and find out whether the lender has overlays on bank overdrafts.
Loan Officer needs to see if there are any loopholes in where the loan officer can not use the bank statements with overdrafts. If the lender has issues with overdrafts, then seek another lender with no overlays.
Prepare Complete Mortgage Documents On Special Mortgage Loan Programs
Borrowers who need to close a mortgage loan in two weeks or less need to cooperate with mortgage loan originators and submit all documents requested all at once and not piecemeal.
There are certain documents that will be required by the mortgage loan originator such as the following:
- Two years of tax returns
- Two months of bank statements
- Recent paycheck stubs
- Two year W2s
- Asset information
- IRA, 401K, and securities accounts
- Bankruptcy
- Divorce
- Foreclosure
- Child support
- Other financial and credit information
- Any delays in submitting these forms will cause delays in the underwriting process.
When providing these documents, make sure to submit every single page, including blank pages, or the underwriter will ask for these missing pages and that will cause a delay.
Rush Appraisal
The appraisal process normally takes a week or more. However, borrowers who got denied by a lender and are transferring their files to a different lender can also transfer their FHA Appraisal. The home appraisal is transferred when the FHA Case Number is transferred. Make sure that the home appraisal gets ordered as soon as possible if it has not been ordered. While the underwriter goes through the mortgage loan application, the appraisal can be worked on. After the appraisal is completed, the underwriter needs to review the appraisal and goes through an appraisal review by the lender which can take a day or two.
Clear To Close On Special Mortgage Loan Programs
Once all of the conditions asked by the underwriter have been met and the appraisal review has been signed off, the lender’s senior underwriter will issue a clear to close, CTC means the lender is ready to fund your mortgage loan. Loan Officer will make arrangements with the title company and arrange a proper mutually benefiting time for a closing where ownership and keys exchange hands.
Borrowers who have gotten a last-minute mortgage loan denial or are stressing with their current lender and need to transfer their mortgage loan to a direct lender with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
