Examples Of When Things Go Wrong During Mortgage Process
Solutions To When Things Go Wrong During Mortgage Process
The mortgage process can be a very stressful process, especially for mortgage loan borrowers with credit issues and/or higher debt to income ratios. Every mortgage loan application is different than one another and some mortgage files can be tricky. The pre-approval stage of the mortgage loan application process is the most important phase and when things go wrong during mortgage process is because the mortgage loan applicant and the mortgage loan application was not properly qualified in the pre-approval process. FHA Loans are the most popular mortgage loans today and FHA have extremely loose guidelines when it comes to FHA mortgage lending guidelines for borrowers with open outstanding unpaid collection accounts, borrowers with prior bad credit, borrowers with prior bankruptcy, borrowers with prior foreclosures, borrowers with prior short sales, borrowers with prior deed in lieu of foreclosures, borrowers with tax liens, borrowers with charge off accounts, and borrowers with judgments. Minimum FHA credit score Requirements to qualify for a 3.5% down payment FHA insured mortgage loan is 580 FICO. However, just because you meet the minimum credit scores and debt to income ratio requirements does not mean that your FHA Loan approval is a slam dunk. We will discuss on examples of when things go wrong during mortgage process on this article and ways of avoiding things from going wrong during the mortgage loan process.
When Things Go Wrong During Mortgage Process: High Debt To Income Ratio Borrowers
One of the main reasons for a last minute loan denial by mortgage lenders is because the mortgage loan borrower exceeds the maximum debt to income ratio limits. Maximum debt to income ratio caps on conventional loans is capped at 45% DTI and the maximum debt to income ratio caps on FHA Loans is 56.9% DTI on mortgage loan borrowers with credit scores of 620 FICO credit scores or higher. FHA borrowers with credit scores of under 620 FICO, the maximum debt to income ratio caps is at 43% DTI. Home buyers who barely meet the debt to income ratio caps when they are issued a pre approval letter run into a risk of a mortgage loan denial if they exceed the debt to income ratio cap during the mortgage process. For example, if a home buyer gets a homeowners insurance quote when he first qualifies for a mortgage loan and has very high debt to income ratios and if the homeowners insurance premiums is higher than originally quoted, they may surpass the debt to income ratio limits where they no longer qualify for a mortgage loan.
If the mortgage loan borrowers have high debt to income ratios, the mortgage loan originator needs to make sure that all of their credit cards are paid down prior to submitting the mortgage loan. If the borrower exceeds the debt to income ratio limits during the mortgage approval process due to higher than expected costs such as higher than expected homeowners insurance or needing flood insurance and needs to pay off credit cards, the credit cards will not only have to be paid off but the credit card accounts needs to be closed and reflected on the borrower’s credit report.
When Things Go Wrong During Mortgage Process: Foreclosures
Another common reason for last minute mortgage loan denials is due to the mortgage loan originator not researching the mandatory waiting period after foreclosure. Mortgage loan officers needs to make sure that the minimum mandatory waiting period has been met after a foreclosure or deed in lieu of foreclosure. You cannot just go off the credit report because credit reports do contain errors. The three year mandatory waiting period after foreclosure and/or deed in lieu of foreclosure to qualify for a FHA Loan starts from the date of the sheriff’s sale and/or date when the deed of the property was transferred out of the homeowners name into the name of the lender. The date when the homeowner surrendered the keys and the property is not the waiting period start date. The waiting period start date is the date that the foreclosure is recorded on the recorder of deeds office of the county. Not having the correct waiting period start date is one of the most common things that can go wrong during the mortgage process where it can lead to a mortgage loan denial . Again, just reviewing the income docs and credit scores is not enough when pre-qualifying and pre-approving the mortgage loan borrower. Mortgage loan originators need to carefully analyze the mortgage loan borrower’s credit report and look for derogatory information and public records, especially prior foreclosures.
When Things Go Wrong During Mortgage Process: Credit Disputes
Mortgage loan borrowers cannot have credit disputes on charge off accounts and non-medical collection accounts with an aggregate of outstanding unpaid balances of $2,000 or more. If a mortgage loan underwriter sees that are credit disputes on non-medical collection accounts with balances and charge off accounts, then the mortgage loan file is automatically placed on suspense. The mortgage loan borrower needs to retract the credit disputes in order for the mortgage approval process to get out of suspension and proceed with the mortgage process. However, if you retract credit disputes, the chances are that the credit scores will drop. This will create major issues for borrower who barely meet the minimum credit score requirements to qualify for a mortgage loan. If the credit scores drops below the minimum credit score requirements, the mortgage loan borrower will no longer qualify for the mortgage loan which will lead to a mortgage loan denial. Again, credit disputes should be carefully reviewed during the mortgage loan qualification and mortgage loan pre-approval process.