Home Loan Denial And Steps To Get Approval With Another Lender

In this blog, we will discuss and cover actions to take if you get a home loan denial and steps to get approved by another mortgage lender. Not all mortgage lenders have the same lending requirements on FHA, VA, USDA, and Conventional loans. All lenders need to make sure their borrowers meet the minimum agency mortgage guidelines. However, most lenders have higher lending standards called lender overlays.

What Are Lender Overlays

Overlays are additional mortgage guidelines that are imposed by individual lenders that are above and beyond the minimum agency guidelines. Therefore, just because a borrower cannot qualify for an FHA loan at one lender does not mean another lender without lender overlays cannot qualify the same borrower. Gustan Cho Associates is one of the very few lenders licensed in multiple states with no lender overlays on government and conventional loans.

Options For Borrowers Who Have Gotten A Home Loan Denial

Solution To A Home Loan Denial: There is no reason why any borrowers should get a home loan denial and/or stress during the mortgage process. The main and number one reason for a home loan denial by a mortgage underwriter is that the borrower was not properly qualified. One of the biggest issues we have in the mortgage industry is that loan officers issue pre-approval letters without fully qualifying borrowers. Homebuyers trust their loan officers and lenders and rely on the pre-approval letter and its validity of it. Armed with the pre-approval letter, home buyers hire real estate agents and enter into a home purchase contract

They make arrangements in moving as follows:

• Enter into a real estate contract
• Pay sellers side earnest money
• Pay for a home inspection
• Pay for a home appraisal
• Change address with the U.S. Postal Service
• Pack belongings and sell clutter
• Enroll children in the new school and terminate enrollment with the current school. Homebuyers and realtors trust their loan officers are competent and the pre-approval letter is very solid. However, things do go wrong because some loan officers issue pre-approval letters without properly qualifying borrowers.

Who Issues Morgage Pre-Approvals

Home Buyers get  pre-approved for a residential mortgage loan by a loan officer who represents the following:

• Bank
• Credit Union
• Mortgage Banker
• Mortgage Broker

However, not all loan officers are created equal. Like other professions, you have the best of the best loan officers and the lazy incompetent ones. It is very important to vett a loan officer.

Mortgage Process

Home Buyers need a pre-approval from a mortgage lender or a mortgage broker in order to start shopping for a home purchase. A pre-approval means that a borrower has been fully qualified for a particular loan program. Home Buyers, Sellers, realtors all are under the assumption that a pre-approval letter is a go-ahead and green light to enter into a real estate purchase contract the home buyer will close. Unfortunately, there are pre-approval letters issued by loan officers in a hurry where the borrower is not fully qualified.

Main Reason For Mortgage Denial By Underwriters

Issuing pre-approval letters without fully qualifying a borrower is the main reason for a mortgage home loan denial and stress during the mortgage process. A pre-approval letter should only be issued after the borrower is fully qualified and is going to close the loan. There is no reason for the last-minute loan denial and/or stress during the mortgage process if the borrower has a solid pre-approval.

Home Buying Process

This is how the home buying and mortgage process works:

• Once they enter into a purchase contract, the buyer submits it to their loan officer
• Since the loan officer already pre-approved the homebuyer, the loan officer will just get updated docs and assign the file to a mortgage processor
• The processor then processes the loan and gets it ready to submit it to the lender’s mortgage underwriting department

A mortgage underwriting gets assigned to the file and the borrower gets denied for a home loan after going through the mortgage approval process.

Reason For Mortgage Denial After Conditional Loan Approval

Why did the borrower go through the underwriting process and get a mortgage loan denial?

• What happened? 
• What do you do? 
• What is your next step?

According to statistics by the MBA, Mortgage Bankers Association, 30% of all purchase mortgage loans are denied and about 50% of all refinance mortgage applications get a mortgage loan denial. This is not the case with Gustan Cho Associates because all of our pre-approvals are full credit loan approvals that are fully underwritten and signed off by our mortgage underwriters.

Solutions To Home Loan Denial

In the event borrowers get a mortgage loan denial, it is not the end of the world. Not all mortgage lenders have the same mortgage lending requirements on government and conventional loans. Most lenders have overlays on government and conventional loans. Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. There is a reason why the banker, credit union, mortgage banker, or mortgage broker decided to proceed with the mortgage application process. The chances are borrowers get an automated approval via Fannie Mae’s Automated Underwriting System. Many borrowers get mortgage loan denial due to to overlays and the loan officer made a mistake in not knowing all of their company’s overlays. Just because a lender does not approve borrowers does not mean that they do not qualify for a mortgage loan.

Over 75% of Our Clients at Gustan Cho Associates Could Not Qualify at Other Mortgage Lenders

Over 75% of our borrowers are folks who have gotten a mortgage loan denial by other lenders due to the other lender not properly qualifying the borrower. All of our mortgage applications that get pre-approved are because all of our borrowers go through the full mortgage underwriting process. Our pre-approvals are full conditional loan approvals and are signed off by our underwriters. As long as the mortgage loan borrower gets an approved/eligible per DU FINDINGS and can satisfy AUS conditions, Gustan Cho Associates will close the loan. We are a mortgage company licensed in multiple states with no lender overlays just go off AUS Findings.

Why Did I Get Home Loan Denial?

Mortgage Borrowers who got a home loan denial should find out the reason or reasons why the mortgage lender denied the mortgage loan. Was it because of their overlays? Or was it because the mortgage applicant did something wrong like missed a credit card payment, quit their job, bought a car, or maxed out credit cards during the mortgage process. Did borrowers have credit disputes on credit report?

Removing Credit Disputes Will Drop Credit Scores

Retracting credit disputes can drop borrowers’ credit scores significantly There is a fix for everything and we can help borrowers get a mortgage loan approval. Getting us the reason for the home loan denial by the borrower’s previous lender will help save us time to find a solution to get borrowers approved the second time around.

Some Reasons For Home Loan Denial

There are many reasons why a lender will get you a home loan denial. One of the common reasons of mortgage home loan denial can be due to high debt to income ratios. If the mortgage loan originator did not lock the mortgage rate, a spike in interest rates can automatically disqualify higher DTI borrowers due going over the DTI cap required. Back End FHA debt to income ratios at 56.9% with lenders with no mortgage lender overlays.

Buying Down Rates With Discount Points

Another way we can solve borrowers with higher debt-to-income ratios is by buying down the rate. Adding non-occupied co-borrowers is another solution for higher debt to income ratio borrowers. Other reasons for mortgage loan denial is where the borrower has maxed out their credit card. When the lender does a soft pull prior to issuing a clear to close, the borrower’s credit scores plummet and debt to income ratios goes above the maximum allowed.

Other Reasons Why Loans Cannot Get Approved And Closed

Other reasons are when the borrower is the following:

• Cannot get a Verification of Employment for overtime income
• Cannot produce the proper documents requested by the mortgage underwriter
• Cannot source the down payment
• Has recently bounced a check, has a recent late payment
• Just got sued
• Dozens of other reasons

Again, there are fixes for everything so do not be discouraged in the event of a mortgage loan denial.  Borrowers who got a mortgage loan denial, please contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.