1. Home loans are getting harder than ever to try to close nowadays with all of the changes going on in the mortgage industry. During the refinance boom years of 2002-2007 everybody could get approved on some kind of loan for the most part. Even if you tried to get approved on a normal conventional kind of home loan and could not get approved you could always fall back on a no income no asset loan (NINA) to close the loan. This loan was considered a sub-prime loan and came with higher interest rates but at least it could close.
2. By the time a home loan gets sent down to underwriting a mortgage banker or mortgage broker should already know whether or not your loan is going to get approved or denied. The majority of times your home loan will be approved from the second you talk to your mortgage banker. They will tell you just from looking at your qualifying factors if it is going to get approved or not. Most of the times if your home loan application gets sent to the underwriters and it gets denied its because the mortgage banker is inexperienced and does not know what they are doing.
3. There are four main reasons why your mortgage will get denied. You do not have enough income, you do not have enough assets, your credit score stinks, and the appraisal on the home is low. With the way home prices have been dropping lately around the country, many mortgage companies cannot do anything because of the appraisal issue. If you owe more than what your house is worth, the loan is instantly denied unless you can come to closing with cash to pay down the loan. This never happens because most people are looking to refinance their home to take cash out or to lock in their interest rate because they cannot afford the new payment on their adjustable rate mortgage.
4. There are two types of home loans used by mortgage companies. There are the manually underwritten loans and the desktop underwritten loans (DU). The difference between the two is pretty simple. A manually underwritten loan has guidelines that must be met. For instance, your debt to income ratio (DTI) must be lower than 45%, you must have at least 3 months worth of assets in a bank statement, been at your job for two straight years, credit score over 660, and no higher than 90% loan to value (LTV). On a desktop underwritten loan you could have a debt to income ratio of 52%, 1 month of reserves in a bank account, 90% LTV, and a 770 credit score. The computer (DU) will look at your compensating factors and will determine if you are a good risk to do a loan for. Even though your qualifying factors do not match up with the first scenario, you have a high credit score which makes up for the other low factors. A 30 year fixed rate mortgage has relatively the same interest rates between the two. Its just that sometimes the mortgage company can close a loan with one and not the other. Nothing for you to worry about, its just an out that the mortgage company has in case one gets denied.
5. The mortgage banker will send your information through the system and will know within a minute whether or not they have an approval for you or not. The system is connected to Fannie Mae so everything is fast. If they get an approval for you, you will be sent out the application documents that you must sign and send back along with whatever the computer asks back from you. This is when you have to be honest with the person asking you questions. If you send them back pay stubs that do not represent what you really make then your loan will get denied the second it hits the underwriters desk.
6. All that a underwriter really does is look at what was put in the system by the loan officer to get the approval. As soon as the loan officer sends down the application documents and the supporting documents, the underwriter gets to work. They make sure the client signed everything and start going over each document. The underwriters will put in everything that was sent to them and reinsert the exact figures from your pay stubs and assets statements. In some cases having 1% less income or 1 month less in reserves will be all it takes to get denied. After putting in the exact figures the system will alert the underwriter to whether or not you have an approval.
7. If the loan is approved then the appraiser is called to go out and value the home. This usually takes about 3 days to do between looking for comparables and coming to a true market value. After the appraiser is done, they send it back to the mortgage company. The underwriter gets the appraisal and puts whatever number the appraiser thinks its worth back into the equation. Let’s say the home comes in 5% lower than what the home owner thinks it was worth. The loan has to be put through the system again to try and get a approval. This is becoming the number one reason why loans are getting denied. The appraisal comes in light and it is beyond the mortgage companies guidelines. There is not much that the mortgage company can do here about the appraisal issue. Sometimes they will look at it and see if it is a good appraisal and maybe they will send out another appraiser out there. An appraisal is a persons opinion on what they think its worth. There are guidelines in place but sometimes those numbers can sway 2%-5% higher or lower on the value of the house and this is what it might take to close the home. If the second appraisal comes in low again and there is nowhere to go it might be time to look into some foreclosure advice.
8. During the three days the mortgage company is waiting for the appraisal to get back, more documents are coming back to the mortgage company. They have to find out whether or not there are any back taxes, if you have been at your job for as long as you say you have been, if you are the only person on the deed of the loan, and if there are any other liens on the property like a home equity line of credit. If they find out that you have any of these and did not tell them ahead of time the loan could get denied for any of these too. Property and income taxes must all be brought up to date. Liens on the property including collections, child support, alimony, etc. must be paid up too.
9. Depending on what company you are working with this could really make or break you. You will want to work with a company with a good reputation like Quicken Loans, Countrywide, Chase, and Bank Of America to name a few. Regardless of what you hear about these companies the majority of them put their mortgage bankers through training so they ask all of the right questions up front so there are no bumps along the road. The mortgage companies know that you want to have a great experience working with them so you would come back and refinance or buy another home with them in the future or refer your friends and family. There is nothing that a mortgage company hates doing more than having to call you back and say your loan was denied because of a fault of theirs or yours. Many mortgage companies make you pay up front for an appraisal and it is non-refundable. If the loan gets denied because the mortgage banker did not ask an important question then you might get your money back from them because of a mistake. If you told them the house was worth more and it came in lower than it is your fault.
10. Remember that the mortgage companies are in business to close loans, not to deny your loan. They want to do everything they can to give you the loan you want. This is kind of how the whole mortgage crisis started. The mortgage companies thought up the sub-prime loans that require no income and no asset verifications, no money down loans, loans up to 125% of the value of the home. Its crazy to think about how this came full circle on everybody so fast. From these reasons alone its easy to see that they want your business. Make sure you are upfront with the mortgage company and answer every question they ask. If you do this then you are protecting yourself from having your loan denied even if your appraisal comes in where you wanted it to come in at. Work with larger companies that close a lot of loans every month. They communicate faster with their clients if something goes wrong while in process. Don’t be mad if your loan gets denied while in underwriting. Most of the home loans mortgage companies are doing nowadays are all insured by Fannie Mae. If you get denied at one place it will probably happen at another.