October 05th, 2016
Just Because You Received A Denial Does Not Mean You Cannot Be Approved.
More than 75% percent of mortgage applicants today successfully get a loan. That is the highest percentage this decade according to software provider Ellie Mae, but what about the other 25%? There are applicants that will be turned down however that usually means “not now” or “try again” instead of “no.”
The key is to know why you were turned down. More importantly, is there another way you can be approved?
Here are some reasons you may not have received a mortgage approval even if you meet the mortgage program’s requirements and what to do about it.
Go From "Eligible" To "Approved"
Even though you meet mortgage program guidelines you may still be turned down.
For example, Fannie Mae will allow applicants with FICO scores as low as 620 and debt to income ratios as high as 45%.
FHA allows loans with FICO scores as low as 580 and debt to income ratios between 43% and 50% and in certain cases higher.
Although the applicant meets these guidelines, they may not receive a loan approval. Conforming to "by the book guidelines" is no guarantee and there is still an underwriters judgment call that takes place, and here is why:
Imagine if lenders approved each and every loan that came across their desks. That would not be good for the lender and additionally could potentially hurt the mortgage applicant as well.
Approving a loan for which the loan applicant cannot pay back puts him or her in a worse financial position as opposed to never owning a home.
Lenders would like to see every “eligible” borrower approved however they will not sign off unless they are convinced the future homeowner demonstrates the ability to pay back the loan.
Small Changes, Big Impact
Most lenders approve or turn down a loan based on an Automated Underwriting System or AUS software that weighs all factors of your loan profile. Fannie Mae's version is called Desktop Originator and Freddie Mac's is Loan Prospector.
The algorithms are not always predictable and, in fact, a small tweak or change to your loan profile can move you to “approved” status.
For example, one applicant might have perfect credit, a higher than normal debt to income ratio, and a very minimal down payment. In this scenario, he does not receive an approval.
However with certain changes, one where the borrower pays off the credit card with a high monthly payment, will improve his debt to income ratio and in turn result in a loan approval.
Consider the following changes if you are looking to get your loan approved:
You could be surprised at what a seemingly small change can do to your approval status.
Compensating Factors are Key
You may get a pass for a less than desirable credit score however a low credit score combined with a high debt to income ratio will most likely not be approved.
When lenders approve loans with certain elements of risk, they like to see an accompanying compensating factor or a positive aspect of the loan file that makes up for, or offsets the not so great part.
For instance, a low credit score can be offset by high income and low debt to income ratio. In certain circumstances, lending limits can be stretched, but only so far.
Know Why Lender Overlays Exist
Sometimes mortgage lenders impose stricter rules than those dictated by Fannie Mae, Freddie Mac or government loan programs. These rules or “lender overlays” are implemented to help lenders keep their default rates low.
For example, a mortgage lender opens a loan and the homeowner soon misses payments, and eventually the loan goes into foreclosure. Fannie Mae or whichever agency the loan is sold to can impose penalties on the lender if it finds the lender made a processing or underwriting error.
As a result the lender imposes overlays to reduce risk and to help ensure they deliver "performing" loans to the respective investors.
Increase Your Approval Chances
There are ways to increase your odds of approval.
First, work with a reputable and knowledgeable mortgage loan originator like myself. I am happy to evaluate your income, assets and credit score and will explain each available loan program
Make sure to call me and get get qualified before property shopping. This is one of the number one ways to minimize disappointment. I can be reached direct at 303.668.3350.
Also, in prequalifiying you can evaluate beforehand any issue or obstacles and determine how to correct these obstacles before finding a property.
If you are already prequalified, great! I cannot stress to you enough, do not change a thing! Delay applying for new credit, changing jobs, moving money around, switching loan programs, or choosing a more expensive property. Once you are prequalified it is important that each of these factors remains constant.
What are today's rates?
Mortgage rates are at all time lows which makes it easier to get approved. Low rates mean reduced payments and helps the lender to better justify your approval status.
Get a rate quote, and see how low your payment can be! Call me today, 303.668.3350!
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Nations Reliable Lending, LLC
Colorado's Mortgage Expert
NMLS: 253799 / NRL NMLS: 181407
Regulated by the Division of Real Estate
Scott Synovic is a top performing mortgage loan originator providing superior levels of service and satisfaction to clients and business partners in Colorado - www.scottsynovic.com NMLS #253799 Fairway Independent Mortgage Corporation #2289
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