After you get into contract for a home you intend to buy, your loan application will then be submitted to the lender for an underwritten approval. Underwriting is the process of verifying and analyzing the financial information the borrower has provided. The underwriter will also verify your income, assets, debt, credit, and the property. Even if a borrower is pre-approved, it is possible they may be denied during this process because of unforeseen changes or new information. However. Just because you did not qualify with one lender does not mean you cannot qualify with a different lender.Verify your mortgage eligibility (Feb 23rd, 2024)
3 common reasons mortgage loans are denied in underwriting
The credit score dropped
When a lender sees a low credit score, it can be a red flag that the borrower has trouble making on-time payments or handling the financial responsibilities of the loan. Your credit is usually pulled in the pre-approval process, but the lender will do another pull during the underwriting stage.
SolutionVerify your mortgage eligibility (Feb 23rd, 2024)
Finding a loan program that allows lower credit scores. For example, FHA loans require a minimum 590 FICO score.
The borrower acquired new debt
Debt-to-income (DTI) is a calculation that compares how much you owe to how much you earn. Taking on new debt during the loan process can increase your DTI ratio and could possibly put you over the allowable limit for the loan program.Verify your mortgage eligibility (Feb 23rd, 2024)
Hold off on big purchases or applying for new credit until after your mortgage closes. If you need to lower your DTI ratio during the loan process, you could possibly pay off some debt to qualify.
There was an appraisal issueVerify your mortgage eligibility (Feb 23rd, 2024)
The loan-to-value (LTV) ratio compares the amount of your mortgage with the appraisal value of the property. The LTV can change if the appraisal doesn’t come in at the expected value.
The borrower can ask the seller to reduce the sales price, or the borrower will need to bring additional funds to closing.
Although we may start to see the housing marketing begin to cool down in some areas, it’s important to always have an up-to-date pre-approval. Before making an offer, make sure to check in with your loan officer to confirm the loan and contract terms.