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Apr 2017

What Might Delay the Approval of My Loan?

We can all feel a little overwhelmed at times with the idea of entering the mortgage process. It can even seem somewhat daunting knowing how much you have to disclose for final approval on a home loan.

But with most everything in our lives, preparedness is key to making sure things get done well and in a timely manner — helping streamline the process. So by knowing what you need and educating yourself on the mortgage process, you can not only ensure you’re prepared, but also potentially prevent a delay or denial for approval on your home loan.

Before you learn what might cause any denials for approval, you’ll need to know about the mortgage process itself.

Mortgage process snapshot

There are a couple paths you can take to get a mortgage. You can meet with a real estate agent first to find the house of your dreams, then submit your application with an address. Doing so this way, you’ll ultimately find out if you’ll have the funds to afford that house after you’ve submitted an offer. Many agents require you to pre-qualify first so that they have a general idea of your price range.

Unfortunately, pre-qualifying isn’t a done deal. It doesn’t mean you’re guaranteed that amount. It’s based on what you’ve told your lender to be true, but it hasn’t been verified yet.

One possible outcome is that you end up not receiving an approval or it’s delayed after your application goes through the underwriting process because of omitted info, or maybe you simply overestimated your assets and income, etc. The other possible route, that’s not common with big banks but common for certain independent lenders like Atlantic Bay Mortgage Group®, is an upfront underwriting process. Your experience can be much more efficient in moving the loan process along and you’ll be more comfortable knowing how much home you can actually afford before you start your search.

Underwriting is the process of thoroughly evaluating your ability to repay the home loan.

So underwriters will dive deep into your financial information, such as your credit history, all of your assets, income, etc. to get a good understanding of your ability to repay the loan. The benefit of doing this upfront is that you’ll receive a conditional approval letter after the underwriter goes through all your information before you find a property. Your letter can help strengthen your offers on homes because it confirms that you’re shopping for homes at a price point you can actually afford. Not only does the process provide that, but it also allows you to look for homes within hours of meeting with your mortgage banker. Upfront underwriting is also something real estate agents would appreciate because it means they have a true understanding of your budget for a house. This way, you and your agent can confidently look at homes and focus more on whether or not the home suits your lifestyle instead of focusing and worrying about the budget.

Delays for approval

Regardless of which route you take, approvals and conditional approvals can be delayed if you don’t provide as much info as required. Mortgage bankers will work with you every step of the way and guide you through the mortgage process, but even then, sometimes the borrower’s error can cause some back-and-forth with documents; ultimately holding up the approval process. Here are the things that can commonly delay an approval and how you can prevent them:

1. Lack of employment info

It’s important to provide two years of employment history to show you have a steady income stream. Lenders will primarily look at your base pay, what shows up on your current pay stubs, W-2, or other tax filing forms from each year. Types of employment varies. For example, some individuals work off tips or commission mostly instead of salary.

Jobs that are tip- or commission-based might have a smaller base pay, so this would impact how lenders look at your income.

There are more individuals who do their own thing, work as freelancers, for example. When freelancing, filling out a W-9 form to receive a 1099 by tax season would be necessary to show your income sources. Also, keep taxes in mind. Although freelancing allows you to make a certain amount, a portion of it has to go towards income taxes — something that many people forget. So make sure to provide all the info needed to show all of your income sources over the course of the two previous years.

2. Improper assets or lack of info

Your primary checking account isn’t the only thing an underwriter looks at in terms of assets. So make sure to provide enough info about your assets, which could include your 401k, stocks and bonds, and any other bank accounts you may have. An underwriter needs to review all your assets to make sure that you have the right amount for your down payment, you’re able to pay closing costs, and you can afford paying your mortgage moving forward. Some homebuyers make the mistake of moving their assets around before they apply for a mortgage, which jeopardizes their chances at showing they have a clear savings pattern and are capable of paying off a mortgage.

3. Credit history uncertainties

If you know your credit score and history, you may be aware of possible red flags that a lender will ask you about. Being prepared helps here, as you can have the necessary explanation to dispute the red flags. But in more common cases, homebuyers don’t know the depth of their credit history and therefore, if red flags do come up, it may take extra time to dispute them.

In other cases, it simply turns out that the homebuyer’s credit score is too low, which could significantly delay the approval as it would require them to first improve their credit.

You can access a copy of your credit report up to 3 times a year for free from the 3 major credit bureaus.

This free credit report is a soft inquiry, meaning it won’t show up on your credit file, or affect your score in any way. So if you’re in a less desirable range, you can work on improving your credit score prior to the application process. Even if you find out during the loan process that your credit score is sub-par, your mortgage banker can help guide you in the right direction for improving your credit. Once your credit has improved, you can try applying again.

4. Not approved down payment sources

When I was getting married I thought about setting up a home fund or honeymoon fund instead of the typical gift registry. To me, either sounded like a great idea. I went with a honeymoon fund because, as it turns out, you can’t just collect money as gifts and use it as a down payment, at least not in all cases.

For certain loans, anyone related to you by blood or law can be a donor, including spouses and your engaged significant other.

But it doesn’t include college roommates, best friend, or that new guy your aunt is dating without proper documentation (if allowed at all).

Speaking of documentation, you’d need to hunt down everyone from your wedding to ask for a gift letter and several other documents. Whoever gifted you money needs to provide a bank statement showing the money in their account — you’ll then need to provide a bank statement showing the gift deposited into your account.

So as you can imagine, if you say you have 10% down when pre-qualifying but then according to the underwriter some of that downpayment isn’t allowed and you end up having only 5% down, it will likely delay the approval. Or, if you don’t have all the documentation provided, such as bank statements, gift letters, then that could also delay your approval.

If you plan to use gifts as funds for your down payment, make sure you speak with your mortgage banker to make sure you have all the proper documentation for it ahead of time.

The mortgage process may seem complex. But the path to homeownership can be achieved by being prepared.