FYI - This information is subject to change and
may vary amongst lenders. Please consult your lender.
There are many
complexities to the mortgage process. These mistakes can cost prospective
homeowners to be turned down, even after receiving an initial pre-approval letter. Many of the things that make this process complex is completely out of
the buyers control. BUT NOT ALL! There are steps you can take as a consumer to
make sure your mortgage application stays approved after you've been issued
that pre-approval letter.
So let's jump right in, here are 12 things that can cause a buyer
to be denied after receiving their pre-approval letter! This is by no means
an exhaustive list, but I want to help my buyers be able to achieve their dream
of home ownership.
1. Failing to disclose
past bankruptcy, foreclosure, or short sale.
There are credit repair
companies out there who claim they can remove these items from your credit
report. Or in some cases, because of errors at the credit bureau, they may just
not appear correctly. Unfortunately, if you don't tell your us about a past
bankruptcy, short sale, or foreclosure, you may think you're pulling a fast one
when you get pre-approved. But in the end, the lender will almost always find
Most lenders utilize
independent verification of these things in addition to the credit report.
These additional fraud checks can sometimes take weeks to perform, leading to
last minute discovery and denial of your loan application. The more honest you
are upfront, the better chance you have of staying approved and closing on your
2. Unreimbursed business
expenses on your tax returns.
Some borrowers work jobs
where they're required to drive significant mileage for work or purchase their
own uniforms or travel on their own dime. If you have these items on your tax
returns, they must be deducted from your qualifying income.
Lenders ask for a borrowers
previous two years of tax returns. They will obtain a copy of your tax returns
directly from the IRS to make sure that borrowers are telling the truth on
their application. Some borrowers don't even realize that their accountant is
taking these deductions.
3. Undisclosed business losses.
In addition to checking
your IRS tax transcripts for unreimbursed business expenses, your lender will
look to make sure you don't own any undisclosed side businesses. If you have
loses on your tax returns resulting from side work, selling things on the
internet, or any other type of small business, the lender has to count these
losses against you. Again, it's important to be as transparent as possible.
Your lender and I are here to help and these items will be discover these side
business losses while reviewing the tax transcripts obtained from the IRS.
4. Shopping for
additional credit during the mortgage loan process.
Many borrowers believe
that once they've obtained the initial pre-approval, their credit will not be
checked again, leaving them free to take on new debts. Well, 99% of the time
the underwriter will recheck your credit the day before closing, looking for
new debts that could cause you to no longer qualify for the home. So, if you're
out shopping for a new car or furniture, new credit cards, or any other debt,
your lender will most likely find out. And if these new debts are more than you
could afford, you'll be declined for your home loan at the last minute.
Most borrowers don't
realize, but when you close on a home loan, you sign a certification that
nothing has changed about your credit. So if you did take out new debt and
don’t disclose it, it could be considered loan fraud. In order to avoid this
loan fraud, your lender will ask for an explanation of anyone who pulled your
credit during the loan approval process looking for these new debts.
The bottom line is don't
shop for new credit until after you close on your home. And if you absolutely
have to, let your lender know first because they will find out. Any new debts
have to be counted against your for qualifying. And this could lead to denial.
5. Failure to disclose an
ownership interest in the company where you work.
In order to avoid
additional documentation requirements for being self-employed, some homebuyers
will not disclose their ownership in the company they work for and claim only
to be an employee. Again, this may get you through the pre-approval process,
but the ownership is almost always discovered in the end.
multiple databases powered by the Department of Corporations, the IRS tax
transcripts, and other sources to discover these types of undisclosed business
ownerships. This almost always backfires. And the company ownership is
discovered and leads to being declined at the last minute for lying on the
Additionally, this can
also be considered mortgage fraud, which carries stiff penalties on certain
types of loans. If you own any portion of the business you work for or any
other companies, make sure you disclose it.
6. Making large undocumented
deposits into your bank accounts.
Lenders normally require
60 days worth of bank statements. This step sounds simple, but unfortunately
can cause a lot of headache and hassle as you get ready to close on your home
Large deposits or
frequent deposits or transfers can lengthen your approval process and raise
doubt or suspicion about your credit file. Your lender must be able to source
and document any deposit that appears in your checking account over $1,000.00.
This means to provide a copy of the check, money order or transfer from other
accounts and a letter of explanation regarding each deposit.
Cash deposits are not
allowed.Cash advances on your credit card, personal loans, or any other funds
that are not secured by an asset of appropriate value are unacceptable funds
for the down payment.
7. Failing to file
your tax returns on time.
As I mentioned above,
your lender will ALWAY request an independent copy of your tax returns directly
from the IRS. If this result comes back that you have not filed your tax
returns, it can lead to serious problems with your loan approval.
8. A drastic change
in your employment.
The key factors that the
underwriter is looking at in employment history is your ability to repay versus
willingness and the stability of that capacity based on the frequency of job
changes and the trend in earnings potential. Our processor WILL contact your
employer a few days before closing to verify nothing has changed with your
employment. This extra last minute re-verification is required because of the
number of borrowers who lost their job and never told their lender during the
9. Failing to
disclose land and properties owned free and clear AND not disclosing mortgages
that are owed to private individuals and not on your credit report.
When you have a private
mortgage, it doesn't show up on your credit report. So again, it's important
you disclose all the properties you own and all the mortgages you owe. The
underwriter can and will easily find this information in public records. And it
can lead to your application being turned down. All properties must be
disclosed even if the title is held by an LLC.
10. Failing to disclose
child support or alimony payments you're required to make.
These can often be
substantial monthly payments that must be included in your debt to income
ratio. If you owe these obligations, make sure your lender is aware of it
upfront so they can make sure you qualify to purchase the home.
11. Property problems -
Even though you're fully approved to borrow money for a mortgage, the property
you select may not be acceptable.
Flip properties, this is
a property where someone recently purchased the home for a very low amount and
is now reselling it for significantly more. Most of the time the underwriter
will not let you purchase a property that was purchased and is being resold
within a 90 day period. If the property was purchased in the last six months, a
second appraisal and/or justification for the increase in value.
Homes in significant
disrepair, certain repairs must be completed prior to closing on your new home
loan. This can cause a problem because you don't want to spend money repairing
a home you don't yet own. And the seller may be unwilling to pay for the
repairs. In some cases, even if you are willing to pay for the repairs, the
seller may not give you access to the property to have them completed.
Fully furnished homes,
if you try to purchase a home with furniture, the furniture is considered an
inducement to purchase and must be appraised. And your down payment will be
increased by the value of the furniture. PERSONAL PROPERTY CAN NOT BE MORTGAGED
AND SHOULD NOT BE INCLUDED IN PURCHASE AGREEMENTS!
Condos, there are very
strict rules regarding condo approvals. So make sure any condo you're
interested in is eligible for financing before getting too far into the
12. Failing to disclose
or attempting to hide any other pertinent information.
Borrowers often make the
wrong assumption that the lender will limit the credit analysis to just the
information disclosed on the application. Well, borrower beware. This is not
the case. Underwriters are not only credit analysts but also highly qualified
investigators who are on the prowl for any indication of mortgage fraud. They
have a number of tools and technologies to dig deeper than ever into the
information you disclose and try to make a responsible, prudent credit
decision. Some of the items on this list are even considered mortgage fraud.
And lenders are required by law to submit what's called a suspicious activity
report, or SAR, to the FBI when certain fraudulent activities are attempted. So
you could end up with a much bigger problem than just being turned down for
your home loan.
So make sure you're
honest with your lender at application and disclose as much information as
possible, allowing them to help you and to make an accurate decision on your
loan approval and avoiding any last minute heartbreak. You see, when
information is discovered at the last minute that can prevent you from closing
on your dream home, there's nothing worse.
Remember, I am here to help you through this
process. This list isn't to frighten or scare you but to assist you. I want
this process to be as smooth as possible. Teamwork, honesty, and transparency
Give me a call at (404) 857-2508 if you have ANY questions!