Saturday, November 15, 2014

12 Reasons Homebuyers Get Denied AFTER Being Pre-approved!

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 these items.

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 new home.

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.

Underwriters use 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 application.

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 loan.

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 housing boom.

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 process.

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 are key! 

Give me a call at (404) 857-2508 if you have ANY questions!

Natasha Liburd Bazile is a Realtor with Keller Williams Atlanta Partners and the Lead Home Stager with Heart of Decor in Georgia (virtual services available). She prides herself in being a guide to her clients and finds fulfillment in helping them achieve their goals.

Direct Phone: (404) 857-2508 Email - Facebook - Twitter - YouTube

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