Psstt... Wanna Talk To A Mortgage Underwriter?
It is frustrating to a potential home buyer to get almost to closing, and have financing fall through. As a former Underwriter (The Wizard Of Oz), I'm going to share with you a few pitfalls.
Don't Let Your Home Loan get Denied
The Underwriter is someone you'll never talk to. They are not allowed to talk to you because they must be impartial and unmoved by emotion. Their job is to verify documentation presented matches all criteria needed to fund loans according to investor guidelines. It requires concentration and attention to detail to recall all the changing guidelines analyzing each loan quickly and accurately, sending loans to closing on time. Continue reading to see examples of how borrowers can be denied.
Mattress money - A client innocently stashes $2000.00 as a down payment. Maybe it was gifts from a wedding or just tips from a service industry job. The Underwriter must request documentation to identify the money's source. Client honestly tells the Loan Officer it's just cash. Loan Officer cringes because his calls are recorded! Bottom line, deposit all cash needed to make the loan happen at least 60 days prior to applying for loans. Then the underwriter does not see the large deposit.
New credit lines – This has to do with debt to income ratios. If your borrower wants a big screen tv for the living room, better wait until after closing, or there might not be a closing. Experian and Equifax sell daily reports to banks identifying new credit pulls and accounts. Apply for credit on Monday, the bank sees it Tuesday. The new credit is added to the debt to income ratio. Some loans on their way to closing have been pulled and declined for this. Bottom line.. don't even THINK about applying for other credit!
Bank Statements don't lie – I can almost profile a person looking at a bank statement. If a client is wasting money on $5 coffees, movies, liquor stores and gambling – no Underwriter believes they are conservative savers and will manage a budget. This mostly trips up a first time homebuyers and anyone with a reserve requirement that is short.
Line 2106 – Unreimbursed Employer Expenses - If your client is a teacher, nurse, truck driver, union tradesmen, etc. it's a good idea to ask about this or even look at a tax return together. No one thinks about 2106, because it usually is insignificant. But for some, it can be a large sum and make a difference. The figure on line 2106, is deducted from gross income. I've seen hearts broken because Line 2106 reduced a person's income to the point they no longer qualified for the loan.
Title Defects – Subject property has a sunroom. Great; until the Title report shows the addition was built with no permitting and thus the city recorded a lien. Problem is, the former owner is deceased and the estate refuses to pay for the citations to clear the title. The Bank will decline the loan because they are not in first lien position. Unless someone else wants to pay the $2000 to clear the lien. Best case scenario – make friends with Title companies and ask for preliminary reports to sniff this out so it does not hurt your client in the end.
Poor Appraisals – Underwriters can and do disagree with Appraisers all the time. Sometimes we see the appraisal pics and say "Oh, H#**... no! We aren't lending on that!" In some situations, the deal can be saved by asking the Loan Officer to request a second opinion from a different appraiser. Usually, an underwriter does not want to decline based on an appraisal, but if the property has severe defects it may not be collateral any bank wants in their portfolio.
Underwriters do not want to decline loans in general. Clients often are hurt and angry when a loan is declined before closing. Having a client that is mindful of these situations above will definitely help them achieve their home purchase. It should also help other Realtors understand and convey to clients that mortgage lending is not just credit scores and pay stubs.