Can A Loan Officer Override An Underwriter - Empowering Your Financial Journey

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Nobody wants to hear that their mortgage loan was rejected during underwriting when buying a house. Fortunately, if your loan was properly preapproved before you found a home, it’s unlikely you’ll learn this information. There are steps you can take to improve your chances of purchasing a home if your application for a mortgage is rejected by underwriting.

While the underwriter and loan officer can be located in the same office, the loan officer may not attempt to influence the underwriter’s decision. The loan officer may provide information to the underwriter and ask questions regarding reasons for approval or denial.

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Common reasons loans are denied in underwriting

These were the top six reasons for mortgage denials in 2020, according to a report by the National Community Reinvestment Coalition (NCRC):

You have too much debt compared to what you earn. Lenders measure your total debt divided by your pretax income to calculate your debt-to-income (DTI) ratio. Although you’ll typically know you don’t meet these guidelines when you apply for a mortgage preapproval, the underwriter may have issues with cosigned debt (even if someone else makes the payments) or recently paid off debt that hasn’t dropped off of your credit report, which could push you over the 43% DTI ratio maximum most lenders prefer.

Your credit history or score is unacceptable. This is typically only an issue in underwriting if your credit report expires before closing, and your scores have dropped. It can also become a problem if there’s an error on your credit report regarding the date you completed a bankruptcy or foreclosure.

The home’s appraised value or condition doesn’t support the sales price. Underwriters usually only decline a loan for a low appraised value if you can’t haggle for a lower price with the seller and don’t have the funds to come up with the difference. Homes must meet basic safety and health standards and meet basic needs such as plumbing, heating and a weatherproofed shelter. An underwriter might deny a loan for a leaky roof or broken water heater unless it’s fixed before closing.

Your application is incomplete or information can’t be verified. Underwriters can’t approve a loan application with missing or unverifiable information. Although this might seem obvious, it was one of the top reasons for loan denial in 2020.

You can’t prove your income or employment history is stable. Most loan programs require a two-year history of steady earnings and employment. If your paystubs, tax returns or W-2s show income or employer fluctuations or you’ve switched careers, an underwriter may not feel comfortable approving your application.

You can’t verify funds for your down payment or closing costs. Lenders must verify the source of money you use toward your down payment and closing costs. Large, undocumented cash deposits may trigger a loan rejection.

How undisclosed debt on a mortgage application can cause loan denial

There are several quality control reports that mortgage lenders run to look for unreported debt on a mortgage application. Your approval could become a loan denial or, worse yet, the subject of a fraud investigation if they discover additional debt at any point during the mortgage application process.

Some examples of undisclosed debt include:

Private mortgages on real estate. The loan balance and monthly payment must be disclosed if you obtained financing from a private investor or a relative to purchase a home. Lenders look up your name on other properties in public records across the country.

Recent credit applications. Even if it doesn’t appear on your credit report, let your lender know if you recently opened a new credit account. Up until the closing date, lenders will continue to “refresh” your credit report; any new debt may cause delays or a denial.

Alimony or child support. Even though these debts frequently don’t show up on your credit report, underwriters look for evidence of consistent debt payments like alimony or child support on your bank statements and paychecks.

Payment arrangements for past-due taxes or judgments. Provide all supporting documentation up front if you’re on a payment plan for past-due IRS taxes or payments for a judgment.

6 steps to take if your mortgage is denied in underwriting

Take the following six actions before giving up on your home purchase if your loan application is rejected:

Talk to your loan officer. Though you can’t usually speak directly to an underwriter, your loan officer should give you a clear reason for the denial. You’ll have a short time to try to overturn the denial — it doesn’t become official until the lender issues a denial letter.

Gather all your paperwork. Your lender should be able to provide you with copies of everything you submitted, including all of your income and asset paperwork. You’ll need all of this information for the next step.

Check with other lenders. Just because one lender turns you down doesn’t mean they all will. Some lenders specialize in loans for borrowers with credit and income challenges, or offer “manual underwriting” options that allow them to approve loans other lenders can’t. Provide all of your paperwork and be honest with the lender about the reason for your denial, if you disagree with it.

Write or get letters of explanation. An underwriter may deny a loan simply because they don’t have enough information for an approval. A well-written letter of explanation may clarify gaps in employment, explain a debt that’s paid by someone else or help the underwriter understand a large cash deposit in your account. Provide as much detail as possible to prove you have the ability to repay your loan.

Consider a different mortgage program. Some loan programs set easier qualifying requirements than others. For example, conventional loans require a minimum 620 score for approval, while borrowers may qualify for a loan backed by the Federal Housing Administration (FHA) with a score as low as 500.

Find a cosigner. If your loan is denied because you don’t earn enough to qualify, a cosigner could save the day. FHA loans allow someone who doesn’t live in the home to cosign on a mortgage and contribute their income. They are on the hook for the mortgage if you can’t repay it, and any late payments will appear on their credit.

THINGS YOU SHOULD KNOW

It’s critical to comprehend the distinction between an underwriting approval and a mortgage preapproval. A lender’s preliminary evaluation of your loan application, credit report, and the initial documents you provide forms the basis for a preapproval. In most cases, if your credit history, income, or down payment funds don’t meet the basic requirements of the mortgage program, you won’t advance to the underwriting stage.

The mortgage underwriting procedure involves a thorough investigation of your credit, income, and savings history as well as a close examination of the house you’re buying.

How often does an underwriter deny a loan?

Recent data on mortgage lending activities by the Home Mortgage Disclosure Act (HMDA) shows that loan denials are more frequent on applications for home equity loans, loans for home improvements, and refinances. Home purchases have the lowest denial rates.

According to 2020 HMDA data compiled by the NCRC, the table below displays the home purchase, home equity, and home improvement loan and cash-out refinance denial rate by race.

How to avoid a mortgage loan denial

You can take some steps to lessen your chances of having your mortgage application denied during underwriting.

REPAIR YOUR CREDIT BEFORE YOU APPLY.

You can improve your credit score and avoid the disappointment of a mortgage rejection by taking these actions before you submit a loan application, whether it’s paying off credit cards that are at their maximum limit or refinancing out of a cosigned car loan.

FILL OUT A COMPLETE AND ACCURATE LOAN APPLICATION.

Taking the extra time to give the lender the most accurate information, whether it’s a previous address or the precise start and end dates of prior employers, may lower the likelihood of being denied after preapproval.

DON’T SWITCH JOBS OR CHANGE HOW YOU’RE PAID.

Your chances of being accepted in terms of income are highest if you work a full-time, salaried job for two years. A job change before closing could cause your closing to be delayed or turn an approval into a denial because lenders verify your employment up to and including the day of your closing.

GET A FULL CREDIT APPROVAL BEFORE YOUR HOUSEHUNT.

Before you find a home, many lenders offer full credit approvals that let you have your income, credit, and assets thoroughly examined by an underwriter.

BEFORE APPLYING, HAVE YOUR DEPOSIT IN THE BANK FOR AT LEAST TWO MONTHS.

To demonstrate that you have the money for a down payment, most lenders demand two months’ worth of bank statements. If you have money saved up, deposit it a few months before you apply for a loan.

GET RID OF AS MUCH DEBT AS POSSIBLE.

You’ll have more mortgage borrowing power the less debt you have. Don’t use credit after receiving preapproval; lenders always check your credit before closing.

APPLY FOR THE RIGHT LOAN PROGRAM.

Read up on the minimum mortgage requirements in advance so that you don’t apply for a loan program with a low likelihood of approval. If a particular lender doesn’t provide the program that best suits your needs, keep looking until you find one that does. Generally speaking, loans backed by government organizations like the FHA, the U S. Department of Veterans Affairs (VA) and the U. S. Compared to conventional loans, Department of Agriculture (USDA) loans are simpler to qualify for.

WORK WITH AN EXPERIENCED LOAN OFFICER.

Experienced loan officers frequently know how to best present a challenging credit or income history to an underwriter to increase your chances of success.

DON’T SUBMIT AN APPLICATION FOR THE MAXIMUM MORTGAGE LOAN AMOUNT YOU ARE ELIGIBLE FOR.

Lenders typically provide an estimate of your property taxes, insurance, and HOA fees when you are preapproved for a home loan. Your DTI ratio could be rejected by an underwriter if you don’t account for unexpectedly high property taxes or expensive HOA dues for the home you ultimately choose.

FAQs about mortgage loan denials

According to a 2020 report by the Consumer Financial Protection Bureau (CFPB), FHA borrowers are more likely to be denied for FHA loans than all other loan types: 14.1% of FHA purchase loans and 22.2% of FHA refinance applications were turned down in 2020.

Yes. Before you sign closing papers, many lenders use third-party “loan audit” companies to confirm your income, debts, and assets once more. Your loan application may be rejected if there are significant changes to your credit, income, or ability to repay.

Lenders track closing rates, which is the proportion of loan applications that closed within the last 90 days, rather than the frequency of denials of borrowers after preapproval. This could help you determine your chances of reaching the negotiating table. Based on the loan type and purpose, closing rates from the Origination Insights Report through December 2021 are shown.

In many cases, yes. Make sure your employer is aware that a pre-closing call to confirm your employment is expected in order to prevent delays in this process.

You won’t be turned down if your score satisfies the minimal credit score requirements for the program you applied for. However, if this occurs, speak with your loan officer as your interest rate and costs may increase due to the lower score.

Yes. You can submit an application with a different lender if you hear that the underwriter may be getting ready to reject your loan.

Today’s Mortgage Rates APR as low as

30-Yr. Fixed 5.88%

15-Yr. Fixed 5.87%

5/1 ARM 6.30%

Here are some first-time homebuyer suggestions to assist you as you embark on the process of purchasing your first residence.

Learn about the various mortgage loan types, including conventional loans and government-backed FHA, VA, and USDA loans, so you can make the best decision.

If you have a great house hunting checklist, you might be able to get the home you want instead of losing out to someone who was more prepared.

FAQ

Can an underwriter be overridden?

Overrides and Policy Exceptions When a decision is made in relation to a loan transaction that violates loan policy, an override occurs. Overrides may be exceptions to the policy for: Underwriting (approval or denial); or Terms and conditions (such as pricing).

Do underwriters make exceptions?

Yes, but there are exceptions to the rule, is the quick reply. There are many moving parts in a loan application, and the underwriter bases his or her decision on factors other than just credit score.

Is a loan officer and underwriter the same?

When a borrower applies for a loan, a loan officer from a bank, credit union, or other financial institution makes the offer, whereas an underwriter evaluates the borrower’s application materials to determine whether they qualify for a loan.

Does the underwriter make the final decision?

Mortgage underwriting is the procedure your lender uses to confirm that you qualify for a mortgage. The underwriter also ensures your property meets the loan’s standards. The final decision on whether or not to approve your loan is made by underwriters.