Mortgage Loan Approval Sometimes Need a Human Touch
In the mid 1990’s, the mortgage industry saw the credit score and its predictive power to assess a borrower’s ability to repay a mortgage step into the limelight as one of the most indicative factors for loan approval. After conducting statistical test after statistical test, Fannie, Freddie and Ginnie, the 3 big lending institutions, mandated that the credit score should be used in conjunction with manual underwriting to assess loan approval. Not too long after, automated underwriting systems (AUS) were developed that expedited and streamlined the underwriting process even further for lenders. A loan officer today simply inputs a borrower’s key information into the preferred underwriting automatic engine, such as his/her credit score, income, amount being borrowed, cash reserves, employment and housing history, and the value of the property. A response is returned by the underwriting engine recommending approval or denial for the loan.
If your loan receives a denial from an AUS, the buck doesn’t necessarily stop there. Life happens to people, and oftentimes it’s going to take a real live person understanding the nuances of a file to make an underwriting decision. That’s when your lender may suggest submitting your file to underwriting for a manual review. After all, not everything in life can be automatic, right?
A perfect scenario for a manually underwritten file would be someone who has no credit scores. No credit scores? Yes, it is possible. I’ve had customers who, being old school and always having paid for everything in cash, had never established traditional credit lines that reported to credit reporting bureaus. In a case such as this one, I had to submit non-traditional lines of credit to underwriting, something a machine can’t assess. This means I had my customer bring in bills he had paid on time for the past year to create a credit history. Typical ones used are car insurance, utility bills, cell phone bills and cable bills. You can expect to have to provide 3-4 different trade lines if you haven’t established a traditional credit history and score.
“The most typical reason we see a file submitted to us for manual underwriting is for either no credit score or an error reported on a credit report,” reflects Patricia Haynes, onsite Government Underwriter at Mortgage Investors Group. “For instance a judgement that doesn’t really belong to the borrower. Maybe it’s really Dad’s judgement reflected on the son’s report because Junior and Dad have the same name. That’s when I can overwrite an AUS decision because I have the documentation to support my decision to do so in front of me.”
Another very common reason to submit a loan for a manual underwrite is when your customer’s credit score is below 620 and gets an AUS denial. If this is the case with your loan, be prepared to provide more than average documentation about your credit history, as well as written explanations as to why your credit score has suffered recently. Maybe two years ago you had a financial meltdown due to a medical illness, but in the last twelve months, you can prove you are back on your game and have been repaying debt. However, your credit scores haven’t exactly caught up with your actions. An underwriter is going to piece together the different aspects of your file and see if it makes sense. Your home lender should be able to review your file and guide you as to what documentation an underwriter will want from you to grant you loan approval.
Naturally, if your credit score is really low and you have very little explanation for your state of credit affairs other than you failed to pay your bills on time, don’t hold your breath for loan approval. An underwriter can see through smoke and mirrors. After looking at files as long as they have, they can basically sniff out a loan that has merit from the ones that are too risky.
So, even as our world gets more and more automated every day, it’s nice to know that you can’t replace genuine common sense, even in the mortgage industry. And it’s nice to know that you can plead your case for credit worthiness to a real live human being.
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Help answer the question about financing home loan
What are the chances of obtaining 100% financing for a home loan when…..?my fico score is only 525 and I have no money down, with a good paying job? Is it unreasonable to hope that I could become a homeowner under my current circumstances? Be honest, I can take it…..
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Kristin Abouelata / Mortgage Investors Group/Loan Officer
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Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.
Posted on May 14, 2009 | Under Finance Home Loan | 6 Comments
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6 Responses to “Mortgage Loan Approval Sometimes Need a Human Touch”
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You should have started the day you signed the contract…a pre approval letter doesnt mean anything….you can still be denied the loan.
If they have an established credit history, decent credit scores, and acceptable rental history (or previous mortgage history), there are still programs that offer 100% financing, although, they are not as easy to find. 100% is generally considered non-conforming, so, their best bet would be to contact some local mortgage brokers. Make sure they only inquire as to whether they have a 100% financing program available and do not provide their social security number until they have decided upon the company they want to place their application with. They may also want to find out the minimum credit score required, the average rate for these loans (they are usually higher due to the increased risk to the lender), and whether not you would be allowed to pay any of their closing (generally it is capped at 3 or 6% of the loan amount).
There are also programs that allow the borrower to take out a lower LTV loan and the seller (you) to hold a small 2nd mortgage (ie: they get a loan for 95% of the loan and you hold a 2nd mortgage on the remaining 5%). Most of these programs still allow you to pay a portion of the closing costs.
Lastly, there are still some down payment assistance programs available for FHA loans if they qualify. They may can get up to 97% on a FHA loan and then a 3% DPA. You as the seller pay the DPA back at close, so you may want to reduce the amount of closing costs to make up for the amount you will have to pay out. These programs offer the best rates, so, they may want to inquire about these first.
It may be difficult but it really depends on what special programs you may qualify for. Everyones situation would be different so it is difficult to simply say yes or no. GOOD LUCK
Yes it sure can be pulled from you. They may run your credit again near the closing and find that out. I am assuming they have run credit and not known about the 2 missed payments.
If you are having trouble paying your student loans right now it would be best to wait until you are financially stronger in order to incur more debt.
You would be well advised to have several months of savings built up before you sign a mortgage loan. Home prices are not going up so be patient. Same home will probably be less 12 months from now.
You can still use Nehemiah. Thats where a non profit (ie seller) gifts Nehemiah 3 % down they give it to you, you give it back. That loophole will change soon but its in court right now.
I just did a loan with FHA and the credit score was 580, they had 3 months reserves in the bank. I had to run it 10 different ways until it was approved.
Its not an exact science.
To answer your question FHA doesnt lend money the are an insurance company. They pay the lenders for loss. They are the same as State Farm that insures a car. State Farm might say we wont take any drivers that had a DUI. WE refuse to insure them. FHA is the same they tell the lenders if you follow our guidelines we will insure you agaisnt loss. So Well Fargo, Washington Mutual ect do FHA loans. FHA secures them if you default.
But FHA is the easiest way to get approved.
unfortunatly for you there is a mortage company some where that will get you a mortage.
suggest you do some serious homework b4 you get your self in deep financial poop.
get copies of 'home buying for dummies' study and digest. get info on home buying from the Gov. on their sites. visit daveramsey.com to understand what the mortage companies don't want you to learn or apply.
Never ever get varaible rate loans. no balloons. no zero downs. no 80/20% loans.
understand that cash is king and debt is slavery. never buy a house based on tax savings or growth projections or any of the bs you''ll hear in the industry. do you homework.
pply