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What to do if you were denied a loan (even after being previously approved…)

The worst-case scenario (and I’ve heard this 100 times over the years) is when an inexperienced loan officer tells you that you’re approved, only to find out later that you’re not approved, and you are left deceived and potentially homeless…!

How could this happen?

When something goes wrong with your loan approval, who’s responsible? Have you been told by your “loan officer” that you qualify, then all of a sudden you’re being told that you don’t qualify? Did your loan officer tell you that the loan program was discontinued, or changed? Did your loan officer tell you that there was a change in underwriting guidelines, and now you don’t qualify?

In any of these cases, your home loan is abruptly declined and you are left in shock, wondering what went wrong, why it went wrong, and who’s to blame?! I promise you it’s not your fault.  Lenders spend a lot of money to make consumers feel like they are working with experienced professionals. This is not always the reality of the situation, and in some cases, some of these business models actually prevent you from ever talking to someone with a long history of solving mortgage challenges.

The rise of big-box lenders…

Well, it’s not entirely your fault.  There is an expectation that if a company earned enough of your trust to complete an online form, call a number, or download a phone app, it’s all the same business model. These companies are primarily built to originate, and close, high volumes of refinance loans.  For the first time in a long time, it’s becoming a buyer’s market in many communities.

Now, in all fairness, the advertising makes it sound so easy.  The way these companies work is that they spend millions for advertising, and sponsoring PGA tournaments. In order to support this business model, I call it a tele-mortgage model, you have to have a minimally compensated workforce.  Paying seasoned professionals for the experience they bring to the table is just not in the budget. What I have found over and over again is that these loan officers make rookie mistakes, time and time again, because the purchase money market does not have the same wiggle room at a refinance that has some benefit other than timeframes and the dream of homeownership.

I want to make perfectly clear, and you’ll hear this thread throughout this article, that the most important thing is that you are working with a true professional that is looking out for your best interest. My distrust of these big box companies and direct lenders is simply that they have inefficient and expensive business models, and it translates into an inferior experience for the consumer in terms of a higher interest rate and lender fees, a poor experience due to an inexperienced loan officer/customer service person, or all of the above.

Understanding underwriting guidelines

The key to understanding how something like this can happen is to understand how underwriting guidelines work. When you are applying for a Conventional, FHA, VA, or USDA loan, you are following the qualifying guidelines as laid out by each of these programs. While there are definitely nuances to each, there are also many similarities.  All loan programs require that you show the ability to repay the mortgage by proving income, employment stability, credit history, and in many cases, savings (called “reserves”), just in case of an emergency.

Once your loan application complete, your credit report and all of your supporting documentation is submitted to an underwriter for review. The underwriter will consult the underwriting guidelines for the loan program you are applying for to make sure that you meet all of the qualifying requirements. While some underwriting guidelines are very specific, many guidelines are exactly that, just guidelines that provide direction, or a general “spirit of the guideline”.

Your loan officer is similar to your attorney, deciphering the spirit of the law (guideline), and making a case to the underwriter and management as to why your loan falls within the risk threshold described in the underwriting guidelines. It’s not the common ground or the similarities that would cause you to be approved, then denied.  It’s the details, the questions that are not being asked, or the questions that were asked wrong that will cause your loan to go off the tracks.

When you lose in underwriting court, it’s most often because you are being represented by a lawyer (loan officer) that does not know the laws.

The importance of experience

The experience, and competence of your loan officer is where the overwhelming majority of your ability to qualify lies. In some cases, the loan officer will make a mistake that can be overcome by providing additional documentation, or explanation. In other cases, the underwriter can make a mistake, or interpret a guideline in a way that is not necessarily consistent with what the guideline is intended to address. In either of these cases, your success, or failure to qualify depends heavily on your loan officer.

I mean think about this…..Your ability to get a great product at a great price literally hinges on the experience and ethics of the loan officer that answers the phone.

The problem with many of today’s most popular mortgage companies is that there is little importance being given to hiring experienced loan officers. These companies spend millions of dollars on television commercials trying to convince you getting a home mortgage is as easy as downloading an app, or pushing a button. Other companies try to convince you that if you complete a loan application on their website, that loan officers will compete for your business. Yet other companies like to guarantee you the lowest interest rates without having any information about who you are, what your financial situation is, or what you qualify for.

In all of these cases, the money that is being spent so that you know their name is money that they are not spending to hire experienced professionals that are capable of solving complicated situations that most average people are faced with. If you’ve called one these call centers filled with “customer service” telemarketers, or had the misfortune of having your information sold to 27 lenders that will not stop calling you, or if you’ve discovered the hard way that everything you read on the internet is not true……you’re not alone.

Unfortunately, the role of the expert career loan officer has been buried beneath promises of automation, simplicity and one-size-fits-all promises that rarely deliver the expected result.

Don’t take no for an answer. THINK YES!

Don’t worry, there is a happy ending to this story. There is hope.

The most common challenges I hear are simply misinterpretations of underwriting guidelines, or a misplacement of your loan into a loan program that you never qualified for in the first place. Far more often than not, there is a solution that can be achieved by using a loan officer that has experience with the particular scenario that caused the other lender to stumble and fall. When the loan officer makes a mistake, that doesn’t necessarily mean that you didn’t qualify.  It often means that you are just working with a loan officer that’s taking you down a dead-end path.

A simple shift in direction can often overcome challenges that stop inexperienced loan officers in their tracks. The most common challenges that I see that are easily overcome include families buying after a bankruptcy, foreclosure, short sale or deed in lieu of foreclosure. The next most common challenges that inexperienced loan officers make are when you have student loans with income based repayments. Self employed, second jobs, low down payment, less than perfect credit, divorce, manually underwritten FHA and VA loans are among other common challenges that can often be overcome.

Contact us today if you were denied for a loan! We will see what we can do to save your transation!


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