Why Loans Don’t Get Approved
By Al Lizarralde
Loan Application – The “initial interview” is critical. It is so important as a loan officer when 1st meeting your clients to ask all of the right questions. This is when the buyer/applicant has to come clean!! Yep, like going to confession! Incomplete and or missing information on a residential loan application (1003) will likely affect your loan approval.
Credit Report – During this interview the credit report is pulled. Now I am able to analyze their FICO scores, tradelines, public records, derogatory credit if any. If there is a bankruptcy, foreclosure or short sale I have to determine the dates reported and explain the different “waiting periods” for the type of loan they are applying for. At this point counsel the buyer/applicant not to “acquire” or “apply” for new credit going forward that will affect their loan approval. Credit reports do expire…credit will be pulled again prior to close of escrow. Any changes in scores and or additional obligations will affect your loan approval. If the scores are low and or credit is derogatory I need to counsel the buyer/applicant and recommend what steps need to be taken to be eligible for a home loan in the near future.
Income – The buyer/applicant has been asked to bring all the necessary items such as paystubs, tax returns, bank statements etc. This will verify that the buyer/applicant is full-time, hourly, salaried, commissioned or self-employed. Changing jobs, changing pay structure, changing profession and or terminating employment will affect your loan approval.
Assets – Verifying the funds to close for down payment and closing costs is required. Reviewing the bank statements for “large deposits” that are not from payroll or work related have to be explained and documented. Large deposits or assets that cannot be sourced, documented and explained will affect your loan approval. NSF (non-sufficient funds) and overdraft deposits also need to be explained; multiple occurrences will affect loan approval.
Appraisal – Value can come in lower than sales price and or repairs are required. Seller or buyer/applicant may or may not be willing to re-negotiate contract affecting the initial loan approval.
Below are a couple of footnotes…
- Pre-qualification vs. pre-approval. Pre-approval is desired because the loan has now been
through the (AU) automated underwriting approval process. A pre-qualification is just an
initial interview determining if qualified.
- If renting from private individual we will ask for proof of last 12 months cancelled checks and
or bank statements showing rent history. Unable to provide proof can affect your loan
approval if it is a condition of the approval. NOT required if it is a “property manager”.
- Keep the revolving balances below 50% of their credit limit. Paying them off is not a good
idea you want to have 2 or 3 good open credit cards and at least 1 installment.
Al Lizarralde, Sr. Loan Officer
JFK Financial, Inc.