Midtown Tulsa Real Estate - Lori Cain: Loan Denial - what a Tulsa home buyer doesn't want to hear

Loan Denial - what a Tulsa home buyer doesn't want to hear

No Tulsa home buyer wants to hear from their Lender that their home loan has been denied. Yet, it still happens. Here’s what you can do to prevent the devastating emotional and financial loss of a loan denial.

mortgage loan denialSpeak to a Lender BEFORE you begin house shopping and GET ALL OF YOUR DOCUMENTATION TURNED IN to your Lender. Yes, Lenders will give you a pre-qualification letter based on your stated income, time on job and credit score. It’s when the Underwriters start evaluating your documentation that the level of scrutiny increases and the factors that can disqualify you are discovered.

The Underwriters will evaluate all of your assets and financial transactions. Every deposit and expense can be questioned. If you work a “regular job” and are paid hourly or are salaried, your loan should be fairly cut and dry. Unless you have outstanding debts, unpaid medical bills or student loans, your Underwriting process should go fairly quickly. However, if you are self-employed or have any type of sporadic income, get ready for your financial life to be dissected and reviewed under a microscope.

Some of the more common reasons why a loan will be denied include (1) poor credit history; (2) small down payment; (3) issues with the property such as structural problems; (4) insufficient income and asset documentation; and (5) inadequate employment history or change of employment. Suppose the Underwriter discovers that you have a negative items on your credit report or discovers an outstanding unpaid medical bill? What if the loan requirements or lender guidelines change during your Underwriting process?

The main reason for getting pre-approved for a mortgage before you begin shopping for houses is to make certain you are shopping in a price range you can afford. It’s no fun looking at $300,000 homes only to find out that you can’t spend over $250,000. You may have already fallen in love with homes that have amenities you can’t afford. Also, when presenting your offer, if you can provide a letter from your Lender that states that your documentation has already been reviewed and you have gone through the first stages of Underwriting, this makes your offer stronger. When inventory is low and homes are selling quickly, being a “strong buyer” is a huge advantage.

While these guidelines are constantly evolving, currently a buyer is required to have solid employment for a period of two years. If there are gaps in employment, the Underwriter is going to require an explanation. Underwriters assess your ability to repay the loan, so inconsistent income is going to be a red flag.

Maintain a good credit score and understand how that score is formulated. A free and fairly accurate web site where you can track your score is Credit Karma. It even has a credit score simulator, so you can see how much your score will increase if you reduce a credit card debt, for example.

While you are in Underwriting, continue to pay your bills on time and DO NOT incur new debt. In other words, please do not purchase a new car or new furniture a week before you are suppose to close on your home - big triggers for loan denial.

One of the most critical factors in your loan qualification is a debt-to-income ratio - and generally the allowable threshold is 43%. If your debts total $2,000 per month and your income is $6,000 per month, that puts your debt-to-income ratio at 33%. If you increase your debt to $3,000 per month, that puts your debt-to-income ratio at 50%, which is unacceptable and may result in loan denial. Further, a standard rule for Lenders is that your monthly housing debt (principal, interest, taxes and homeowner’s insurance) should be 28% of your income before taxes.

What is out of your control is when the actual loan requirements change or Lender guidelines change. It is possible that the amount of reserves (savings) that the Lender requires may increase or there may be a change to the debt-to-income guidelines. The sooner you know where you stand, the better prepared you can be to react to these unforeseen changes.

Now, what if there is an issue with the Appraisal? The most common issue is when the ApprHome appraisal requirementsaiser values the property for less than the contract sales price. In that case, generally the Seller reduces the price to equal the amount for which the property appraised. But the Appraiser may also have “requirements” such as painting an area with chipped paint or installing a hand rail. While these repairs may not be important to the Buyer or the Seller, if it is a requirement of the Appraiser, the repairs must be completed prior to closing. The property itself is the collateral for the loan, so understandably, the Lender wants to ensure that the house is healthy and safe.

At this point, the Buyer has spent money on inspections, an appraisal and earnest money. So a loan denial is devastating for all involved - be prepared so this doesn't happen to you.

If you are unsure of which Lender to call, please consider those on my Preferred Vendor List. And if you are pre-qualified or pre-approved and ready to shop for a home in midtown Tulsa, please do give me a call! 918-852-5036

 

Content written and published by Lori Cain. Save

 

Copyright 2017 Lori Cain All Rights Reserved - Originally Posted at: Midtown Tulsa Real Estate - Lori Cain

 

 

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Please visit my web site if you are shopping for Tulsa homes for sale or call 918-852-5036 for more information about Midtown Tulsa Real Estate. In addition to my advanced grasp of the internet to market your Tulsa home for sale, I include a home staging consultation with every listing AND professional photography - at no aditional cost to you!

Lori is a residential Realtor with eXp Realty serving the greater Tulsa area and specializing in downtown Tulsa and midtown Tulsa real estate.

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Comment balloon 16 commentsLori Cain • January 17 2017 11:28PM

Comments

Hi Lori

There are some terrific tips here for borrowers. I suspect more than a few are surprised when they do not get their loan approved, and there are keys reasons why that happens. Being prepared in advance can make a huge different. Great marketing piece.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (Solutions Real Estate ) about 2 years ago

Jeff Dowler - thank you and nice to see your smiling face! Thank you also for the Christmas card!

 
Posted by Lori Cain, Midtown Tulsa Real Estate Top Producer (eXp Realty) about 2 years ago

It is tough on both the buyers and the sellers when this occurs.  Buyers can get a jump on this by submitting all of their documentation needed for approval at the onset of the process s that they can be processed while still looking for the house.  This not only helps them but allows them to look at homes that are in their value range

Posted by Ed Silva, Central CT Real Estate Broker Serving all equally (RE/MAX Professionals, CT 203-206-0754 ) about 2 years ago

Hi Lori -- you're back!!  And what great advice you've given to buyers in Tulsa, and everywhere else. 

Posted by Lottie Kendall, Helping make your real estate dreams a reality (Compass) about 2 years ago

Lori,  I am here from Lottie Kendall's Ring and Sing post.  Welcome back to the Rain.  We hope that you continue to post regularly once again.  I agree with you - Corinne Guest, Managing Broker is the Best!  

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) about 2 years ago

Ed - definitely tough on both buyers AND sellers!
Lottie - yes ma'am. Actually wrote this 2 weeks ago.
Thank you Kathleen - I need to go read Lottie's post now!

 
Posted by Lori Cain, Midtown Tulsa Real Estate Top Producer (eXp Realty) about 2 years ago

Lori, great post, and all buyer should chat with the lender prior to viewing homes to avoid any disappointments.

Posted by Joan Cox, Denver Real Estate - Selling One Home at a Time (House to Home, Inc. - Denver Real Estate - 720-231-6373) about 2 years ago

Thank you Joan - yes, meeting with a Lender early on will avoid future disappointments! Thank you for stopping by!

 
Posted by Lori Cain, Midtown Tulsa Real Estate Top Producer (eXp Realty) about 2 years ago

Great post. I recently had an appraisal halt a deal. Out of area guy picking the wrong comparable homes but there was nothing we could do. The seller was not prepared to eat a $40k deficit when there was a sale down the road higher than his. Cannot say I blame him. I was working both sides, something I usually do not do. In the end we rented it out instead for a year and will come back in December.

Posted by Corinne Guest, Barrington Lifestyles (Barrington Realty Company) about 2 years ago

I hate to hear that Corinne!  Not sure why Appraisers are reluctant to revise their value when shown appropriate comps. A $40K difference would definitely kill a deal!

 
Posted by Lori Cain, Midtown Tulsa Real Estate Top Producer (eXp Realty) about 2 years ago

Good Evening Lori - this is an outstanding explanation of the process.  Welcome back.  I came here after reading Lottie Kendall 's ringing and singing post.

Posted by Grant Schneider, Your Coach Helping You Create Successful Outcomes (Performance Development Strategies) about 2 years ago

Lori Cain - like Grant Schneider I was intrigued by your background in the Real Estate business and had to stop by for a visit. Lottie Kendall's post about you really impressed me! 

I've only had the pleasure of working with an agent from OK once in 2016 and because my referral from OK agent's buyer had a contract on their house and there was a chain of buyers that were all contingent on the sale of my buyer's contract, I was really impressed with how a licensee does business in Oklahoma, especially when Native American Indian financing is involved. To begin with, your contract forms are very different from TX. 

After reading your post, I can tell you're very knowledgeable about your business. That's important to me and your clients too! Since this wasn't my buyer's first rodeo in buying property, I was so amazed at how well he understood the contracts, forms, and financing and I complimented him on it too. He said his agent in Oklahoma had him trained well. 

I applaud you and all the Real Estate Agents who know and understand how to do business the right way!

Posted by Patricia Feager, MBA, CRS, GRI,MRP, Selling Homes Changing Lives (DFW FINE PROPERTIES) about 2 years ago

Grant Schneider and Patricia Feager - thank you for stopping by after reading Lottie's post! I have to admit, I'm challenged just navigating AR right now as much has changed!

Patricia - glad that you worked with a good Realtor. Yes, our contracts are very different from Texas. We are only 1 of 2 states that require an abstract to be updated for every transaction (even a refinance), so that's a Seller expense most of you don't have. In my discussions with Realtors (via AR), I understand our title insurance is much less expensive as a result of that.

It is awesome working with real estate agents who are well trained and take their job seriously!  If I ever have a client heading to Flower Mound TX, I'll know who to call!

 
Posted by Lori Cain, Midtown Tulsa Real Estate Top Producer (eXp Realty) about 2 years ago

Nice to see you back. Hope you enjoyed the political article I sent you via Evernote.

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) about 2 years ago

I did Joe Pryor - finally got time to read it yesterday - thank you for sharing. Really interesting perspective - and probably spot on. Btw, ran in to Lisa at the Women's March in OKC!!

 
Posted by Lori Cain, Midtown Tulsa Real Estate Top Producer (eXp Realty) about 2 years ago

A most excellent post Lori Cain and welcome back to the postings per the post I just read from Lottie Kendall. In Arizona we still have free grants available for down payment and closing costs through approved lenders. By the way, I am now following you. Keep up the good work! 

Posted by Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI, Arizona Homes and Land Group/ Buy or Sell (HomeSmart Real Estate) about 1 year ago

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