Yesterday I began a series "Questions That Must Be Asked ............ Declarations Section VII Of Loan Application" which is a follow up to a blog I did on Tuesday about the need for Buyers to be Pre-Approved for a loan "Mortgage/Loan Programs with Low or No Downpayment Still Available In Connecticut ..... Pre-Appoval Letter", and the process that should be followed. In Pre-Approving a Buyer it is EXTREMELY IMPORTANT that the Loan Officer not just look at Credit and Income, or even collect documentation to verify the information that they were given, they have to complete a full Loan Application (1003). Without completing a FULL APPLICATION, mistakes are very likely to happen, because each page of the 1003 has questions if not answered can create surprises and huge problems later on.
As I stated yesterday one of the pages of the Loan Application (1003) that unfortunately does not get the full attention that it deserves, and taken for granted by many Loan Officers, is the Declarations Section VII of Page #4. Each question on the Declarations Section VII Of Loan Application only requires a YES or NO answer, and maybe that is why it does not seem to be given the same level of attention as other parts of the Loan Application.
Today I will start to go through each questions and explain why these Questions Must Be Asked On The Declarations Section VII Of Loan Application and there importance. The first question on Declarations Section VII Of Loan Application states:
- a. Are there any outstanding judgements against you?
Even though judgments will show up on a Credit Report, they maybe reporting wrong, and need to be corrected. A case may also exist that a Borrower just acquired a judgment, and it has not reported on the Credit Report yet.
In the first case it is important to correct a judgment that is being reported incorrectly immediately with the three Credit Bureaus (TransUnion, Equifax, and Experian), because no loan for a Mortgage can be done if the Borrower has an existing judgment.
In the second situation it is equally important for the Borrower to be honest and upfront about any recent judgments that might not be reporting yet on their Credit Report. Just because it is not being reported on their Credit Report yet does not mean that it will not be discovered in the course of the Loan Process, or worst yet just before they are set to Close on the loan. If it is discovered that they have a judgment and did not disclose it, not only will the loan be denied, but they could face criminal charges for lying on the Loan Application. At the bottom of Page #4 Borrowers have to sign attesting to the fact that all of the information that they have provided is the truth to the best of their knowledge.
The second Question That Must Be Asked On The Declarations Section VII Of Loan Application is:
- b. Have you been declared bankrupt in the past 7 years?
As in the case of judgments being reported on the Borrowers Credit Report, so are bankruptcies. However, they are not always being reported correctly as to their status or discharge dates. If a bankruptcy is reported on the Borrowers Credit Report, or the Borrower acknowledges a bankruptcy, it is important to immediately get a copy of their bankruptcy and discharge papers. This is the only way that the actual dates can be verified, and documented.
If a Borrower has had a bankruptcy within the last 7 years, a loan can still be done, but the guidelines for this vary from FHA to Conventional Loans. for example:
- FHA requires that 2 years have past from the time a Chapter 7 Bankruptcy was discharged, and 1 year form the time a Chapter 13 Bankruptcy was discharged.
- In the case of a Conventional Loan (Fannie Mae or Freddie Mac Insured) the time period is 4 years for a Chapter 7 and 2 years for a Chapter 13.
The above time periods are from the time of application for a loan, and not when the loan is expected to Close. It is very important to keep that in mind because a loan could be denied for a matter of a few weeks, if the application process is started to early.
There are exceptions to these guidelines but that will be the topic of another blog that will just focus on bankruptcies. For now I will not go into detail on this matter, because the exceptions are few, and are far from the norm.
Just as in the case of the first question a Borrower could face criminal charges for loan fraud if they do not answer this question truthfully as a result of them signing at the bottom of Page #4 that all of the information that they have provided is the truth to the best of their knowledge.
The problems that these two questions create during the Loan Process, can be easily avoided if the Loan Officer does his/her job at the time of Pre-Approval, by taking a full application at that time and not ignoring the these Question That Must Be Asked On The Declarations Section VII Of Loan Application.
My next blog in this series Questions That Must Be Asked ............ Declarations Section VII Of Loan Application, we will cover questions c, d, and possibly e depending on the length of the blog.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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