The loan approval that you receive today could fail to close due to the lack of follow through required by consumers and their loan officers as stipulated directly within the loan approval itself.
A loan approval contains several stipulations by a mortgage underwriter that requires the verification of a number of issues primarily dealing with income and credit. Failing to meet the stipulations of the loan approval EXACTLY as written in the loan approval will likely change your loan approval into a loan denial.
Job Loss or Job Change. Proving you have the ability to pay a loan back to a lender is probably the most important attribute to a loan approval. Losing your job before your loan closes is a serious setback that could cancel your loan approval automatically.
Even if you experience a change in your employment status, a mortgage loan underwriter will need to re-evaluate your entire loan application to ensure that you still qualify for the initial loan approval. A loss in income could result in a lower loan amount, which could require you to accept less money if you are refinancing a mortgage on your current home, or put down more money if you are purchasing a home. Worse yet, a loss in income will likely increase your debt to income ratios and likely disqualify you from the initial loan approval all together!
I have known several instances where consumers either changed employers or lost their jobs entirely, and failed to disclose this to their mortgage lender, thinking that no one will notice. Mortgage lenders will re-verify your employment up until the day of your loan actually closing, so it is highly advisable that you tell you are upfront about any change in your employment status. Failing to disclose a change in employment has caused many loan underwriters to turn a loan down automatically.
Failing to disclose a job change to your mortgage lender could result in lengthy delays to your loan approval getting to the closing table. Some loan underwriters may question why you failed to disclose a job loss or job change, viewing this as an attempt to deceive or defraud the mortgage lender, which could result in an immediate loan denial.
Low Credit Scores. The current real estate and mortgage crisis has caused many mortgage lenders to re-evaluate the risks they are willing to take with consumers whose credit scores are below 600. Several mortgage lenders are honoring some loan approvals with credit scores below 600, but there is no guarantee that the approval will be honored 30 days after the approval was initially offered. Applying for new credit while your loan is in process could also decrease your credit scores, potentially causing your loan approval to be denied.
Increased Consumer Debts. The purchase and finance of a new automobile or adding new credit cards while your loan is in process will likely change your debt to income ratios, making the loan you initially were approved for no longer affordable.
Excessive Monthly Housing Expenses. The monthly housing expenses calculated within your loan approval contain estimated costs for the principal and interest payment, as well as calculations for property taxes, hazard insurance, flood insurance, and mortgage insurance. The underwriter verifies these expenses, and depending on your debt to income ratios, cannot happen.
Failing To Lock In Your Interest Rate. Floating interest rates during a turbulent economy is a gamble almost not worth risking. Interest rates can change daily, and depending on various events happening worldwide, the interest rate for your loan approval could change rapidly, thus changing your loan approval as well.
Three of the items above are easily avoidable, if you follow through by taking the necessary steps to ensure that these issues do not occur:
*When you find a good interest rate, lock it in immediately. Most mortgage lenders will honor interest rate locks for 30 days, giving you sufficient time to process your mortgage loan and clear all conditions set forth by the mortgage loan underwriter.
*No Major Credit Purchases. Smart loan underwriters will pull an updated credit report just before your loan is set to close to make sure nothing dramatically has changed on your credit report. Avoid major credit purchases at all costs before your loan closes.
*Review Monthly Housing Expense Budget in Your Loan Approval. Verify the interest rate that you applied for is the same interest rate available for the loan approval you were given. Property tax calculations are based on worse case, so use the amount due March 31, not when discounts apply in November. New construction home purchases with property taxes levied on land only will be given an estimate of future property taxes based on similar homes in the area. Verify annual insurance premiums for any potential cost increases.
Consumers faced with the prospect of a job of a change in employment should strongly consider contacting their loan officer to verify that the original loan amount applied for is still possible; a loss in income will certainly have an effect on the original loan approval, and could require a loan approval for a lesser loan amount, or worse yet, a loan denial.
The loss of a job without a job to replace it will almost certainly require a loan denial.
Mortgage loan approvals can be very tricky, especially for those consumers who may run the risk of falling into any of the issues above. Knowing how to avoid these potential pitfalls will certainly create shorter path in getting to the closing table. Working with an experienced loan professional will certainly help you to accomplish this.
Mike Sikorski MBA, GRI
Licensed Real Estate Broker
Licensed Mortgage Broker
Loss Mitigation Specialist
Florida Realty Network LLC
22079 Kimble Avenue
Port Charlotte, Fl. 33952
941-206-6000
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