Congratulations purchase contract is accepted and you are now officially “in escrow”. You go ahead and send in all of your financial information to your mortgage lender, a few days goes by and you get some not so pleasant news.
The loan has been counter approved requiring some changes to the mortgage loan program and ultimately the structure of how the transaction will be.
Let’s first just get one thing very clear. If your mortgage lender gives you a counter loan approval instead of rejecting your loan, this is a good sign you’ve got the right lender working for you on your behalf.
What causes a mortgage lender to counter approve a loan?
The number one thing that changes loan structure is the lender not being privy to all information. It’s extremely important for you to disclose everything to the mortgage lender you’ve hired to find the you the best possible financing. Withholding any information or explanation is not a good strategy because the underwriter will always pick up on it.
Underwriter’s are paid to evaluate all credit risks on mortgages.
Most banks and mortgage lenders will not issue you a counter loan approval. Most of the time, you’ll receive a mortgage loan denial. That could be a challenging obstacle especially if there is earnest money at stake in a purchase transaction.
What’s a counter mortgage loan approval anyway?
Let’s say your purchasing a house for $300,000 and you’re putting 10% down and buying it as a primary residence. The interest rate that you’re qualified at is 4.375%.
The underwriter after reviewing your financial package comes back and changes the terms of your loan. They issue a counter loan approval for putting 20% down due to having less qualifiable income for underwriting purposes.
That’s a counter mortgage loan approval example. It is a course correction on the road to securing real estate using financing.
A counter loan approval can do all of the following, but is not limited to:
1. Changing of the interest rate and/or discount points
2. Changing of the down payment and subsequently the loan to value
3. Changing of purchase price as well as the down payment
4. Changing of the actual loan program
So what to do if you receive a counter mortgage loan approval?
The first question you need to ask yourself is is this the right house for me? If it is the right house and you can see yourself living there or owning it long-term, then consider it only if you can financially justify the loan changes.
Consider accepting the mortgage counter loan approval based on these two facts:
1. Mortgage interest rates are very close to the historic lows
2. Home prices have never been more in sync with affordability then now.
It might mean having to procure a gift, pay off debt, put more money down, increase your credit score etc. but in the end, it could very well be worth the small inconvenience