Ever here one of those stories in the break room how getting a mortgage is difficult? “I had to jump through so many hoops to get my mortgage, it was ridiculous. They keep asking me for financial information, I swear I already provided them.” Reality check-obtaining a mortgage is no easy feat these days no matter how great your credit score is or how good your lender is. By understanding the loan process, you can sure you’re not jumping through hoops, more importantly, your loan closes on time….
The Nature of Mortgage Lending
Lenders are required to meet tight federal ability to repay requirements. This includes a thorough review and examination of your credit, debt, income and assets as well as the property and occupancy of the home in which you plan to be financing. Lenders operate in a world, where they usually only have a one time chance to make how you look on paper favorable to the decision-maker, i.e. the underwriter, the person within the mortgage company who issues an approval.
Know this- the role of the lender’s underwriter is to mitigate risk for the mortgage company. They carry out this objective by making sure your full financial picture adheres to Fannie Mae and Freddie Mac guidelines. Fannie Mae and Freddie Mac set the benchmark guidelines that other lenders and loan programs model off of.
The reason why you’ll often hear stories about all the hoops to jump through is because the loan officer did not properly set the expectation with the borrower at the forefront of the loan process and/or the loan was not put together correctly. Remember it’s very difficult to create a second first impression- if your loan officer did not properly package the loan for the underwriter to thoroughly examine and subsequently sign off, then you may have a cumbersome process, that’s if the loan can be approved.
Following is typical mortgage loan process:
- Lender gathers your financial documentation
- Loan officer drafts a cover letter to the underwriter laying out the framework mortgage scenario
- Underwriter reviews the complete credit package ensuring the documentation adheres to risk requirements
- Underwriter a issues a disposition- a new loan status, approved with conditions or at times a suspense
The ideal outcome is the loan officer provided all of the necessary documentation preemptively demonstrating how the loan package meets all the lending guidelines of the particular program the borrower is applying for e.g. Conventional loan, FHA Loan etc.
Pealing Back The Onion
When a loan status changes from pending to approved with conditions or suspense, the process is the same, there’s conditions the underwriter needs fufilled (missing documents or explanations needed) to issue a final loan approval. The reality is when the condition is provided, and that condition does not fully meet the original condition the underwriter had originally placed on the loan, that can become problematic because of the fact every time new documentation goes in front of the eyes of an underwriter, that could and oftentimes does create more conditions.
For example let’s say the underwriter is trying to document sufficient reserves for the program in which you applied for, but you provided only three pages of a five page bank statement. The underwriter then conditions for the additional missing pages of the bank statement. Well let’s say the additional missing pages of the bank statement shows multiple large cash deposits and subsequent funds transfers.
The underwriter then adds another condition for each deposit and transfer to be sourced and paper trailed. Make sense? Every time a document is provided to the lender’s underwriter, there is always the possibility of the documentation provided to open more questions.
How To Fix A Runaway Loan Process
Simply start over. Doesn’t seem hard right? Well it actually is that simple. If your loan process has gone on beyond 45 days for a refinance and you’re being continually asked for more and more documentation, something is not adding up. Refinances usually take 30-45 days depending on the nature of your financial picture and whatever your lender’s operational work flow is like. Purchase loans usually take about 30 days as well too although sometimes longer depending on contractual dates. By canceling the loan process on a loan where either the financial information has changed so much to the point that it becomes a runaway financial freight train, then canceling the loan and starting over with fresh clean documentation is a quick and easy way to wrapping up your loan with less headache.
What you’ll need to pay attention to:
- Changing rates and pricing-may jeopardize your interest rate lock- while pricing and terms of your loan is certainly important, ability to fund the loan is something else entirely. If you can be flexible on your rates and fees, this might be a favorable approach to pursue vs. beating a dead horse.
- Getting a purchase contract extension-though not fun, might be necessary for the greater good of the transaction if the loan can be quickly repackaged and put in front of the underwriter again for a fresh clean review based upon the correct and or new financial supporting documentation.
- Providing updated documentation– yes canceling out the current loan and starting a brand-new one is going to require a higher internal workload on the side of the lender, so do be gracious and help them out by providing them any updated financial information as needed as it will only aid your lending professional move your loan through the system to funding, quicker.
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