2 Things That Will Get Your Mortgage Application Denied

Denied Mortgage ApplicationWhen applying for a mortgage, it’s important you understand ahead of time what a lender looks for when approving a mortgage application.  Doing your homework upfront will save you a lot of stress and worry.  Once you understand what not to do, then you will have a great chance of getting pre-approved for a mortgage.  I have seen thousands of applications and heard all the stories, but these are the top 2 things that will most likely get your application denied.


Check Your Credit Before Applying For A Mortgage

We all have the option to check our credit for free at www.annualcreditreport.com .  There is no reason to have no idea what is reporting on your credit report, before applying for a mortgage.  Most people know they have had some late payments or accounts that went into collections.  What’s important is to know exactly how these negative accounts are reporting to the 3 major credit bureaus.  For example, if the negative activity on an account is recent, within the last 12 months, this will affect your score more than something that was 3 year ago.  Even if you are the kind of person that makes sure your payment on made on time every time, never runs up high balances on your credit cards, or doesn’t open too many lines of credit, you need to check your credit once a year.

The most common negative account I see is a medical bill that somehow wasn’t paid, (or never invoiced from the hospital, after the insurance company didn’t cover the expense) end up going months without payment and then the hospital sends the account to a collection agency.  The collection account ends up reporting to your credit report and then that is when some find out they still had a small outstanding balance of $50.  Don’t let something like this report to your credit for years, when you could correct the mistake ahead of time.

Please take the time to call a mortgage professional to check your credit ahead of time or do it yourself.  It’s better to have a mortgage person do this, so they can go over it with you.  They will help you with understanding what is reporting and if anything negative is reporting, what to do to correct it as soon as possible.   Prevention is better than cure.


Not Supplying All Information For A Pre-Approval

When you apply for a mortgage pre-approval, you need to make sure you supply all the information about your situation.  Please don’t stretch the truth or try to hide something from your mortgage person.  We are hear to listen to your complete and honest situation, so we can help you with placing your situation with the right lender and getting you pre-approved.  We are on your side working for you, not against you.

Take the time to supply all the documentation needed for your income, liquid assets and any other unusual situation you have had in the past.  If you had a divorce in the past, please make sure you provide your divorce decree, regardless how long ago the divorce was.  If you had a bankruptcy in the past, please provide the all the paperwork involved in the bankruptcy and discharge documentation.


Real World Example:

A client had child support payment from a divorce in the past.  He told us what his monthly support payment was, but after looking over his divorce decree, the agreement stated there was an additional payment he had to make to his ex-wife.  He told me this was just for the child’s standard costs, like clothes, food, etc. and most divorced parents have this agreement for their child.  Well, the ex-spouse wanted this stated in the divorce decree, so this makes it an additional debt counted against him for his mortgage pre-approval.  If a court order states you have to pay a certain amount, we have to use that monthly amount against you in your total debts.  If it was just a verbal agreement between the two parents, we would not have to count this against him.


The more information we know upfront , the less likely you will have to worry about your mortgage application getting denied.  Our job as a mortgage professional is to understand your entire situation, so we know what lenders will accept or not accept your situation.  This will lead to a smoother process and very little chance of denial.


Mortgage Loan For Doctors and Physicians

Doctor HousePhysician and Doctor Mortgage Loan Program

A doctor mortgage program is specifically catered to someone that is going to be taking new employment in the medical field.  When a doctor takes on new employment at a different hospital or clinic, there are usually contracts put into place.  These contracts lay out details like income, employment dates, benefits, etc.  Typically, lenders won’t approve a mortgage if someone hasn’t started their new employment and cannot show a month of pay stubs.  This can be a common problem for doctors that have a contract in place, but don’t start the new employment for 4-6 months.

A doctor mortgage loan, under a portfolio program, will accept the contract in place as new employment and income.  Typically, the contract must have no contingencies involved.  So, if the contracts states it’s pending based on a background check, the background check needs to be completed and removed from the contract.

The doctor mortgage program is also great for resident that is looking for a new job.  Once they land that new job, right out of school, and secure a contract to show employment and income, they can be pre-approved for a mortgage.  Many new doctors right out of medical school land a nice paying salary and many look to by a home right away.  This portfolio mortgage program is a great fit for most situations like this.

Mortgage Pre-Approval vs Pre-Qualification Letter

approved loanThis topic seems to be the most misunderstood topic compared to all other mortgage terms.  A big reason many people don’t understand the difference comes from the lack of education.  A borrower just assumes a pre-qualification is a solid review of your financial situation and thinks they have a mortgage secured and can start the search for that perfect home.

Sometimes real estate agents don’t fully understand the difference between a pre-approval and pre-qualification and this can be very concerning.  If they submit an offer for their buyer with the wrong letter, their offer may get rejected and lose out on the home. It’s very important that buyers understand if they have been pre-approved or pre-qualified.  There is a difference.


The Pre-Qualification Letter

A pre-qualification is an inquiry made by a potential borrower concerning how much financing they may qualify for using basic credit information and oral estimates of income.  No information is verified with documents, since a pre-qualification doesn’t require this.  A loan officer helps with guiding and giving advice, when someone is just looking to get pre-qualified.

An inquiry for a pre-qualification would be perfect for someone looking to buy a home a few months from now, but wants an idea of how much of a mortgage they should qualify for.  They may also get an idea what programs would best fit their situation.  It helps give a future home buyer a better understanding of what to expect when they get more serious about looking at homes.

Here is some information a lender would need to help with your pre-qualification:

  • How much is your annual income?
  • How much do you plan on using for a down payment?
  • What are your estimated credit scores?
  • What is your two-year employment history?

This list is relatively short, since it’s just a pre-qualification and a brief understanding of your situation. Not all, but some lenders will issue a pre-qualification letter, so your realtor has an idea what your purchasing power should be.


The Pre-Approval Letter

A pre-approval letter is a more in-depth look at a borrowers buying power, by giving a maximum mortgage amount they would be approved for.  Most information is verified by showing documentation, since a pre-approval requires proof of what is completed on an application.  Documentation of income and liquid assets will be necessary, in order to receive a pre-approval letter.

After completing a full application, here is the list of items a lender would need to help with your pre-approval:

  • Documentation showing your income.  Tax returns, W2 statements and recent paystubs.
  • Documentation showing your liquid assets. Checking, savings, IRA, 401k, etc.  Typically, lenders will only allow a liquid asset, which means an asset you can immediately draw funds from.  An automobile would not be considered a liquid asset.
  • Documentation of anything that may be unusual, like a divorce decree from a past divorce. This shows any accounts you may or may not be responsible for.  Also, child support documentation showing you pay or receive this support.

A pre-approval letter is what you really need, when thinking about submitting an offer into a home.  Having a pre-approval letter will show you are a serious buyer and will help you if you are competing against other offers.


What Are Mortgage Closing Costs And Fees?

Mortgage Closing Costs in MilwaukeeMilwaukee Closing Costs and Fees

There are many closing costs and fees when applying for a mortgage in Wisconsin, which is why Milwaukee lenders are required to verify any assets and income that a borrow has.

Assets and income for borrowers is in fact proof of available funds that a qualify Milwaukee borrower may have to cover these closing costs.

Closing costs do vary depending on program guidelines, area of the property and the property itself.

Closing Costs and Fees

Typical closing costs for a mortgage in Milwaukee may include the following:

  • Origination Fees
  • Discount Points
  • Lender Fees
  • Escrow Fees
  • Credit Report Costs
  • Title Insurance
  • Courier Fees
  • Wire Fees
  • Mortgage and Deed Taxes along with recording costs.

These are all fees charged by Milwaukee lenders and third parties in Milwaukee. However, closing costs may vary depending on the area that you live in and the property that you choose to buy. New government regulations limit the amount of fees a borrower can be charged for specific loan programs.

Lenders are usually required by law to give you a “good faith estimate” (GFE) of closing costs within 3 days of a borrower applying for a loan.

Bottom line is, down payment on a mortgage is not the only cost that a borrower should take into consideration when applying for a mortgage, there are in fact many fees involved. However, depending on the lender and program guideline, some closing cost fee are negotiable, some programs may even allow for you to roll in the closing costs with the loan amount.

Third-Party Fees

A few third-party fees may pop up in the 800s section of the GFE: those for the appraisal, credit report and inspection.

The lender is supposed to pass along these charges without marking them up. In some cases, they are negotiable and you can ask the lender to help you search for good deals on some of these items and pass along the savings.

Verifying Assets To Qualify For A Mortgage

Verifying Assets For Milwaukee Mortgage ApprovalVerifying of Assets For a Mortgage in Milwaukee

When applying for a mortgage in Milwaukee there is a list of things that helps qualify a borrower.

Assets are one of the many key components that Milwaukee lenders take into consideration when reviewing a borrower’s financial circumstances.

There are different types of assets that you can list that can help with qualifying for a mortgage in Milwaukee.

Types of Assets

Milwaukee lenders usually verify assets (liquid assets) just to make sure that the borrower has enough funds for closing. The final transaction usually requires down payment, closing costs, and prepaid items. There may be fees for total reserves that is required for the underwriting approval. There are many different types of assets allowed, below is a list of a few common ones:

Common Assets

  • Stocks
  • Earnest Money
  • Bonds
  • IRA/401(k)/Retirment accounts
  • Checking and Savings Accounts
  • Investments
  • Selling of non-liquid assets
  • Gift Funds

When loan program guidelines require Milwaukee lenders to verify assets, they usually require that they source and season. To source assets (sourcing assets) usually means that the lender must verify where the funds developed from. To season assets (seasoning assets) is to verify that the list of assets have in fact been in the account for about 2 months at least.

Reserve Requirements in Milwaukee

Reserves are also referred to as the amount of “liquid assets” that you would have left over after closing. When verifying Reserves, lenders usually look at reserves as equivalent to numbers of months that can cover the Principal, Interest, Taxes, and Insurance(monthly insurance if necessary), these are usually referred to as PITI.

Requirements for reserves do vary depending on the particular loan program (debt-to-income and credit score). To find out exactly how many months you have to have your reserves you should always check with a qualified Milwaukee lender.