Mortgage Denied After Pre-Approved

This guide covers getting a mortgage denied after being pre-approved. In this article, we will discuss the next options borrowers have in getting approved for a new home loan after getting a mortgage denied after being pre-approved. A mortgage loan applicant’s credit score determines whether they qualify for a mortgage loan. There is no reason why a mortgage was denied after being pre-approved. The main reason for a mortgage loan denial after being pre-approved is that the loan officer did not properly qualify the borrowers and issued a pre-approval. In this blog, we will focus on getting a new mortgage loan approved after getting a mortgage denied after being pre-approved.

Can I Get a Mortgage Denied After Pre-Approved?

Over 80% of our clients were denied a mortgage loan at the last minute by other lenders or could not qualify due to lender overlays. The team at GCA Forums Mortgage Group is an expert in helping borrowers who were denied after they got qualified and pre-approved for a home mortgage.

FHA loans are the most popular mortgage loan program for borrowers with less-than-perfect credit, bad credit, and higher debt-to-income ratios.

GCA Forums Mortgage Group is an expert in helping home buyers qualify for a home loan after getting a mortgage denied after being pre-approved. Gustan Cho Associates has no overlays for government and conventional loans. We are also experts on non-QM loans, alternative financing programs with no waiting period after a housing event such as foreclosure, deed instead of foreclosure, or short sale.

How Can I Get Approved For a Mortgage After Being Denied?

Over 80% of our borrowers were denied by other lenders. They were pre-approved and denied during the mortgage, mainly because of the lender’s overlays. There is no reason for a last-minute mortgage loan denial. The main reason for a mortgage loan denial is that the loan officer did not properly qualify the borrower. The borrower may have met the agency guidelines, but did not meet the lender overlays. For example, the borrower needs a 500 credit score to qualify for an FHA loan.

A lender may require a 620 credit score as part of their lender overlays.  If credit scores do not meet the minimum required, the mortgage application process cannot start.

Lenders view anyone with a credit score under 620 as having bad or poor credit. For borrowers with credit scores of 620 or under, most lenders, such as banks and credit unions, will not qualify borrowers for a mortgage. This is because they do not deal with bad credit borrowers. Just because borrowers are told they do not qualify for a mortgage because they have bad credit by these lenders does not mean they do not qualify for a mortgage with a lender with no overlays.

Why Do I Get Mortgage Denied After Pre-Approved?

Just because you do not qualify with one lender does not mean you cannot qualify with a different lender with no overlays. Homebuyers with bad credit can get mortgages. There may be some obstacles that they need to go through. With a creative, hard-working, bad credit mortgage loan officer, borrowers will get a bad credit loan. Getting a bad credit mortgage loan does not mean borrowers will pay ridiculously high mortgage rates. Bad credit mortgage loans, such as FHA, VA, and non-QM loans, exist. Chad Bush, a senior loan officer for GCA Forums Mortgage Group says the following about getting a mortgage denied after pre-approved:

There are rules and regulations on how high a mortgage rate lenders can charge. Mortgage rates for borrowers with a credit score under 600 will be higher than for borrowers with higher credit scores.

Depending on the lender, borrowers with bad credit normally get charged a 0.50% to 1.5% higher mortgage rate than those with a higher credit score. Borrowers have the choice of waiting to get a better rate by going through a credit repair program. Or purchase a new home with a higher mortgage rate and refinance it after closing on it, and after you have better credit. The choice is up to consumers.

What Are Mortgage Rates For Bad Credit

Borrowers with bad credit can shop for the best mortgage rates. Just because you have bad credit and low credit scores does not mean you are limited from shopping for the best rates. Some lenders charge higher rates than others for borrowers with lower credit scores.  FHA loans are not as credit-sensitive regarding credit scores as conventional loans. For example, whether the credit score is 680 or 700, borrowers will get the same FHA mortgage rate. However, the mortgage rate will be higher on FHA loans if credit scores go below 620. The mortgage rate will even be higher if credit scores fall below 600.

What Is The Best Mortgage For Bad Credit?

FHA and VA loans are the two best mortgage options for borrowers with bad credit. Borrowers not qualifying for FHA or VA loans may choose non-QM loans for bad credit. You can get approved for non-QM loans with late payments in the past 12 months.  GCA Forums Mortgage Group is a mortgage broker licensed in 48 states with a strong presence. Our business model is helping borrowers with less than perfect credit and credit and debt-to-income ratio issues. All of our loan officers specialize and are experts in bad credit mortgages. Borrowers with bad credit who could not qualify with other lenders can contact us so that we can help.

FHA and VA Loans for Low Credit Scores

GCA Forums Mortgage Group can help borrowers with credit scores down to 500 FICO on FHA and VA loans. The type of lenders borrowers with bad credit should consult are lenders with no lender overlays on government and conventional loans. Over 80% of our clients are borrowers who could not qualify at other mortgage companies or got a last-minute mortgage loan denial. Lender overlays are additional guidelines set by the individual mortgage lender on top of the minimum mortgage lending guidelines set by HUD and/or Fannie Mae and Freddie Mac, as well as VA or USDA. 

Not All Lenders Have The Same Lending Requirements

No two mortgage lenders have the same lending requirements for the same loan program. If a mortgage lender tells borrowers they do not qualify, ask them why. Is it because of their lender overlay? Is it because of federal guidelines? If it is because of federal guidelines, there might be an issue. Federal lending guidelines require a 3.5% down payment on FHA loans with a minimum 580 credit score. John Strange, a senior loan officer at GCA Forums Mortgage, says the following about getting a mortgage denied after being pre-approved:

Open collections are fine; old collection accounts must not be paid off. However, federal lending guidelines require borrowers to have been timely on payments for the past 12 months. There are also guidelines regarding debt-to-income ratios.

Bad credit mortgage lenders do not qualify and approve everyone with bad credit. You can have prior bad credit and qualify for an FHA loan. However, credit needs to be re-established after a period of bad credit. Everyone can have a streak of bad credit history due to a loss of job, medical issues, loss of business, death of a spouse, or other extenuating circumstances. When a bad credit lender reviews the credit report, the underwriter will look at the overall credit history and see the periods of bad credit reflected.

Home Loans With Bad Credit Approval

Here is a case scenario on typical borrowers we help:

• had good credit for five years
• had two years of bad credit due to the loss of a job
• have re-established credit after regaining employment
• Then borrowers are an ideal candidate for a bad credit mortgage
• However, if borrowers had a ten-year credit history:
• All of those ten years had late payment history, collection accounts, charge-offs, judgments, and other derogatory credit items, and you were fully employed
• Then there is an issue with this type of borrower
• If this is the case, the underwriter will conclude that they have total disregard for credit, and the chances of you getting a loan approval will not be good

Most mortgage lenders will want a timely payment history for at least 12 months and do not want to see any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. In the following paragraphs, we will cover getting a mortgage denied after being pre-approved.

FHA Loans For First-Time Homebuyers With Bad Credit

Credit scores and income are two of the most important mortgage qualifying factors. Borrowers can qualify for a Mortgage With Low Credit Scores and bad credit. Consumers can have low credit scores and qualify for a home loan. However, borrowers need to meet the minimum Agency Mortgage Guidelines. For example, to qualify for a 3.5% down payment FHA loan, the borrower needs a 580 credit score. However, most lenders will require a higher credit score, such as a 640 to 680 FICO, for borrowers to qualify for an FHA loan. Lenders’ higher credit score requirement is called lender overlays on credit scores.

FHA Loans With 500 FICO

Many of our borrowers are folks with credit scores down to 500 FICO. FHA and VA loans allow borrowers with as low as a 500 FICO credit score. Many homebuyers are told they cannot qualify for an FHA or VA loan with a credit score as low as 500 FICO. Homebuyers can qualify for an FHA loan with a credit score of under 580 and a down to a 500%. However, HUD, the parent of FHA, requires a 10% down payment for all borrowers with credit scores under 580 to qualify for an FHA loan. Dale Elenteny of GCA Forums Mortgage Group says the following about getting a mortgage denied after being pre-approved.

The U.S. Veterans Administration (VA) does not have a minimum credit score requirement on VA loans as long as the borrower can get an automated approval on AUS.

When shopping for a loan officer and lender, it is highly recommended that borrowers study the basic minimum agency mortgage guidelines on government and conventional loans. This way, you will understand that when a lender says you do not qualify, you do qualify, but not with the particular lender that says you do not qualify.

FHA Loans With Collection Accounts

Outstanding collections and charged-off accounts do not have to be paid to qualify for government and primary owner-occupant conventional loans. Again, many lenders will require you to pay outstanding collections and charged-off accounts due to their lender overlays. GCA Forums Mortgage Group has no lender overlays on government and conventional loans. We go off the automated underwriting system (AUS) findings and have zero lender overlays.

Home Loans With High Debt-To-Income Ratio

The best mortgage loan program for homebuyers with high debt-to-income ratios is FHA loans. The maximum debt-to-income ratio allowed on FHA loans for borrowers with at least a 580 credit score is 46.9% front-end and 56.9% back-end DTI. For borrowers under 580 FICO, the debt-to-income ratio gets lowered to 31% front-end and 43% back-end DTI.

USDA loans have a 29% front-end and 41% back-end debt-to-income ratio cap. Fannie Mae and Freddie Mac do not have a front-end debt-to-income ratio. The maximum debt-to-income ratio on conventional loans is 45% to 50% DTI.

The Veterans Administration has no maximum debt-to-income ratio cap on VA loans. This holds true as long as the borrower can get approved/eligible per the automated underwriting system (AUS). Fannie Mae and Freddie Mac require a minimum credit score of 620 on conventional loans. FHA, VA, and USDA are government-backed home mortgages.

How Can I Qualify For Second Home Mortgages With Bad Credit?

Homebuyers of second homes can qualify for conventional loans with a minimum credit score of 620 FICO. Homebuyers with bad credit can qualify for non-QM loans if they do not meet Fannie Mae guidelines on conventional loans. You cannot qualify for second homes and investment property mortgages with government loans. Fannie Mae allows for primary owner-occupant home mortgages, second homes, and investment property conventional loans. Not all lenders have the same lending requirements for government and conventional loans. 

Best Lenders For Borrowers with Mortgage Denied After Pre-Approved

Most lenders have lender overlays on government and conventional loans. Lender overlays are additional lending guidelines of the individual lenders that are above and beyond FHA, VA, USDA, Fannie Mae, and Freddie Mac Over 80% of our borrowers at GCA Forums Mortgage Group are folks who could not qualify at other lenders due to those mortgage companies’ lender overlays. GCA Forums Mortgage Group goes off the automated findings of the automated underwriting system (AUS) and has no other lender overlays on FHA, VA, USDA, and Conventional loans. Alex Carlucci, a senior loan officer at GCA Forums Mortgage Group says the following about getting a mortgage denied after pre-approved:

GCA Forums Mortgage Group is one of the few national mortgage companies licensed in multiple states with no lender overlay on government and conventional loans. Borrowers can qualify for a home mortgage if they can document qualified income.

Consumers can have the highest credit scores possible, but without documented income, they will not be able to qualify for a mortgage. Income documentation is the most important factor for a home buyer to be able to qualify for a residential mortgage. Credit scores, credit, and credit history are also extremely important factors.

How To Reapply Getting a Mortgage Denied After Pre-Approved

Minimum credit scores are required to qualify for particular mortgage loan programs. To qualify for a 3.5% down payment home purchase, an FHA Loan borrower needs at least a 580 Credit Score. To get approved/eligible per the automated underwriting system (AUS), borrowers need a timely payment history for the past 12 months. No minimum credit score requirements exist to qualify for VA Loans with GCA Forums Mortgage Group. Borrowers can qualify for a Mortgage With Low Credit Scores. Dustin Dumestre, a senior mortgage loan originator at GCA Forums Mortgage Group says the following about getting a mortgage denied after pre-approved as follows:

Many lenders may require higher credit scores due to their lender overlays. For conventional loans, a 620 credit score is required. The minimum credit score requirements to qualify for a 3.5% down payment home purchase FHA loan are 580 FICO.

Borrowers with credit scores below 580 and down to 500 FICO are eligible for FHA loans, but require a 10% down payment. The United States Department of Housing and Urban Development, commonly referred to as HUD, is the parent of the Federal Housing Administration, often referred to as FHA. FHA is a government agency insures lenders if homeowners default on their FHA Loans. Lenders need to follow FHA lending guidelines for HUD to insure FHA Loans.

What Is The Lowest Credit Score I Can Have For FHA Loan Approval?

The lowest credit score homebuyers can have for an FHA loan is 500 FICO. FHA lending guidelines contain minimum credit scores, DTI, and other guidelines that borrowers must meet. HUD requires a minimum 580 credit score with a 3.5% down payment. For home buyers seeking to purchase a home with credit scores under 580, a 10% down payment is required. The minimum credit score required to be eligible for an FHA-insured mortgage loan is 500.

Best Mortgage Lenders For 500 FICO Borrowers

Not all mortgage lenders will qualify and approve borrowers with credit scores down to 500 FICO. However, many of our clients at Gustan Cho Associates have credit scores down to 500 FICO. Borrowers who have credit scores between 500 and 579 will require compensating factors such as the following:

• Timely payments in the past 12 months
• reserves
• verification of rent
• a longer-term on-the-job
• other positive factors

Qualifying for a Mortgage With Low Credit Scores is very simple: Credit scores often fluctuate, and an experienced loan officer can manipulate credit scores to benefit borrowers and maximize their benefits.

Minimum Credit Score Requirements For Conventional Loans

A minimum credit score 620 is required for homebuyers seeking a conventional mortgage loan. Fannie Mae and Freddie Mac are the two giant government-sponsored enterprises that make up the rules and regulations regarding conventional loans. Conventional loans are extremely credit score sensitive. The higher the credit scores are, the lower the mortgage rates are. Borrowers need a 740 credit score to get the best par mortgage rates. A homebuyer is eligible for a conventional mortgage loan with a 620 credit score. However, their mortgage rates will increase due to their lower credit score. 

Mortgage With Low Credit Scores Versus Bad Credit

Many factors can help a consumer with a lower credit score boost their credit scores quickly. Home buyers with low credit scores who do not meet the bare minimum credit score requirements can easily boost their credit scores with the help of a loan originator. There is the FICO Analyzer, where a loan officer will input data from the borrower’s credit report.

Non-QM Loan Requirements

Non-QM loans are an option for borrowers with recent late payments, especially those with mortgage rates in the past 12 months. Non-QM loans require a 20% or higher down payment. Non-QM loans are alternative loan programs for borrowers who cannot qualify for traditional government and conventional loans. It will state the borrower’s actions to boost their credit. Most of the time, just paying down credit cards will substantially boost the borrower’s credit scores. Other times may be disputing a medical collection account or paying off an outstanding collection or charge-off. Some folks have very low credit scores because they have no active credit tradelines. This can be solved by getting a few secured credit cards with at least a $500 credit limit. Each secured credit card can boost a person’s credit scores by at least 20 FICO points.

Can I Qualify For a Mortgage With Late Payments?

One recent late payment can plummet a person’s credit score by at least 50 points or more. Could you make all monthly minimum payments on time? Multiple late payments in the past 12 months will plummet one’s credit score by more than 100 points. Angelica Torres, the national operations director for GCA Forums Mortgage Group says the following about mortgage denial after pre-approval as follows:

If there is a recent late payment on the credit report, could you contact the creditor and see if they can give one-time forgiveness and remove the late payment? The creditor will often do that as a one-time courtesy for consumers with late payments and a perfect payment history.

You must not pay outstanding collection accounts to qualify for FHA loans. Do not pay off any old unsatisfied collection accounts with credit balances unless the creditor is willing to delete the derogatory item from the credit report. Pay for delete is negotiating a settlement amount with the collection agency or creditor instead of removing the collection account from your credit report.

Do I Need To Pay Charged-Off Accounts To Qualify For a Mortgage?

Homebuyers do not have to pay charged-off accounts to qualify for a mortgage. If you want to pay unpaid charged-off accounts, negotiate with the collection agency to pay off the balance if they remove the negative collection account from your credit reports. If the collection agency is unwilling to delete the negative item from a credit report, leave it alone. Marga Jurilla, executive assistant to Gustan Cho says the following about mortgage denial after pre-approval:

Can get mortgage approval with unpaid collection accounts with balances. Mortgage companies normally ignore medical collections. Unpaid collection accounts that are medical accounts are normally exempt and ignored by mortgage underwriters.

Too much debt on revolving accounts is another reason consumers may have lower credit scores. Consumers with credit cards should make sure not to exceed more than 10% of the available credit limit. Having a credit balance close to the limit will definitely plummet credit scores temporarily until consumers reduce their credit balance.