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When we consider the phrase Picky...Picky...Picky, this is what we think of- a choosey eater, someone who refuses to try something new or is suspicious of anything they haven't experienced before.
But you all know I write about the mortgage business, not a food blog. What I am referencing is the fact that we mortgage brokers find ourselves at the beginning of the Picky-Picky season. The volume of loan application is up. Lenders have become quite busy underwriting a greater number of new mortgages. And with more volume comes more rejection. Loans that were not a problem to get approved over the winter months are now being tossed overboard. Why? Because the investors can-they are busy, because pipelines are full and there is no incentive to work on more difficult transactions.
I understand the dilemma. There are borrowers whose circumstances are head twisters. These are the loans that as a mortgage loan originator I believe in, but to get them to the closing table for any number of reasons can be Herculean feat.
During a recent conference call with one of our investors I learned a jaw dropping statistic-only one in 500 loans with a credit score of 660 or below is approved. 1 in 500! At Tippecanoe Mortgage many of our clients are in the 620-660 range and we close many loans with those scores. But during the busy time of the year it is definitely more difficult.
While I think it is a true statement that almost any loan no matter the credit score, job time, or assets will get looked at more critically in the post financial reform era, the lower the score drops below 740 the bigger the magnifying glass.
Last year 70% of borrowers with credit scores over 740 were approved. For those with credit under 680 the percentage changes to 30%.
In most cases a mortgage loan that the borrower has credit scores of 640 or above is going to be approved eventually-but any issue such as over drafting the debit account, total debt ratio being at or just above the standard percentage, income variances over the past couple of years, or a late payment or two on a credit card may be enough to require maximum hoop jumping to get the job done.
If your credit score is below 640 it gets even tougher. Most underwriters won't stamp the dreaded
on a file without giving the borrower a chance to obtain documentation to refute or explain the situation. It is highly likely that rent checks or mortgage history for the previous 12 months will have to be produced. There might be some collections that will have to be paid off, and certainly any tax liens or judgments will have to be released. Perhaps some credit card debt will have to be eliminated. These are typical requirements.
A careless phrase from an appraiser that wouldn't have mattered during the winter months, repair issues on a property, or a job gap, work on the loan may come to a screeching halt until a resolution is found.
For instance- one recent loan's approval status revolved around income calculation. The credit score was in the mid 600's. The borrower, over a period of several years had shown an income history that was consistent. However, the guaranteed hourly pay was lower than the regular income. The underwriter chose to only use the guaranteed hourly pay rather than the historical income level that was earned over the past three years. Seems that when times get busy common sense can get tossed out the window.
A borrower with several jobs over the past two years, or less than a year on a job that was different than what they had been doing prior to the current job might raise an eyebrow. Income that is less than the past year will definitely be scrutinized.
The purpose of these musings is not to discourage people from making mortgage applications, rather it is to encourage borrowers to do whatever possible to co-operate with their lender so that documentation can be provided, good explanations given, etc. to solve whatever the problem is and move to closing. The borrower who thinks that the process will never end is not alone-many people are running this gamut.
The good news is that as a mortgage broker, Tippecanoe Mortgage can provide you with several lender choices. Many times if one lender can't or won't work with a specific scenario, another will.
Closed loans equals happy borrowers-we do everything we can to get our clients there.
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