Mortgage Loan Approval Process: 4 Common Hot Buttons
by Pam from the United States
Ask Kate about the mortgage loan approval process: Whether you are refinancing, buying a home, or modifying a mortgage, you should know that lenders have certain hot buttons. Let's take a look at 4 of them because when it comes to mortgage approval, what you DON'T know could hurt you!
Ask Kate: Why Can't I Get Mortgage Loan Approval By Pam from the United States
I am getting a divorce and it should be final in couple months. I have applied for mortgage modification.
My name is not on the mortgage, just my ex-husband's. However in the divorce decree, we agreed he would continue to hold the mortgage in his name but he would take his name off the deed. This is because he signed the house over to me as part of the settlement agreement.
This week I was told from Wachovia that I was approved for HAMP Tier Two. But then they asked if he is going to stay in house since this could affect the loan decision of the modification.
Wachovia kept asking me why he wouldn't be on the deed. They said this can also change the decision.
Why does it matter that his name is on the mortgage but not the deed? I am so confused and don't know what to do. I would greatly appreciate any input or help!
Kate's Answer: Why Can't I Get Mortgage Loan Approval
You may have heard of the 3 Cs in mortgage lending that form the basis for home loan approvals: cash, credit, and collateral (property).
In addition, you should be aware of several lender hot buttons that, along with the 3 Cs, contribute to loan approval decisions.
Lender Hot Button 1: Owner Occupancy
Because lenders are convinced that the occupancy status could affect the security of their investment, mortgages for homes that are not lived in by the borrower are underwritten with more guardedness. They often have higher interest rates. So this could be why the underwriter is asking if your ex, the borrower on the mortgage, plans to occupy the home.
The problem is, some homeowners' situations aren't that clear cut, like Michele's and Roy's. Read their stories at Refinancing a House - Non-Owner vs Owner Occupied
Lender Hot Button 2: Are the Owners of the Home Also the Mortgage Borrowers
Lenders usually prefer that the property owners named on the deed match the borrowers on the mortgage.
But the issue becomes complicated when a divorce decree instructs the use of a quitclaim deed to remove one member of the marriage from the ownership of the home but leaves both parties on the mortgage. See Divorce Your Mortgage to Protect Credit Scores
Here is a example of a borrower attempting to use loan assumption with a quit claim deed to modify a mortgage after divorce. Perhaps you can discuss a similar scenario with your loan servicer. FHA Loan Modification with Quitclaim Deed: Ironic Twist
Lender Hot Button 3: Maxed Out Credit Cards
Even when a borrower has perfect credit with no late payments, maxed out credit cards can be a hot button for mortgage lenders. The reason is that they believe a homeowner could be on the verge of a bankruptcy.
Conversely, using credit cards can increase credit scores. Did I just confuse you? Read my explanation at Will Debt Raise or Lower Your Credit Scores
Lender Hot Button 4: House Payment Shock
When the proposed house payment is going to be significantly greater than the current mortgage or rent, lenders start to get edgy. This increase is called payment shock and creates worries that the borrower won't be able to afford the house more than a few months.
But sometimes what appears to be payment shock can be easily explained. Learn how to deal with Problems with Mortgage Underwriting Guidelines
and possibly head off a loan denial.
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