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May 15

4 Ways to Derail a Loan Application

Everyone has heard horror stories about loan applications taking forever and what appears to be endless requests for additional documents.  What you have not heard about is the source of most of the problems.  Over the years I have noticed there are a couple of reasons that pop up again and again. 

I have broken down the four main reasons that can slow down or derail a loan application.

The first cause is missing documents.  All loan applications for a home mortgage must include documents that support the information contained on the application form.  For a well-qualified borrower the support documents are minimal and fairly standard. Most home buyers have copies of everything we need to process a mortgage.  But if we are not provided copies by the borrower we must get them from another source, that requires sending out requests, waiting for the mail and cooperation from a third party that is not a part of the transaction.  If you do not give us a bank statement we must get it from your bank, good luck speeding up that process.

The second reason is missing pages from the support docs that are supplied.  This one drives everyone crazy.  We need the entire document.  A good example of the most common missing page is the last page of the bank statement.  It often says, “This page left blank intentionally.”  For some reason that statement causes borrowers to leave it out, but we do not know it is blank if you don’t give us a copy.  If the first page says page 1 of 5 we need all 5 pages.  If the borrower leaves off page 5 then we can’t use the other 4 pages either.  Then we must ask for the missing page, meanwhile if the cutoff date on the statement you furnish indicates another statement has been sent, we need the new one. 

Any little side trip that slows down the process might cause one or more of the documents we already have to expire.  Everything in the loan file must be current. If it takes six weeks to process the loan and the original bank statement was 3 weeks old when we got it, we’ll probably need two more bank statements before closing.     

Other common examples of frequently missing pages are schedules in tax returns.  This one is clunky because you must read the entire tax return to see if anything is missing.  That is easier said than done, try it sometime, shuffle up your return and take out a random page without looking at it.  Now look at the other pages and figure out what is missing.  If you want to slow down the loan processing leave out a page or two from your tax return.    

The third thing that slows down the process is conflicts between the information in the application and what is contained on the support documents.  All of the information contained in the loan application must be verified by cross checking it against the information on the support documents.  For example, if the borrower says they earn $15 per hour and that matches the figures on the pay stub everything is hunky dory.  But if the pay check shows $10 an hour that raises a red flag and slows down the process.

Not loan ago a fellow told me he earned $22 an hour, his pay stub clearly showed a pay rate of $16 an hour and his tax return from the previous year indicated a $12 an hour pay rate.  All three rates could be correct if he received raises or a promotion.  But we need to document the correct figures.

I have been given bank statements that show a different address than where the home buyer says they live, I have been given the wrong social security number.  Lord help the guy that gave me the wrong birth date for his wife!  The list is endless.

You’ll love this one; a guy told me he was single with no kids.  His tax return was filed jointly with his wife and listed 2 children.  Opps, something doesn’t match up.  How fast do you think that will move through the system?   He was separated but not yet divorced. 

The fourth reason is closely related to #3, misrepresentations.  The first three can be honest mistakes, this one is an outright attempt to commit a crime.  It can come in many flavors.  Recently a lady told me she had been on the same job for 3 years, turns out only 3 months, oopsie.  We do verify this stuff you know.  When I questioned her about the discrepancy she said she thought 3 years sounded better.  Really?  I can’t count the number of times people have told me they have enough money for the down payment when they don’t.  That one is always good for a laugh.

We must verify everything you tell us, EVERYTHING!  All of the data must match.  Close only works in horseshoes and hand grenades.    

Here is how to streamline and speed up the process.  Gather everything before filling out the application and use the numbers from the support documents to complete the app.  If the most recent bank statement shows an ending balance of $9,400.12 put that figure in the loan application, not $10,000.  That way the bank statement matches the loan application and it speeds up the process.  What if you really have $10,000 because of a recent deposit that isn’t on the statement?  So what?  It doesn’t matter unless you need the extra $600. 

Most buyers apply for a mortgage and then gather support documents.  By following my suggestion and reversing the process it is possible to cut out weeks from the process.  They are called support documents because they are supposed to support what is in the loan application.  If you use the actual figures from the support documents to fill out the loan application they match 100%.  

 

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