After all the insane amounts of paperwork you’ve supplied with endless questions answered and hundreds of dollars spent on an appraisal and home inspection, your loan is finally approved. You’re beyond excited and get everything ready for moving day. But then you get a phone call from your lender telling you your loan is not funding. In other words, you can’t get the loan. What happened? Below are some things that commonly go wrong:
Additional Credit: The most common prior-to-funding disaster is when a borrower takes out more credit after the initial credit report was run. The income and debt calculations are always based upon the initial credit report. Usually a backup credit report or credit monitoring system triggers an alert if the borrowers open any new accounts or add debt to their credit cards. If a borrower applied for credit or added a significant amount of additional debt, the credit scores can worsen. A reduced middle credit score can cause a higher cost to the loan or worse, loan denial.
It may be tempting to run out and buy furniture for your new home but it’s important not to do anything excessive while you’re still going through the mortgage process. Your normal patterns of purchasing groceries, gasoline, etc., are highly unlikely to affect your qualifying ratios or your credit scores.
Property-Related Funding Conditions: Perhaps the lender requires proof of a permit for a room addition. If one does not exist, it’s a scramble to get the local municipal authority to inspect, approve and issue a permit in a timely manner.
Employment Verification: Lenders always call to verify your employment prior to funding. If you are planning on resigning and taking another position, wait until after the loan closes. Don’t get yourself fired, whether it’s before or after funding.
Mortgage Insurance: Sometimes, the lender will approve the loan and the mortgage insurance companies decline the loan. This is rare, but this can happen. Different underwriters may interpret credit and income differently.
Fraud: This is an unfixable problem. The most common fraud is fake tax returns. You must provide your lender exactly what you provided the IRS. Lenders validate your tax returns with the taxing authority. Often times the approval is issued subject to IRS validation, using a consent form called a 4506-T. Loan approvals issued based upon false information are denied quickly.
Get your funding conditions addressed and cleared as soon as possible to reduce your risk of failure to fund. If you’re worried about any of the above problems, contact your loan officer immediately.