You Have to Know the Mortgage Game to Win

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By Scott Sheldon

Ever hear stories in the break room about how difficult it is to get a mortgage? "I have to jump through so many hoops to get my mortgage, it's ridiculous. They keep asking me for financial information, I swear I already gave it to them."

Reality check: Obtaining a mortgage is no easy feat these days, no matter how great your credit score is or how good your lender is. By understanding the loan process, however, you can make sure you don't have to jump through hoops, and more importantly, that your loan closes on time.

The Nature of Mortgage Lending: Lenders have to meet tight federal requirements on your ability to repay. This includes a thorough review and examination of your credit, debt, income and assets, as well as the property and occupancy of the home in which you plan to be financing. Furthermore, lenders operate in a world in which they usually only have a one-time chance to make how you look on paper favorable to the decision-maker, i.e. the underwriter, the person within the mortgage company who issues an approval.

Know this: The role of the lender's underwriter is to mitigate risk for the mortgage company. They carry out this objective by making sure your full financial picture adheres to Fannie Mae and Freddie Mac guidelines, which serve as the model for other lenders and loan programs.

The reason you'll often hear stories about all the hoops to jump through is because the loan officer did not properly set the borrower's expectations at the forefront of the loan process -- and/or the loan was not put together correctly. Remember, it's very difficult to create a second first impression -- if your loan officer did not properly package the loan for the underwriter to thoroughly examine and subsequently sign off, then you may have a cumbersome process. That's if the loan can be approved.

Here's a typical mortgage loan process:
  • Lender gathers your financial documentation.
  • Loan officer drafts a cover letter to the underwriter laying out the framework mortgage scenario.
  • Underwriter reviews the complete credit package, ensuring the documentation adheres to risk requirements.
  • Underwriter issues a disposition - a new loan status, approved with conditions, or at times a suspense.
The ideal outcome is the loan officer provided all of the necessary documentation, preemptively demonstrating how the loan package meets all the lending guidelines of the particular program the borrower is applying for, such as a conventional loan, FHA loan, etc.

Obstacles in the Path: When a loan status changes from pending to approved with conditions or suspense, the process is the same: There are conditions the underwriter needs fulfilled (such as missing documents or explanations needed) to issue a final loan approval. The reality is when the condition is provided, and that condition does not fully meet the original condition the underwriter%VIRTUAL-pullquote-If your loan process has dragged on too long and you're being continually asked for more and more documentation, something is not adding up.% had placed on the loan, that can become problematic because every time new documentation is given to an underwriter, that could -- and oftentimes does -- create more conditions.

Let's say the underwriter is trying to document sufficient reserves for the program to which you applied, but you provided only three pages of a five-page bank statement. The underwriter then conditions for the additional missing pages of the bank statement. Then let's say the additional missing pages of the bank statement show multiple large cash deposits and subsequent funds transfers. The underwriter then adds another condition for each deposit and transfer to be sourced and paper-trailed.

Every time a document is provided to the lender's underwriter, there is always the possibility that it will create more questions.

How to Fix a Runaway Loan Process: So what if your loan process has gotten out of hand? Simply start over. It actually can be that simple. If your loan process has dragged on too long and you're being continually asked for more and more documentation, something is not adding up. (Refinances usually take 30-45 days, depending on the nature of your financial picture and whatever your lender's operational workflow is like. Purchase loans usually take about 30 days, although sometimes longer depending on contractual dates.) By canceling the process on a loan for which the financial information has changed so much to the point that it becomes a runaway financial freight train, then canceling the loan and starting over with fresh clean documentation is a quick and easy way to wrap up your loan with less headache.

What you'll need to pay attention to:
  • Changing rates and pricing. You may jeopardize your interest rate lock. While the pricing and terms of your loan is certainly important, the ability to fund the loan is something else entirely. If you can be flexible on your rates and fees, this might be a favorable approach to pursue vs. beating a dead horse.
  • Getting a purchase contract extension. Though not fun, it might be necessary for the greater good of the transaction if the loan can be quickly repackaged and put in front of the underwriter again for a fresh clean review based upon the correct and/or new financial supporting documentation.
  • Providing updated documentation. Yes, canceling out the current loan and starting a brand-new one is going to require a higher internal workload on the side of the lender, so do be gracious and help them out by providing them any updated financial information as needed, as it will only help to move your loan through the system to funding more quickly.
It also helps if you start the mortgage application process with a good understanding of your credit. If you give yourself plenty of time to get familiar with your credit reports, and any potential problems in your history that are still affecting your credit today, you can work to mitigate any issues, or be ready to address them during the mortgage process.

Look for opportunities to raise your credit score in the lead-up to your application, as a better credit score can get you better mortgage rates. (You can check your credit reports for free once a year, and there are free services to check your credit scores -- such as Credit.com, where you can get two scores updated every month to track your progress.)
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