Getting a Mortgage Loan: Pre-Approved, Then Not Approved
Every wanna-be homeowner knows by now that they must get pre-approved before trying to buy a home.
The Client. So after my get-to-know-you sit down with a particularly motivated new buyer, we went ahead and tentatively scheduled her first buyer’s tour about 10 days out to give her enough time to get her money ducks in a row. And she diligently went at it: got her tax returns, check stubs, bank account statements and loan app to my mortgage guru asap and had her preapproval in hand well in advance of our scheduled showing.
That showing turned out to be just the first of many. We looked for many moons before we found her "the one.” We hunted in one city, then another, then expanded the search to about five contiguous towns. We started with a flat maximum purchase price from the mortgage broker, but that evolved over time as we realized we needed to spend more to get what she needed, so we began working with municipal down payment assistance programs in three of the five cities -- all of which provided a different amount of down payment help. So we ended up with a complicated price range matrix with four different max purchase prices in five different cities. After that, she was outbid or had a change of heart with each of the first three houses she liked enough to pursue.
All told, about four months elapsed before she got into contract on a house she was very seriously in love with. We started ticking items off our due diligence to-do list, holding inspections and spending a few hours in the house so we could rule out any condition issues or changes of heart before incurring the hefty cost of an FHA-loan appraisal. By then, since it had been so long since she’d been pre-approved, the whole file had to be resubmitted to the lender -- financials, application, warts and all.
What we thought would be a routine update to her approval took a scary turn when my mortgage broker rang me up and said, “Uh, Tara, she does not qualify for this loan.” “Whaaa?! What happened?” I cried, already priming myself to try to find the error or discrepancy and the resolution, hopefully all before my client even caught wind of this debacle. “Well,” she said, “her credit score has dropped about 75 points, she has a new collection account on her credit report and she just mentioned for the first time that she’s not single. She’s still legally married. Even though he’s not wanting to be an owner, the lender still wants to see his credit. And his credit is way worse than hers!”
The Workaround. I took this cringe-inducing drama back to my client, just on the off-chance that some of these items were errors or communication disconnects. No such luck -- the collection account was something she was trying to resolve but all the rest was totally accurate. She was incredulous: she’d been pre-approved, so she thought she no longer needed to be vigilant about her credit and other items.
I reminded her, as we’d discussed earlier that (a) until she had an address, we could not get an underwritten approval, and (b) that until we got into a transaction, everything was just an estimate. In fact, some of the closing costs, property taxes and mortgage interest that would have to be paid at closing were only estimates until we knew the precise date escrow would close.
At that point, though, it didn’t matter how we got there. We needed desperately to know whether we could work it out and get her an acceptable loan, stat.
Talk about triage! My client went to work negotiating with the collection agency. In exchange for a settlement, they removed the “derog” on her credit report. She wrote a letter of explanation about the other item which had lowered her score and submitted it with documentation to the lender. My mortgage broker, bless her heart, went on the hunt for another lender whose guidelines would allow the estranged husband to, uh, exist without jeopardizing the loan. And I called my grandmother and asked her to pray -- hard.
The Result. And believe it or not, something, or all of those things, worked. She got the loan, from a different lender and at a slightly higher interest rate than she’d been quoted before all the mayhem with her financials. We closed the deal, and she and her kids got a lovely new home to call their own. And to go with it, she also got a lesson in how to give your trusty Realtor (and mortgage broker, for that matter!) a complete and total conniption fit.
