TOP 5 reasons for Home Loan Denials
#5 Old Derogatory Credit
Old collections or charge offs and disputed open accounts will raise RED FLAGS red flags.
Note: Some loans such as FHA guidelines treat credit disputes differently.
#4 Large Purchases before close
This happens quite often. Hold off on making any sizable purchases or financial decisions until you’ve closed. Even if you’ve budgeted extensively and can afford a new car, this new expense might make your underwriter question whether you can afford all of your monthly payments.
You’ll also want to avoid any major lifestyle changes, if possible.
Whether it’s adopting a child or finally deciding to quit your job and join the circus, you don’t want your underwriter to think you’re anything but responsible when it comes to money
big changes like babies can put a strain on your bank account. Lenders do credit updates up until the day of closing.
#3 Unsourced Cash Deposits
Money laundering activities are red flags and will not be tolerated. I wouldn’t worry too much about qualifying for a home loan. I would be more concerned with JAIL time.
When you produce bank statements with cash deposits, it’ll be questioned. The larger the deposits, the more questions asked.
Bottom line, huge cash deposits with no paper trail we have to source these transactions. If you receive a big enough deposit, from Uncle Joe, you’ll need to fill out a gift letter.
#2 Overtime and 2nd Jobs
Here’s a perfect scenario. The Verification of Employment comes back from HR and it shows that you’ve been working overtime or second job for 6 months.
The universal rule is that a borrower MUST have a complete 2-year history of receiving what we call “supplemental” income for it to be considered “stable” and allowable.
#1 2106 Unreimbursed employee expenses or second business deductions
Have you applied for a home loan or attempted to refinance and was denied due to your 2106 unreimbursed expenses? 2106 deductions will reduce your allowable income when qualifying for a home loan. There are many gray areas and details that would be very lengthy to explore here.