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The Most Common Reasons Loan Applicants Get Denied
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The Most Common Reasons Loan Applicants Get DeniedDaniel Dobbs2025-03-06T10:13:05-08:00
Neither lenders nor real-estate agents need any “practice” working on transactions that don’t close escrow!
Unfortunately, this happens too often because buyers try to hide their issues until it’s too late.
The key for agents using a lender who will discover any deal-killing issues before offers are written, before you waste gas, money, and time.
The simple solution is to encourage your buyers to submit a full loan application for “DU” loan approval before you invest effort into them.
As a result, any credit, income, or down payment issues will be exposed long before you begin writing offers.
Buyers also benefit as they will close escrow faster, get a lower interest rate, and avoid any last-minute stress brought on by poor preparation.
The following is an in-depth list of deal killers that are all too common. Many of them can be resolved IF a loan officer has time to adapt and restructure the loan package.
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FHA / Fannie loan limits are too low for the county the property is located in
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Poor credit management Fico Myths
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Buyer shows large losses on rental properties
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Mortgage rates rise dramatically
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The buyer changed careers recently
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Not enough liquid reserves after close of escrow (2-3 months for conventional – (FYI: Zero for FHA) – 6-12 months for “Jumbo loans”
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“Layered risk” – too many “questionable or conflicting issues” about the buyer
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“Down payment/ Gift” money isn’t seasoned or traceable (i.e., “mattress money”)
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Inheritance sale – squabbling among siblings or probate sale moves too slowly through the court system.
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New or closed credit accounts
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Inexperienced loan officer
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Divorce issues for buyer or seller
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Simple clerical errors
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Undisclosed relationships with seller – non-arms-length transaction
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Buyers attempt to buy multiple properties at the same time (occupancy fraud)
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Defects on property / non-permitted work
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Poor communication between Escrow-RE Agent-Loan Officer
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HOA Issues (litigation / underinsured)
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Lender “overlays” additional underwriting criteria over & above what Fannie, VA, and FHA require
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Buyer has too many properties with mortgages (10 is max for hard $$- 4 for Fannie and Freddie)
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