THE MOST COMMON PROBLEMS UNDERWRITING A LOAN APPLICATION

Have you ever wondered what happens to your loan application once a loan officer has gathered your credit information and completed the form? What does an underwriter look at after the loan processor has compiled the information and submitted the loan package to the lender?

The items below are not necessarily things that will cause the loan to be turned down. However, they may ask more questions and/or require more documentation.

(Typical Errors on a 1003 ((The Loan Application))

THE LOAN APPLICATION

There is an Invalid social Security number

Significant or contradictory changes from handwritten to typed loan application

LOAN AMOUNT/PURCHASE PRICE

The loan application shows the same loan amount as the purchase price of the property, or the loan amount shown is "higher" than the purchase price. Something is wrong somewhere.

CASH REQUIRED FOR CLOSING

Cash for closing indicated on 1003 (loan application) as cash in savings, however, when verification of deposit is received, there is a discrepancy between the amounts shown.

The cash on hand shown on the loan application is indicated as "cash came from another country". Cash must be verified. If the money was in a foreign bank, bank books, bank records can be used to verify these funds. If the money was brought in the form of cash, it had to clear customs, and the borrower should have a clearance record for the cash from customs. Get a copy of the receipt.

The cash to close is coming from the sale of gold/jewelry. The buyer must have proof he owns the jewelry to sell. A certified appraisal from a Gemologist, receipts of the original purchase, are acceptable, along with a certification from the prospective buyer (verifying his cash with a verification of bank deposit) that he will be purchasing the items, for how much, his name, address, city, state, zip, phone number, may be required.

Repayment of a loan to the borrower. The borrower must have proof he originally made the loan and proof it is being repaid.

Borrower is using funds from a corporation (selling stocks, etc.). The borrower must have proof that the funds are not his/hers solely, and that the funds do not have to be repaid. A letter from the corporation Accountant stating that the funds are not borrowed and do not have to be repaid, or, in the case of a stock sale, what the value of the stock is at the time of the sale, amount of shares held by the borrower, and the statement must be signed.

EMPLOYMENT HISTORY

Borrower has been on the job for only 8 months, but he shows he has been in the same line of business for 10 years. His previous job, however, shows him working in a sales position for a major retail store for 5 years. He stated on his application that he worked on a commission only basis, but yet he is a computer operator. His income cannot be included for qualifying purposes because of the length of time on his current job. (8 months).

Borrower shows he is currently employed, been on the job for 1 year, out of work for 9 months, but his previous job he had been on for 12 years. There is a lapse of time between jobs. It may be due to the fact his old job closed down, had lay-offs, etc. Whatever the reason, ask, and get a letter from him that supports what he says.

Borrower has just graduated from college, or discharged from the military, on the job for 1 year 3 months. Does not meet the two year job requirements, however, you will need to get a copy of his college diploma or transcript, in the case of the military discharge, get a copy and have it for your submittal package.

The co-borrower indicates on the loan application (1003) that they are self employed as a cosmetologist, has been self employed for the last one and a half years, but they are moving out of town to their new home. First, she does not meet the two years requirement, and secondly, they are moving out of town to another city. Will her clientele follow her?

The borrower is working at a company that is publicly known to be in the process of closing their doors in 6 months. The borrower has been on the job for 12 years, has no other prospects at this time. The borrower has no job stability. May be denied the loan request if the borrower does not have proof they have an employment position upon the closure of their existing employer.

INCOME WITH COMMISSIONS

The borrower has been on the job for one and a half years. He is paid a salary plus commissions. Borrower does not meet the two-year requirements.

INCOME DISCREPANCIES

Employee business expense is not being subtracted from income.

Adding back chattel depreciation (machinery equipment, furniture, etc) is not acceptable.

Overtime, bonus, commission needs to be averaged over 24 months.

Handwritten pay stubs. (Unless this is customary. There may be some small businesses that give their employees hand written pay stubs. If the borrower indicates this, then you will need a letter from the employer or their account that specifies that pay stubs are handwritten)

W-2's are hand written. (The same applies here as for pay stubs)

W-2´s don't match the information given by the borrower indicated on the loan application.

No company listing with information (Internal audit by the lender procedure) therefore unable to verify employment.

ASSETS

Assets show borrower owns a new automobile, but does not show any liabilities. If the borrower claims he has no payments, the car is 2 years old or newer; the lender may request a photocopy of the pink slip.

Assets and liabilities do not show any account numbers. Cannot verify information.

No personal property value listed. What are the borrowers going to do? Purchase new furniture once the transaction funds on their credit cards?

Borrower state on the loan application he has to pay child support. There isn't any thing listed on the liability side of the loan application. You would need a copy of his divorce papers.

CREDIT REPORT

Credit explanation from borrower doesn't match credit report.

Borrower states Ex-spouse is responsible for delinquent credit, yet the divorce papers state that the borrower is solely responsible.

Borrower states derogatory credit is not theirs, and they can't get it removed. (Yes they can).

Borrower has little or no credit. The lenders will require at least 3 months minimum of actual utility bills, phone bills, gas bills, cable and electric bills. Possibly statements from any doctors, dentists, or someone they may have paid monthly, or a rating from the utility company on their letterhead.

Social security numbers don't match from the loan application to the credit report.

The borrower is 40+, his social security number begins with a 1, and he has no credit at all. It may be because he is from back east, had bad credit, and his credit has been cleared up.

Income verified by the credit bureau does not match the loan application.

Paying off revolving debts to qualify is unacceptable by most lenders. If the borrower wants to do so, get a retyped credit report prior to submission to the lender.

TITLE

Borrower on title, but not on any liens. (Recently did an illegal assumption)

Borrower not on title and loan is for a refinance.

When adding borrowers to assist in qualifying for a loan, whether it is a purchase or refinance, make sure they are included on things like escrow instructions, purchase agreements, on title if for a refinance. Try not to submit the loan package and have it be a condition of approval.

MISCELLANEOUS

1003 fails to indicate whether the property is a purchase or refinance.

White out used on the 1003. (This is strictly a no-no)

No borrower signature on the 1003.

No interviewer signature on the 1003.

Hand written 1003 and typed 1003 doesn´t match.

Home telephone number and business phone number are the same, but the W-2's show another place of business.

A borrower show he's renting, but also shows he owns additional property.

Back of 1003 states borrower do not intend to occupy the subject property, but the loan information shows borrowers rent at their current address but also current address shows them owning for several years with a loan with a major bank for a real estate loan.

Purchase price of property is greater then appraised value of property. (Would need letter indicating buyer wants property, and must show he has sufficient cash down payment for the difference of the prices).

Handwritten application states borrowers are not residents, yet typed 1003 (Loan application) states they are.

RESIDENCY

If a borrower is not a resident alien, green cards will be required. A temporary resident is not considered permanent nor under the new amnesty program does it automatically make them permanent. Once they are issued a temporary card it is good for 18 months. At expiration, the Department of Immigrations and Naturalization will determine if they can become permanent residents.

These common problems underwriting a 1003 (Loan application) are by no means all the problems, but will give you an insight of some of the continual errors that the underwriters must go through each and every day.