The biggest mortgage fraud red flags relate to phony loan applications, credit documentation discrepancies, appraisal and property scams along with loan package fraud.
Your loan underwriter may flag unusual deposits to confirm that you didn't take out a new loan and the money came from acceptable sources. For instance, the deposit should not come from a party that may benefit from the transaction like a real estate agent or the home seller.
Social Security number of the pay stub does not match the borrower's Social Security number. Amount of income is not reasonable for the position held. The paystub from a major employer is handwritten rather than computer generated. There are inconsistencies in deductions when more than one check is present.
Some of the following red flags in this situation include a borrower who normally would be unqualified suddenly becoming qualified, inflated sales and appraisal prices, and the involvement of "silent" second mortgages.
If a report includes two or more indications of value that are significantly different from each other and they are averaged to get to the conclusion of value without any further explanation or support, that may be a red flag.
How often do underwriters deny loans? Underwriters deny loans about 9% of the time. The most common reason for denial is that the borrower has too much debt, but even an incomplete loan package can lead to denial.
Having a mortgage loan denied at closing is the worst and is much worse than a denial at the pre-approval stage. Although both denials hurt, each one requires a different game plan.
How far back do mortgage lenders look at bank statements? Generally, mortgage lenders require the last 60 days of bank statements. To learn more about the documentation required to apply for a home loan, contact a loan officer today.
Yes, a mortgage lender will look at any depository accounts on your bank statements — including checking accounts, savings accounts, and any open lines of credit.
So, what qualifies as a major purchase? Buying a vehicle with or without financing in the days leading up to closing is a good example. But anything that changes your financial picture in a big way should wait until after closing.
Mortgage Fraud Red Flags: Occupancy Fraud
To anticipate occupancy fraud, lenders should be on the lookout for appraisals that include expected rent payments, buyers who provide evidence of living “rent-free” in their residence, and very large down payments.
Even if you receive a mortgage pre-approval, your loan can still be denied for various reasons, such as a change in your financial situation. How often does an underwriter deny a loan? According to a report, about 8% of home loan applications get denied, depending on the location.
Talk to your loan officer.
Though you can't usually speak directly to an underwriter, your loan officer should give you a clear reason for the denial. You'll have a short time to try to overturn the denial — it doesn't become official until the lender issues a denial letter.
Lenders look at various aspects of your spending habits before making a decision. First, they'll take the time to evaluate your recurring expenses. In addition to looking at the way you spend your money each month, lenders will check for any outstanding debts and add up the total monthly payments.
As you're saving for mortgage expenses, put money into a bank account and let it sit there for at least sixty days. Don't move your money around to different accounts. Don't make large withdrawals, and don't make large cash deposits during the mortgage process.
Each lender has an individual standard for how much you should have in savings, but most want to see at least a few months' worth of payments in your account. They also want to see that you can pay your down payment and closing costs without help.
A closing deal might fall through if the buyer and seller can't agree on who handles problems that arose during an inspection. Some sellers might want to sell the home as-is to expedite the sale, but buyers might not want to be on the hook for big issues.
Q: Do lenders pull credit day of closing? A: Not usually, but most will pull credit again before giving the final approval. So, make sure you don't rack up credit cards or open new accounts.
The Bottom Line
Underwriting simply means that your lender verifies your income, assets, debt and property details in order to issue final approval for your loan. An underwriter is a financial expert who takes a look at your finances and assesses how much risk a lender will take on if they decide to give you a loan.
When it comes to mortgage lending, no news isn't necessarily good news. Particularly in today's economic climate, many lenders are struggling to meet closing deadlines, but don't readily offer up that information. When they finally do, it's often late in the process, which can put borrowers in real jeopardy.
An underwriter will approve or reject your mortgage loan application based on your credit history, employment history, assets, debts and other factors. It's all about whether that underwriter feels you can repay the loan that you want. During this stage of the loan process, a lot of common problems can crop up.
You Have Too Much Debt
As part of the underwriting process, lenders will look at your debt-to-income ratio, or DTI. This ratio reflects how much of your income goes towards debt each month. It's calculated by dividing your total monthly debt payments by your income.