Mishaps to avoid when filling out a loan application

» “A complete loan application is a key component to a smooth mortgage transaction, whether it be a purchase or a refinance transaction.”

Mortgage broker: Liz Bayer, ProMortgage.

Backstory: A complete loan application is a key component to a smooth mortgage transaction, whether it be a purchase or a refinance transaction. I wanted to share a few examples of how inaccuracy or omission can negatively impact a transaction either delaying or causing the transaction to be declined.

Omitting information of any obligations such as alimony or child support will often surface later, and this can affect the qualifying income to get an approval once these obligations surface.

There is a section that needs to be completed regarding all residential real estate holdings, because this plays into the borstill rower’s debt obligations.

I had one client who presumed that one of her properties did not need to be listed because it was owned “free and clear.” However, since she was on title, the property tax, insurance and HOA dues still counted into her debt obligations, and once we added this into her debt, she no longer qualified for the mortgage.

On another transaction, a client misunderstood the declarations questions. One question, for example, asks if my client was a “co-signer or guarantor” on a debt or loan. In her case, she had co-signed a lease for her college age son who was renting a house off campus, and the landlord insisted that all parents be guarantors on the lease. So, we then had to add that rent obligation to her total debt obligation and re-qualify her for the mortgage. Fortunately, her income was sufficient to cover this additional lease payment and get approved.

Another declarations question that affected another transaction asks if the borrower is party to a lawsuit. My client responded “no;” however, we later learned that the IRS had named him as a co-defendant on a sizable amount due to the IRS. Although he was not the guilty party and the lawsuit really pertained to another person, he was listed as a defendant. Since the guilty party owed my client money also, the IRS names any creditors to the guilty party as co-defendants, which puts their claim behind the IRS to collect. Fortunately, my client had a good paper trail of the background and we did complete the transaction.

Underwriters have a significant amount of tools available to them to find missing information on the loan application.

My guidance to my clients is that they should not assume anything, and to always check with me first to see if a piece of information is relevant or not to the loan application.