What If Your Loan Approval Isn't A "Slam Dunk?"

So you've finally decided on that new home, and you're awaiting an answer from your mortgage lender. He smilingly gave you assurances that he will do all he can to make this all work out for you, recommending more than one loan program possible in light of your qualifications. So you hand over your W-2s, paycheck stubs, and bank statements and figure now it's all over except for the proverbial fat lady who (you assume) will belt out an aria of full loan approval just in the nick of time.

But what if your loan officer has told you, in polite but clear terms, that you are not necessarily a "slam dunk" to get this house? And how much do you, as a borrower, necessarily have to do with the procurement of your loan approval?

Perhaps you have an inconsistent or patchwork-quilted employment record, having totally changed careers three times in a five-year period. Or maybe you've related to your loan officer that you intend to commute two and a half hours each day to the suburban home you want to buy, and the lender doesn't buy it, thinking you may not be occupying the house on a regular basis. (Lenders get suspicious, surmising that you may be buying the house as an investment to rent out, and not to live in). Or, let's say, for instance, that you have only 5% to put down, and you have pretty spotty credit. Whatever it is that sends up a red flag to your loan officer, he is now asking for more documentation, perhaps a lot more, and your blood pressure is rising.

"Whaddaya mean?" you say indignantly. "It took me forever to dig up all the stuff I already gave you, and now you want more?" The loan guy (or gal) may now be asking for more bank statements or all of a sudden wants to know all about where your down payment is actually coming from. Or he wants proof that your employer has promised to come through with bonuses to your regular pay, as you stated on your loan application. He may need even more tax returns, a detailed profit-and-loss statement if you are self-employed, or a gift letter from Mom and Dad, stating that the money you're getting from them is not a loan.

The sad truth is, many homebuyers don't grasp the "big picture" when filling out the perfunctory home loan application. Because there are so many people trying to get their business, they somehow feel that they are the ones in the driver's seat. After all, with all those "dot com" commercials telling them how easy it is to procure a quickie real estate loan online, radio ads touting that XYZ Mortgage can get them a home loan regardless of their questionable credit history, they make it sound so easy.

The bottom line is that whatever you're being asked to provide, the loan officer wouldn't be asking for it if he didn't absolutely need it. Just ask him - he'll tell you that it's the easiest thing in the world to get a relatively quick "no" answer if you don't want to bother with any of it.

Think of it this way, then: good home loan officers are somewhat like artists. Experienced ones know just how to paint the proper "picture" of their loan applicants to the investor, and unless they paint a masterpiece, they may not get the desired response. He knows that each loan program has different guidelines, and fulfilling them is like choosing just the right colors for his canvas. And in the end, it is the combination of these colors that pleases the investors' eye.

Just remember that the responsibility rests with you as the borrower to perform when asked. Fortunately, loan officers who 'know their stuff' will tell you up front if your loan looks "do-able" and the really good ones will tell you the truth about how much legwork you may have to do in the meantime. Even if, for some reason, your loan is (disappointingly) denied, you and your loan officer will have put forth every effort to make it happen and in the end, you'll have a pretty good idea of what you have to do to make it work the next time around. Perhaps that's cleaning up your credit, or accumulating a bigger down payment, or just staying in the same line of work for a longer period of time.

In the simplest of terms, your loan just has to make sense to the investor. The "big picture" here is that you are asking, as politely as possible, for someone to lend you the money to buy a home, and unless you dot every "I" and cross every "T", that may not happen. It stands to reason that the quicker you get all the requested information together, the better chance you'll get not only for an approval, but also for an on-time close of escrow.

Written by Dena Amoruso