Was PreApproved but didnt pass UnderWriting

[planoser]

I'm posting to both share my situation and hopefully get some advice or feedback from the experts here.

  I was pre-approved w/ midscore of 645 and passed auto underwriting per my LO. I am pursuing a short-sale property that the sellers accepted my offer at the end of October, but I am still waiting to hear if their bank approved the offer or not. 

 I just heard at the end of last week from my LO that when he submitted my file, the underwriter took issue w/ some unpaid collections I have on my report. I had some issues from about 5+ years ago and the SOL for my state is 4 years.( I dont have anything late from the past 4 + years forward.) My LO then submitted my file to Wells and they came back stating my midscore has dropped from 645 to 607! My LO tells me that the original credit report/score he pulled for me as mid 645 will only be valid till end of December if we can somehow close by then w/ an FHA lender.

   If we can't close by end of December, he will have to pull new credit report/scores for me which have shown to drop since then.  I hope I am explaining all of this properly... Anyways, he seems to think my old collections are hurting me and have somehow lowered my score b/c I only have 1 line of good credit currently open that isnt enough to offset the collections from my past. (I have a secured HSBC card open.)

 I have the scorewatch on here and it reported the drop was attributed to the balance I carried on my credit card (about 220 out of 300 limit -- oops!) So I immediately paid that off and hoping when that reports it will bump my score back up if I do need to have my credit re-pulled beyond December.

 In the meantime, my LO wants to submit my file to Flagstar - he seems to think he will be able to get me processed/approved w/ the original 645 midscore he pulled for me.  Additionally, he wants me to get a Gift-Funds letter from my parents for $4,000.00 -- he states this will look like I have more available assetts on hand which could help me get approved from FlagStar.

The house offer is for $142,500 w/ $5,000 coming back to me at closing, so 3.5% down is looking to be around 4,800. I currently have about $6,000 saved to cover the down payment and have been saving as much as I can the past 2 months so this is growing.   I think I can have about $7,500.00 saved by end of December.

--With the GIft Funds letter, does that mean I really have to bring a check for $4,000 from my parents at closing or is this just a way of making my file look better as an available asset? LO seems to believe this would also help to offset the collections I have on my file. 

Any advise or feedback would be greatly appreciated. Thanks guys.

Message Edited by planoser on 11-29-2009 01:44 PM

Message Edited by planoser on 11-29-2009 02:04 PM

[Anonymous]

Yes, if you provide a gift letter, they have to give you the gift.  Lo/UW will want to see the $ and may require copies of parents bank records to establish the funds on their end as well.  Putting in a gift letter to "pad" the file seems off though.

[planoser]

Thanks, that's what I was trying to clarify b/c LO made it sound as if even though I get the gift letter and bank statement from parents that I wouldnt necessarily have to bring a check from them to closing...

Also, do you think it would be worthwhile to try and work some of these collections off my report? or leave them be b/c they are beyond SOL?  LO was suggesting I contact a credit repair agency. . . (I know they would just do the things that I could do myself following hte guidelines of this forum..)

[hawkeye33]

Not sure if I would use the term 'padding' as that does sound a bit off, but it seems that there can sometimes be some "posturing" of your bank statement, so to speak, to satisfy UW. For example, I just closed on a USDA loan, and one of the conditions UW came back with was that they wanted to see an additional $X amount available cash to close. I secured this through a gift, showed the deposit and LO got a copy of the check once it cleared the gifter's bank. My specific situation was because I was going to get a credit back at close on property taxes already paid, but while USDA guidelines allowed that to be counted as cash available for closing in the past, they no longer do.

So the end result was that I had to show that extra amount available (which I did through the gift funds), but those gift funds never really ended up being used to pay anything at closing. Just to clarify based on your original post, there will be one cashier's check from you at closing. The gift needs to be deposited into your account prior to closing (and you must provide the necessary documentation, such as deposit slip, cancelled check, etc.), but there would not be a gift check presented at closing. You may have already understood that, but your post made it sound like you thought you might bring the gift check at closing.

Good luck.

[Anonymous]

1.  You definitely need to keep your credit card utilization very low or zero to keep your FICO up.

2.  If you obtain a gift funds letter from parents, then parents must gift you the money $4000 and this cannot be a loan you repay later.

3.  If you put the gift funds letter in the file, but do not obtain the gift, or if it is not a gift but is an undisclosed loan expected to be paid later, this constitutes mortgage fraud because it was used to influence the lender when it was not truthful...so be very careful about that.

4.  While the collections are holding your score down, paying them at this point can lower your score further once the collections update the PAID status with a more recent "last updated" date....you could see a drop below 600...so be careful on that part as well.

5.  Finally, while your orgininal credit pull may have qualified, it is very common for lenders to make an additional pull right before closing to make sure nothing has changed dramatically on credit....so again, keep your credit card down to nothing and don't apply for any new credit.

[planoser]

Thanks to all that answered my questions above. Found out good news from LO, he got my file through the underwriters @ Flagstar - he mentioned they weren't necessarily looking for reserves on hand which probably helped my case. No need to bother w/ the Gift Funds letter afterall   He mentioned FS wants me to close by Jan 14 otherwise he'll have to pull a new credit report for my file past that date. Also they want letter of explanation for any inquiries on my report from the past 90 days. (I assume thats standard procedure..)

 I am also worried about them pulling credit again before closing -- I paid off my CC last week and hoping it reports a jump up to keep me above the required score. Dunno what else I can do in the meantime, will wait for that email/txt score watch alert! Won't bother touching the old collections as mentioned above, don't want to refresh anything that may cause further score drops!

Also am looking for alternate properties to pursue b/c this ShortSale is seemingly taking too long and need a backup plan.

Message Edited by planoser on 12-01-2009 05:58 PM

Message Edited by planoser on 12-01-2009 06:16 PM

[fishbjc]

Congratulations!!!!!!!

[happy0510]

Hi Plano,

First of all, Congratulations!!  If you don't mind me asking, how did they approve you with only 1 open TL? The required standard is 3 open TL's....I know they can work around this. How did they in your case?  Thanks for the input!!

Happy

[planoser]

Thanks Happy!

  Sorry forgot to mention earlier, that my LO asked for my car insurance payment history so I sent him my past 4 years w/ the same company (never late) and he also obtained the rental history for my current property (2 years w/o any lates) I guess he was able to build TL's w/ that info.

Let me know if have any other questions.

[happy0510]

That's the answer!! Very nice!