topic Re: Denied conventional loan. Trying for FHA in Mortgage Loans

Denied conventional loan. Trying for FHA

Anonymous — Wed, 26 May 2021 06:27:18 GMT

My offer for a condo got accepted over the weekend and I'm currently in contract. Tonight, my loan officer called and says they can't get the conventional loan approved. Something about Fannie Mae not accepting it even though the lender did? I was too shocked atm and didn't catch it all. Mortgage FICO at 679 and DTI less than 10%. I was originally preapproved for 700k w/ 5% down. Condo purchase price a little under 600k. He said the reason was that I had a ton of charge offs, collections and lates from back in 2016. All of them have been paid off with the last one settled last summer. The largest charge off (20k student loan) was settled via pay for delete 2 months ago so it doesn't even show on my report.

I'm so bummed out right now. He said we can try for an FHA. I just signed the disclosures for that and actually got a better rate! He said an underwriter will look at it now. It's night time so I don't think I'll find out tonight and the anticipation is killing me.

Has anybody else gone through a similar situation? Knowing the reasons for the conventional loan denial, what are my chances at this FHA approval? Loan officer said it should be Ok and I'll be approved with conditions but after this I can't help but worry.

Re: Denied conventional loan. Trying for FHA

xenon3030 — Wed, 26 May 2021 07:59:32 GMT

Did you have pre-approval letter, before submitting the offer? Did this happen during the UW?

It looks a bit weird, but I guess your chance might be higher if you suggest a high downpayment percentage (anyway, your initial offer letter should include the amount of downpayment and not sure whether it can get changed). Considering the limited time that you have due to the contract, it is good to discuss all the options with LO soon to maximize your chance to pass the UW.

Re: Denied conventional loan. Trying for FHA

babygirl1256 — Wed, 26 May 2021 08:03:54 GMT

@Anonymous Don't be discouraged, just keep trying. I'm not an expert on credit or mortgages but I do follow one of our mortgage experts @ShanetheMortgageMan and perhaps he can provide you with some guidance. Hoping that your FHA loan is approved . . . I'll be watching for your "Happy Dance" posting.

Re: Denied conventional loan. Trying for FHA

babygirl1256 — Wed, 26 May 2021 08:06:36 GMT

Re: Denied conventional loan. Trying for FHA

Anonymous — Wed, 26 May 2021 08:36:59 GMT

@xenon3030 wrote:
Did you have pre-approval letter, before submitting the offer? Did this happen during the UW?

It looks a bit weird, but I guess your chance might be higher if you suggest a high downpayment percentage (anyway, your initial offer letter should include the amount of downpayment and not sure whether it can get changed). Considering the limited time that you have due to the contract, it is good to discuss all the options with LO soon to maximize your chance to pass the UW.

Yeh this came up during UW I'm assuming. I'm preparing a letter explaining the charge offs and collections

just in case the FHA UW requests it.

Re: Denied conventional loan. Trying for FHA

Anonymous — Wed, 26 May 2021 08:39:09 GMT

@babygirl1256 wrote:
@Anonymous Don't be discouraged, just keep trying. I'm not an expert on credit or mortgages but I do follow one of our mortgage experts @ShanetheMortgageMan and perhaps he can provide you with some guidance. Hoping that your FHA loan is approved . . . I'll be watching for your "Happy Dance" posting.

Thanks @babygirl1256 ! I hope to share some good news in the following days.

Re: Denied conventional loan. Trying for FHA

Michizane — Wed, 26 May 2021 09:15:25 GMT

You might want to check with your lender to get more detail on the circumstances. Never heard of Fannie Mae having tougher CO and collections rules than a lender, them denying due to past settled CO's after a pre-approval. The lender usually uses Fannie Mae and/or Freddie Mac as a baseline. So you wouldn't have been pre-approved by the automated underwriting system in the first place...unless you were only pre-qualified? And are you also applying alone? Did they say anything about the loan limit (some area have higher limits and maybe than means different rules?)

Just guessing here and not an expert, but it doesn't sound right.

Re: Denied conventional loan. Trying for FHA

tooleman694 — Wed, 26 May 2021 13:13:22 GMT

If your mid score is 679, I bet that is the problem. I have heard it is almost impossible to get approved for conventional under a 680 score. I was in the same situation, could not go conventional. So we went FHA instead.

Re: Denied conventional loan. Trying for FHA

iced — Wed, 26 May 2021 13:16:08 GMT

@Anonymous wrote:
My offer for a condo got accepted over the weekend and I'm currently in contract. Tonight, my loan officer called and says they can't get the conventional loan approved. Something about Fannie Mae not accepting it even though the lender did? I was too shocked atm and didn't catch it all. Mortgage FICO at 679 and DTI less than 10%. I was originally preapproved for 700k w/ 5% down. Condo purchase price a little under 600k. He said the reason was that I had a ton of charge offs, collections and lates from back in 2016. All of them have been paid off with the last one settled last summer. The largest charge off (20k student loan) was settled via pay for delete 2 months ago so it doesn't even show on my report.

I'm so bummed out right now. He said we can try for an FHA. I just signed the disclosures for that and actually got a better rate! He said an underwriter will look at it now. It's night time so I don't think I'll find out tonight and the anticipation is killing me.

Has anybody else gone through a similar situation? Knowing the reasons for the conventional loan denial, what are my chances at this FHA approval? Loan officer said it should be Ok and I'll be approved with conditions but after this I can't help but worry.

How much are your borrowing for this condo and what state are you in? If you passed the conforming limit, Fannie won't touch the loan and the requirements for the loan go up (aka Jumbo).

Re: Denied conventional loan. Trying for FHA

Michizane — Wed, 26 May 2021 16:40:49 GMT

@tooleman694 wrote:
If your mid score is 679, I bet that is the problem. I have heard it is almost impossible to get approved for conventional under a 680 score. I was in the same situation, could not go conventional. So we went FHA instead.

Depends on the lender, but it is not too difficult to get a conventional below 680 (640-680 or so), especially with a 679 from some lender. You will just end up paying more PMI (if you are putting down less than 20%) and a higher rate.

Re: Denied conventional loan. Trying for FHA

Michizane — Wed, 26 May 2021 17:06:13 GMT

@iced wrote:
@Anonymous wrote:
My offer for a condo got accepted over the weekend and I'm currently in contract. Tonight, my loan officer called and says they can't get the conventional loan approved. Something about Fannie Mae not accepting it even though the lender did? I was too shocked atm and didn't catch it all. Mortgage FICO at 679 and DTI less than 10%. I was originally preapproved for 700k w/ 5% down. Condo purchase price a little under 600k. He said the reason was that I had a ton of charge offs, collections and lates from back in 2016. All of them have been paid off with the last one settled last summer. The largest charge off (20k student loan) was settled via pay for delete 2 months ago so it doesn't even show on my report.

I'm so bummed out right now. He said we can try for an FHA. I just signed the disclosures for that and actually got a better rate! He said an underwriter will look at it now. It's night time so I don't think I'll find out tonight and the anticipation is killing me.

Has anybody else gone through a similar situation? Knowing the reasons for the conventional loan denial, what are my chances at this FHA approval? Loan officer said it should be Ok and I'll be approved with conditions but after this I can't help but worry.
How much are your borrowing for this condo and what state are you in? If you passed the conforming limit, Fannie won't touch the loan and the requirements for the loan go up (aka Jumbo).

Yes, this sounds like an accurate assessment. Fannie Mae usually caps at like 548K (except for some areas) so it would make sense that it wouldn't be conforming anymore so the lender is now looking to use jumbo loan requirements. So either the explanation was misunderstood or the loan officer is not very good. I've never heard of Fannie Mae putting a restriction on paid CO's outside of your score just being too low to qualify.

Re: Denied conventional loan. Trying for FHA

tooleman694 — Wed, 26 May 2021 17:10:08 GMT

The county I live in is 776k. It is really hard to even get a house at that price. You could probably find a Condo though....

Re: Denied conventional loan. Trying for FHA

Anonymous — Wed, 26 May 2021 17:41:00 GMT

@tooleman694 wrote:
If your mid score is 679, I bet that is the problem. I have heard it is almost impossible to get approved for conventional under a 680 score. I was in the same situation, could not go conventional. So we went FHA instead.

Yes, my mid score is 679 and the high is 680. Did the FHA go smoothly for you? LO was saying how if it got to or crossed 680 we'd have a better shot, but I already did everything to maximize the FICO. Short of paying off all my student loans there isn't anything else I can do, short of waiting for the derogs to age.

Re: Denied conventional loan. Trying for FHA

Anonymous — Wed, 26 May 2021 17:42:43 GMT

@iced wrote:
@Anonymous wrote:
My offer for a condo got accepted over the weekend and I'm currently in contract. Tonight, my loan officer called and says they can't get the conventional loan approved. Something about Fannie Mae not accepting it even though the lender did? I was too shocked atm and didn't catch it all. Mortgage FICO at 679 and DTI less than 10%. I was originally preapproved for 700k w/ 5% down. Condo purchase price a little under 600k. He said the reason was that I had a ton of charge offs, collections and lates from back in 2016. All of them have been paid off with the last one settled last summer. The largest charge off (20k student loan) was settled via pay for delete 2 months ago so it doesn't even show on my report.

I'm so bummed out right now. He said we can try for an FHA. I just signed the disclosures for that and actually got a better rate! He said an underwriter will look at it now. It's night time so I don't think I'll find out tonight and the anticipation is killing me.

Has anybody else gone through a similar situation? Knowing the reasons for the conventional loan denial, what are my chances at this FHA approval? Loan officer said it should be Ok and I'll be approved with conditions but after this I can't help but worry.
How much are your borrowing for this condo and what state are you in? If you passed the conforming limit, Fannie won't touch the loan and the requirements for the loan go up (aka Jumbo).

Borrowing about 565k. I'm in the Bay Area so I believe I am under the limits.

Re: Denied conventional loan. Trying for FHA

MauiMan85297 — Wed, 26 May 2021 17:44:41 GMT

Depending on the county the OP lives in the limit has to be higher than $548k otherwise the LO would of stated that right away. You must of been pre-qual not pre-approved because the AUS would of spit out the approval, unless you're saying it went to UW and then you were denied (that's unusual) because of their overlays. Now going FHA with a condo it has to be on the FHA approved list and conform with county loan limits. As far you you getting a lower rate that would always be the case with FHA vs CNV because it's an active rate as you're being charged 1.75% of loan amount just to start up the loan not to mention MI for 11 years (if you put 10% down) so when you factor those into your rate it's actually much higher. Conventional loan don't charge a fee and your MI is based on your credit score and LTV whereas FHA charges a set money factor based on loan size (.80-.85%)

Re: Denied conventional loan. Trying for FHA

tooleman694 — Wed, 26 May 2021 17:44:54 GMT

So far for me with FHA everything is going fine, just waiting for the clear to close. I am in Seattle, so not too different from the bay.

Re: Denied conventional loan. Trying for FHA

MauiMan85297 — Wed, 26 May 2021 17:47:43 GMT

@Anonymous wrote:
@tooleman694 wrote:
If your mid score is 679, I bet that is the problem. I have heard it is almost impossible to get approved for conventional under a 680 score. I was in the same situation, could not go conventional. So we went FHA instead.
Yes, my mid score is 679 and the high is 680. Did the FHA go smoothly for you? LO was saying how if it got to or crossed 680 we'd have a better shot, but I already did everything to maximize the FICO. Short of paying off all my student loans there isn't anything else I can do, short of waiting for the derogs to age.

It could be about the score, all you need is a 620 to qualify but with a <680 score and having CO's or collections the file could look stronger if the LO put in reserves in the file to help it look stronger but OP stated her loan was approved then denied.

Re: Denied conventional loan. Trying for FHA

Anonymous — Wed, 26 May 2021 17:54:24 GMT

Sorry I think I was prequalified. They did run the credit. I submitted all my pay stubs, statement for all my accounts, etc. So I could have been mistaken and I was not "preapproved". Everything was seemingly smooth until yesterday when I'm assuming it was with an UW.

Re: Denied conventional loan. Trying for FHA

tooleman694 — Wed, 26 May 2021 17:56:52 GMT

In my case I could not even get pre-approved.

Re: Denied conventional loan. Trying for FHA

VALoanMaster — Wed, 26 May 2021 17:57:46 GMT

@Anonymous wrote:
My offer for a condo got accepted over the weekend and I'm currently in contract. Tonight, my loan officer called and says they can't get the conventional loan approved. Something about Fannie Mae not accepting it even though the lender did? I was too shocked atm and didn't catch it all. Mortgage FICO at 679 and DTI less than 10%. I was originally preapproved for 700k w/ 5% down. Condo purchase price a little under 600k. He said the reason was that I had a ton of charge offs, collections and lates from back in 2016. All of them have been paid off with the last one settled last summer. The largest charge off (20k student loan) was settled via pay for delete 2 months ago so it doesn't even show on my report.

I'm so bummed out right now. He said we can try for an FHA. I just signed the disclosures for that and actually got a better rate! He said an underwriter will look at it now. It's night time so I don't think I'll find out tonight and the anticipation is killing me.

Has anybody else gone through a similar situation? Knowing the reasons for the conventional loan denial, what are my chances at this FHA approval? Loan officer said it should be Ok and I'll be approved with conditions but after this I can't help but worry.

Hi @Anonymous,

You need to check the FHA loan limit for your county.