Denied conventional loan. Trying for FHA

[Anonymous]

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. 

[xenon3030]

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.  

[babygirl1256]

@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.

[Anonymous]

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@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.  

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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. 

[Anonymous]

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@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.

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

[Michizane]

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. 

[tooleman694]

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.

[iced]

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@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. 

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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).

[Michizane]

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@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.

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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.