Loan Officer Approved and Now You’re Declined?

Can A Mortgage Be Denied Once It’s Submitted To Underwriting?

Absolutely yes, it happens all the time, especially if you’re working with a big box lender.

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Being told that your previously approved loan is declined is an inconvenient result of the lack of underwriting expertise at many big box lenders.

I originally wrote this article a few years ago, and I keep running into the same old things.  I’ve updated this article to expand on the issue that is plaguing the mortgage industry.

What Happened?  And Why?

When something goes wrong with your loan approval, who’s responsible?

Have you been told by your “loan officer” that you qualify, then all of a sudden, you’re being told that you don’t qualify?

Did your loan officer tell you that the loan program was discontinued or changed?

Did you loan officer tell you that there was a change in underwriting guidelines, and now you don’t qualify?

I have heard of all of these scenarios being told to homeowners and homebuyers that believed that they were in the process of getting a home loan.

In any of these cases, your home loan is abruptly declined, and you are left in shock, wondering what went wrong, why it went wrong, and who’s to blame?!

I promise you it’s not your fault.  Lenders spend a lot of money to make consumers feel like they are working with experienced professionals.

This is not always the reality of the situation, and in some cases, some of these business models actually prevent you from ever talking to someone with a long history of solving mortgage challenges.

The Rise of Big Box Refinance Lenders

Well, it’s not entirely your fault.  There is an expectation that if a company earned enough of your trust to complete an online form, or call a number, or download a phone app, it’s all the same business model.

These companies are primarily built to originate and close high volumes of refinance loans.  For the first time in a long time, it’s becoming a buyers’ market in many communities.

After writing on FindMyWayHome.com for the past 10+ years, and after over 1 million visitors to our site, I’ve heard this story over and over again.

You trusted the advertising, and now you regret it! 

Now, in all fairness, the advertising makes it sound so easy.  The way these companies work is that they spend millions on advertising and sponsoring PGA tournaments.

To support this business model, I call it a tele-mortgage model; you have to have a minimally compensated workforce.  Paying seasoned professionals for the experience they bring to the table is just not in the budget.

What I have found over and over again is that these loan officers make rookie mistakes, time and time again, because the purchase money market does not have the same wiggle room at a refinance that has some benefit other than timeframes and the dream of homeownership.

I want to make perfectly clear, and you’ll hear this thread throughout this article, that the most important thing is that you are working with a true professional that is looking out for your best interest.

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My distrust of these big box companies and direct lenders is simply that they have inefficient and expensive business models, and it translates into an inferior experience for the consumer in terms of a higher interest rate and lender fees, a poor experience due to an inexperienced loan officer/customer service person, or all of the above.

The worst-case scenario and I’ve heard this 100 times over the years, is when an inexperienced loan officer tells you that you’re approved, only to find out later that you’re not approved, and you are left deceived and potentially homeless!  Luckily, the Realtor saved the day for this consumer below.

This report from ConsumerAffairs.com is a perfect example of the troubles of hiring front-end communication people with very little purchase money experience

Understanding Underwriting Guidelines

The key to understanding how something like this can happen is to understand how underwriting guidelines work.

When you are applying for a Conventional, FHA, VA, or USDA loan, you are following the qualifying guidelines as laid out by each of these programs.

While there are definitely nuances to each, there are also many similarities.  All loan programs require that you show the ability to repay the mortgage by proving income, employment stability, credit history, and in many cases, savings (called “reserves”), just in case of an emergency.

Once your loan application is complete, your credit report and all of your supporting documentation are submitted to an underwriter for review.

The underwriter will consult the underwriting guidelines for the loan program you are applying for to make sure that you meet all of the qualifying requirements.

While some underwriting guidelines are very specific, many guidelines are exactly that, just guidelines that provide direction or a general “spirit of the guideline”.

Your loan officer is similar to your attorney, deciphering the spirit of the law (guideline), and making a case to the underwriter and management as to why your loan falls within the risk threshold described in the underwriting guidelines.

It’s not the common ground or the similarities that would cause you to be approved, then denied.  It’s the details, the questions that are not being asked, or the questions that were asked wrong that will cause your loan to go off the tracks.

When you lose in underwriting court, it’s most often because you are being represented by a lawyer (loan officer) that does not know the laws.

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The Importance of Experience

The experience and competence of your loan officer is where the overwhelming majority of your ability to qualify lies.

Sometimes, the loan officer will make a mistake that can be overcome by providing additional documentation or explanation.

In other cases, the underwriter can make a mistake or interpret a guideline in a way that is not necessarily consistent with what the guideline is intended to address.

In either of these cases, your success or failure to qualify depends heavily on your loan officer.

I mean, think about this…..Your ability to get a great product at a great price literally hinges on the experience and ethics of the loan officer that answers the phone.

The Quickest Way to be Disappointed

The problem with many of today’s most popular mortgage companies is that there is little importance being given to hiring experienced loan officers.

These companies spend millions of dollars on television commercials trying to convince you that getting a home mortgage is as easy as downloading an app, or pushing a button.

Other companies try to convince you that if you complete a loan application on their website, loan officers will compete for your business.

Yet other companies like to guarantee you the lowest interest rates without having any information about who you are, what your financial situation is, or what you qualify for.

In all of these cases, the money that is being spent so that you know their name is money that they are not spending to hire experienced professionals that are capable of solving complicated situations that most average people are faced with.

If you’ve called one of these call centers filled with “customer service” telemarketers or had the misfortune of having your information sold to 27 lenders that will not stop calling you, or if you’ve discovered the hard way that everything you read on the internet is not true……you’re not alone.

Unfortunately, the role of the expert career loan officer has been buried beneath promises of automation, simplicity, and one-size-fits-all promises that rarely deliver the expected result.

Finding a Loan Officer You Can Trust

It isn’t as hard as you would think to find an experienced loan officer that cares as much about you meeting your financing goals as you do.

Since starting this website almost ten years ago, I’ve since connected with several dozen loan officers across the country that actually care and know how to fight for their clients.

As much as it pains me to admit it, many of my loan officer friends make our living by fixing the screw-ups that are common with these mass marketing mega lenders.

My advice to you would be this, take hiring a loan officer as seriously as you would if you needed a lawyer, doctor, or other professional services that put your livelihood, your finances, and your health at risk.

There is nothing more stressful than spending money on appraisals, inspections, and movers, only to find out days or weeks before you’re supposed to close that your loan officer made a mistake, and you actually do not qualify.

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Because your loan officer, like your attorney, is responsible for presenting your case to the underwriter (the judge), a poorly prepared case is going to find you on the wrong end of a decision about whether or not to lend you the money to buy, or refinance your home.

I see this every single day on this website.  Thousands of wasted dollars, hours of stress and worrying, dozens of questions, comments and inquiries as innocent consumers scramble to get answers that make sense about how they could have gotten so far into the process only to be turned down at the last minute.

Don’t Take No For An Answer

Don’t worry, there is a happy ending to this story.  More often than not, the mistakes that are being made are not the final answer.  There is hope.

The most common challenges I hear are simply misinterpretations of underwriting guidelines or misplacement of your loan into a loan program that you never qualified for in the first place.

Far more often than not, there is a solution that can be achieved by using a loan officer that has experience with the particular scenario that caused the other lender to stumble and fall.

When the loan officer makes a mistake, that doesn’t necessarily mean that you didn’t qualify.  It often means that you are just working with a loan officer that’s taking you down a dead-end path.

A simple shift in direction can often overcome challenges that stop inexperienced loan officers in their tracks.

The most common challenges that I see that are easily overcome include families buying after a bankruptcy, foreclosure, short sale or deed in lieu of foreclosure.

The next most common challenges that inexperienced loan officers make are when you have student loans with income-based repayments.

Self-employed, second jobs, low down payment, less than perfect credit, divorce, manually underwritten FHA, and VA loans are among other common challenges that can often be overcome.

Working with Professionals

I can not emphasize enough the importance of hiring a professional, experienced Realtor and loan officer when selling or buying your first home.

When you call a lender from a TV or radio commercial or click an ad you saw on the internet with a catchy headline, you are playing competence roulette.

I personally have been in the business for close to 20 years and started this website 10 years ago to educate and empower consumers.

We have had over a million consumers visit this website, and I have answered many thousands of questions from folks throughout the Country.

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Frequently Asked Questions

Can A Loan Be Denied After The Loan Officer Said It Would Be Approved?

Absolutely yes! A loan is never approved until after it has gone through underwriting and is formally approved by them. This is why it is so important to work with a reputable lender with real expertise, not one of the loan companies you see advertised all over the place, because those bix-box lenders frequently have low-paid, inexperienced loan officers interacting with their customers who tend to tell them what they want to hear, not the truth.

What Is The Difference Between A Loan Officer And An Underwriter?

A loan officer works with potential clients to help them find a loan that works for them, sell them on applying for that loan, then gather all of the information and follow up with the client during the loan approval (underwriting) process. They are usually “people people” and will be the face of the lender during the loan process. An underwriter collects and analyzes the data required to approve a loan. They’re detailed “numbers, people.” You will probably never meet the underwriter for your loan as they will use the loan officer to communicate with you whenever they need additional information.

Can A Loan Officer Approve A Loan?

No, approval or disapproval of a mortgage loan must come from the underwriting department. 

How Much Do Loan Officers Make?

On average, loan officers make $69,680 a year, with most earning between $60,935 and $79,016. 

How Much Do Mortgage Underwriters Make?

On average, mortgage loan underwriters make $68,513 a year (median income as of April 2022), with most earning between $59,601 and $78,517. 

Can A Loan Officer Influence An Underwriter?

No, generally, they can’t. The loan underwriting process is designed from the ground up to focus on the numbers, taking emotion and opinion out of the equation. Loan underwriters, the people who approve or deny loans, work independently of the loan officers. Loan officers can give them information, but the underwriters make their own decisions based on the facts of your case.

How Often Are Loans Denied After Being Submitted To Underwriting?

About 8% of mortgage loans are denied in the underwriting process, so you’ve got about a 1 in 12 chance of having your mortgage denied after it once looked good enough to be approved. 

What Are The Leading Causes Of Loans Being Denied?

Loans can be denied for a number of reasons, but the most common are:

1. A poor debt-to-income ratio (DTI). To calculate the debt-to-income ratio, the underwriter looks at the sum of all of your regular payments (car payments, credit card payments, student loan payments, child support, alimony payments, etc.) and divides them by your monthly income. If the result is higher than a pre-selected number required by that lender and/or type of loan, your mortgage application will probably be denied. 
2. A bad credit report. Your credit report shows your bill and loan payment history, your loans, current debt, and other financial information. These are summarized as your credit score, but your credit score is just an initial indicator. Mortgage lenders delve deeper into the details of your credit report to assess whether you have a demonstrated history that indicates you will be likely to repay your loan.

Have Questions About Loans Being Wrongly Denied?

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