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How to Avoid a Risky Lender

Are You at Risk of Being Turned Down for a Home Loan?

Do I Qualify?

The truth is, the most risk comes from working with a loan officer that is inexperienced, or a lender that has chosen to follow different underwriting guidelines than what the loan program allows.

When you contact a lender, you have to present them with our specific set of circumstances, credit profile, and financial resources available to purchase a home.

The biggest risk of being turned down for a home loan is not always because your circumstances, credit profile or resources disqualify you.

More often, the risk of not being approved for a home loan depends on who you’re dealing with when applying for your mortgage.

I wish that it was as easy as flipping a switch to reduce the risk of being misinformed, or misled, or to speak to a lender or loan officer that is not experienced with the guidelines that would allow you to qualify.

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Unfortunately, it’s not that easy.

Risky Loan Officer Traits

A risky loan officer is someone that is willing to tell you that you either qualify, or do not qualify, without actually knowing whether or not what they are telling you is the truth.

Being a loan officer is not like someone working in a retail store that can just call in a price check if you have questions.  A great loan officer’s job is more like that of an attorney that has to research guidelines, and sometimes even finding precedence for making an underwriting decision that works in your favor.

Underwriting guidelines are not always black and white.  The are called “guidelines” for a reason.  Sometimes these guidelines have many contributing factors that apply in one situation, but not in another.

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A great loan officer will listen to your situation, ask a lot of questions, and do their research before making promises.

The first step to mitigating risk is to find a loan officer that is willing to say “I don’t know, but that’s a great question.  Let me do more research and get back to you on that”.

Risky Lender Decisions

I would consider a lender as a risky lender if they do not hire professional loan officers or give them the resources to help people, regardless of your situation.

This probably doesn’t make sense, and you would be right.  Why wouldn’t a lender want to hire a professional to work with it’s customers?  The short answer, is money.

If you found out about a lender through a TV ad, billboard, or radio commercial, chances are that lender is not paying as much to hire professional loan officers because their business model is mass marketing, not individual attention to detail by a seasoned professional.

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Of course, there are exceptions to this.  I am not saying that big box lenders do not hire competent people.  I am saying that most of the problems I hear about here on this site are because folks are working with someone in a call center somewhere that is being paid say “Yes”, and get you to complete an application and pull your credit.

Lender Overlays

Some of the most common lenders will have very narrow underwriting guidelines to accommodate the volume of business that is generated from mass marketing budgets, and the lack of experience on the front lines.

I know that sounds crazy that a lender does not have to follow the guidelines, but it happens all the time, every day.  It specifically means that a Lender chooses to “Overlay” a more strict guideline to replace a guideline by Fannie Mae, Freddie Mac, FHA, VA or USDA.

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Lender overlays are much more common than you would think, and most commonly found at your local bank, or big box lenders that use a high volume, low conversion business model like TV commercials.

Many of the people I help on this website do not have difficult challenges to overcome.  They mostly have normal people challenges, and it’s either the loan officer that doesn’t have the experience, or the lender that chooses to not follow the underwriting guidelines of the loan program.

Finding the Right Lender

I put myself on the line every day by putting myself online every day.  I have to research everything.  That’s just my personality, and it’s what has made this website the resource that it is today.

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I often think that I know the answer to something, only to find out later that I didn’t completely know the right answer.

Not everyone has challenges that need to be overcome or navigated before being eligible to buy a home.  Most of my experience is primarily isolated to helping normal people with normal lives, and quite frankly….shit happens.

As a consumer, don’t look for someone that will just tell you yes.  Ask them if they have experience working with someone in your situation.  What you are looking for is the confidence that this isn’t the time your loan officer, or lender is seeing a situation like yours.

If you’re reading this, you’re doing your own research online.  While the internet is not known for delivering 100% accurate results 100% of the time, at least you have the ability to compare information and find common threads of truth that will help point you in the right direction.

Find the Right Lender. Find the Right Loan. Get Help Now!

How Do I Get My Questions Answered?

We’ve created this resource to help you sift through the endless opinions and articles that may, or may not directly answer your question correctly.

There are several ways to ask questions, and get expert opinions on this website.

  • Submit a Question:  On the bottom of this page, you’ll see a prompt that allows you to ask questions.  These questions come directly to me, and are answered very quickly.
  • Leave a Comment:  Below every article is the option to leave a comment or question.  We see this comments and questions in real time and the always answered, usually pretty quickly.

In addition to researching your questions and providing you with expert advice, I may be able to introduce you to a lender friend that I know has experience with your specific situation and can help.

Hope this helps?

About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Gavin Wondreis says:

    Will usda approve a mortage with a certificate of subordination from the IRS?

    • Scott Schang says:

      Hi Gavin, I don’t see subordinations from the IRS very often. Normally, tax liens take precedence over any and all other liens and a lender will not approve you if they are not in the first lien position.

      What is more common is that you will have a tax lien, and you’re in a repayment plan. In that case, you would add the monthly payment to your debts when calculating your debt to income ratio.

      This is definitely something to push with your loan officer. These are not the kinds of surprises that you want to have come up later. Address this upfront with your loan officer and the underwriter so it doesn’t sneak up on you later on down the road.

      Hope this helps?

  • Gavin Wondreis says:

    Great site. Very educational.How wonderful!

  • Cam says:

    How long after bankrupty u can get a home loan?

    • Scott Schang says:

      Hi Cam,

      It depends on a couple of things. If there was not a mortgage included in your bankruptcy, it will depend on the type of financing you are using to buy the home.

      The soonest you would be eligible to buy would be 2 years from the discharge of a Chapter 7 using FHA financing. VA financing is also 2 years.

      USDA financing is 3 years, and Conventional financing is 4 years.

      Hope this helps?