April 21, 2016
A recent question in the comments section reminds us of the need to differentiate between lender standards and FHA loan rules. Both will have a say in loan approval, terms and conditions, and more.
The reader asks, “I was just in bank office today and yesterday. Yesterday before the lender saw my pay stubs i was pre-qualified for 70,000, now after seeing my work hours plus my W2. I’m now approved for only 30,000. How did that happen? I lost 40,000 just by not having 80 hours a week.”
There are several issues at work here. The first is the nature of being pre-qualified for a mortgage loan. When you pre-qualify, your lender is giving you an estimate of what you may be able to borrow based on some initial information provided at the time of the application.
But pre-qualifying for an FHA mortgage is not the same as loan approval. The lender will need to verify the information provided by the borrower before making a final decision.
There are many reasons why a borrower’s loan amount may change, especially between pre-qualification and loan approval. One reason is that FICO scores and your record of on-time payments can affect the loan. Borrowers with lower FICO scores may not qualify, others may qualify but be required to make higher down payments, etc.
A lender may not be able to use all of a borrower’s income to calculate the debt to income ratio. If some or most of a borrower’s income does not meet FHA loan standards for being verifiable, that can play a role in the loan amount offered, depending on circumstances.
There’s no way to tell what happened in the case of this specific reader question. The best advice here is to have a direct conversation with the lender to see why things turned out the way they did. In some cases it may be that FHA loan rules dictated a specific course of action by the lender, but lender standards also apply.
If a borrower’s application data meets FHA minimum standards, but not lender standards, the lender cannot be forced to issue a loan in that basis. Participating lender requirements apply in addition to FHA loan regulations, as long as those standards are in accordance with federal law, etc.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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