Loan Modification

Can you apply for an FHA mortgage with more than one lender?

By Gina Pogol

Borrowers who need to close on their home purchase or complete a refinance quickly may be a bit worried about getting an FHA mortgage approval, especially because these days most lenders impose their own stricter requirements on top of FHA’s guidelines. These extra requirements are called investor overlays and mean that just because FHA says that you can get a loan approval with a 580 credit score doesn’t mean that a lender will approve your loan.

For borrowers on the edge, these overlays are a major concern — while FHA borrowers’ credit scores averaged 621 a few years ago, today it’s nearly 700. And it’s not because people’s scores overall are increasing in these economic times; it’s because lenders don’t want to chance losing their approval to do FHA loans by having too many defaults, so they make their requirements tougher.

So if you have been at your job for a year and have a 623 credit score, will you be approved for an FHA loan?

You have no way of knowing. Even if your income is sufficient, your ratios are okay, you have some assets, and your employment reflects increasing responsibility and salary, you can’t be nearly as sure of getting a mortgage approval as you could in the past. And if you have a closing date you must meet, the idea that you might be turned down is understandably frightening. So, how can you increase you peace of mind and your chances of getting a mortgage approval?

Can you apply for a mortgage with more than one FHA lender at the same time?

Yes and no. FHA requires that your lender obtain a case number which is unique and affixed to the property address. So you can’t have more than one case number, which means two lenders can’t submit FHA loans for the same borrower. However, borrowers who wish to get approved before shopping for property (the smart ones!) can apply for an FHA mortgage with the property address listed as TBD (to be determined). The FHA Total Scorecard System can make a recommendation (approve /accept or refer) without a case number, property address, or CAIVR disposition but it will need those things plus an appraisal to issue a final approval.

So, you can get your credit scores and credit reports through annualcredit report.com and then contact several mortgage lenders.  Ask them what their overlays are and eliminate those whose guidelines you don’t meet. For the others, ask if they would be willing to submit your application with a TBD address and no case number through automated underwriting (AUS)  to see what the recommendation is (understand though that if the recommendation is approve it doesn’t mean that you are home free. Things can still come up that cause a human underwriter to decline your file (for example, your bank statements show that you bounce 20 checks a month — software has no way of knowing this but the human may bounce you if it turns up).

What happens of the lender with your case number turns down your FHA application?

The lender with your case number should release it to another lender without delay. Understand that your next lender will know that your application was declined and why. This is to keep applicants or brokers from “fixing” the information that got the loan declined and resubmitting it to an unsuspecting new lender. HUD requires that your first lender complete a Mortgage Credit Reject screen in FHA Connection prior to transferring the case to lender number two if indeed the loan was underwritten and rejected. When this screen is completed, Lender B can supersede the rejection of lender one and approve the loan by specifically explaining and documenting its reasoning.

Full post as published by FHA Mortgage Guide on October 25, 2010 (boomark / email).