Many, many mortgage applications crash when the applicant either knowingly or unknowingly omits something when completing their application setting them up for a future crash. Unfortunately, the resulting crash may not occur until well into underwriting. By that time, particularly during a home purchase much of the damage has been done – losing their dream home, application fee, appraisal money, and credibility with their realtor and lender/broker, not to mention heartache.

So what can cause the crash of their mortgage application that has been “pre-approved”? Unfortunately, the list is long but here are 10 of the most common reasons I have seen.

1) Failing to mention child support payments. Sometimes this is caught early if the applicant provides pay stubs where child support is being deducted. Sometimes it shows up in a divorce decree needed to address debt or credit items.
2) Incurring a new debt obligation such as buying a car that doesn’t show up on an initial credit pull but shows up when an underwriter pulls credit. The additional debt causes the applicant’s debt to income to exceed the program guidelines.
3) Late rent, mortgage or trade line payments, particularly when using alternative trade lines for FHA, VA or USDA mortgages. I can’t count the number of times I have seen late payments show up during verifications despite being told otherwise by the applicant.
4) A significant hit or drop in credit score during the mortgage process.
5) A misstatement of earnings where a lender takes a one or two year average of earnings as income versus a higher current pay that was given on the application, particularly if overtime is involved.
6) Classifying income as salaried or W-2 when it really is 1099 reported income and therefore self-employed. Nearly all lenders require 2 years self-employment with income documented by tax returns.
7) A pre-payment penalty that shows up on a refinance. These are usually unintentional but will still kill most refinances.
8) Income received in the way of cash payments. Hard to believe but I see this more than you would think.
9) Cash payments for rent so timely payments cannot be documented.
10) Using an application date instead of a discharge date for a previous bankruptcy.

The bottom line here is to be straight with whomever you choose to work with in securing a mortgage. That way they can avoid future problems by seeking a mortgage program that will address any unfavorable items, making the process of getting a home loan much less problematic and stressful.

Ron Stone is a residential mortgage specialist helping people with less than perfect credit. His website is full of tips and information about the process of obtaining a mortgage. Check it out at Alabama Mortgages