Can Underwriters Make Exceptions? A Complete Guide

Getting approved for a mortgage loan can seem like an uphill battle You submit your application, provide all required documents, and wait anxiously for the underwriter’s decision. What if your application gets denied? Is there anything you can do to appeal the decision? The short answer is yes – underwriters can make exceptions under certain circumstances.

As a hopeful homebuyer, it helps to understand the underwriting process and cases where exceptions may be possible. This guide covers everything you need to know about mortgage underwriting exceptions.

Understanding Mortgage Underwriting

Before diving into exceptions, let’s review the basics of underwriting. The underwriter’s job is to assess risk – determining if lending money to a particular borrower makes good business sense for the lender. They analyze the loan application and supporting documents, weighing four key factors referred to as the Four C’s:

• Credit – The borrower’s credit score and history of managing credit. This indicates their likelihood to repay debts. FHA loans require a minimum 580 credit score while conventional loans typically require scores of 620 or higher.

• Capacity – The borrower’s income and ability to make monthly mortgage payments. Lenders calculate a debt-to-income ratio comparing total monthly debt payments to gross monthly income. Many aim for ratios below 50%.

• Capital – The borrower’s assets, including savings and investments. Underwriters want to see adequate reserves to cover unexpected costs.

• Collateral – The property being used to secure the loan, Lenders require an appraisal to ensure the property value adequately covers the loan amount,

If the underwriter spots red flags with any of these factors they may deny the application. Top reasons for mortgage denials include low credit scores high debt-to-income ratios, and insufficient down payments or reserves.

When Can Underwriters Make Exceptions?

Underwriters stick closely to lending guidelines and rarely veer off course. However, exceptions are possible when:

• One factor heavily compensates for another – For example, an applicant has a 575 credit score, below requirements for an FHA loan. However, their capacity is excellent with a low debt-to-income ratio of 28% and high reserves. Here, capacity strengths may outweigh the lower credit score.

• Guidelines conflict with fair lending laws – Denying loans based solely on race, gender, or other protected classes violates fair lending laws. If a denial appears discriminatory, underwriters may make an exception.

• Extenuating circumstances exist – If new information comes to light explaining red flags on an application, underwriters may reconsider. For instance, a foreclosure on someone’s record occurred due to unexpected medical bills, which they have since paid off.

• A previous lender granted an exception – If you are refinancing and had exceptions on your original loan, underwriters often maintain exceptions on a refinance.

• Alternative products allow more flexibility – Underwriters adhere to guidelines of specific products like FHA, VA, USDA, conventional, etc. More niche products like non-QM loans are less strictly regulated so may offer more exception leeway.

While exceptions do not happen often, they are possible when a strong case can be made to offset any risks.

How to Request an Underwriting Exception

If your loan application gets denied, don’t panic. You may be able to present an argument for an exception if you follow these steps:

1. Discuss with your loan officer – Share any extenuating circumstances or compensating factors that may override the denial reasons. Find out if they will appeal the decision on your behalf.

2. Submit written requests and documentation – Clearly explain the grounds for an exception in writing. Provide any documents to back your claims, like proof of one-time medical expenses.

3. Offer conditions to offset risks – You may strengthen your case by agreeing to certain conditions, like obtaining mortgage insurance or opening a savings account to bolster reserves.

4. Explore alternative loan products – Ask your lender if niche loan products like non-QM could offer more flexibility than conventional loans.

5. Appeal to a higher authority – If your lender will not overturn the denial, consider contacting their underwriting manager directly or reaching out to your state’s department of banking.

Though time-consuming, going through the proper appeal channels gives you the best shot at getting that coveted underwriting exception. Just remember, exceptions are not handed out freely. You need a compelling case.

Tips to Get Your Loan Approved with No Exceptions

While appealing a denial is possible, it’s always better to get approved from the start. Here are tips to boost your chances:

• Check your credit – Review your credit reports from all three bureaus and correct any errors. Pay down balances to lower your credit utilization.

• Pay down debts – Reducing existing debts improves your debt-to-income ratio.

• Avoid new credit applications – Applying for new credit before closing can cause your credit score to drop.

• Save for a larger down payment – Down payments as low as 3% are permitted but anything over 20% avoids mortgage insurance requirements.

• Build emergency savings – Underwriters want to see adequate cash reserves to handle unexpected costs.

• Provide all documentation – Fully cooperate with your lender’s requests for tax returns, bank statements, W-2s, and anything else needed to corroborate your application details.

• Be patient – The underwriting process typically takes at least a few weeks. Avoid putting your loan in jeopardy by maintaining your current employment and payment habits.

With meticulous preparation, most borrowers can get their mortgages approved without the need for any exceptions.

When to Talk to a Mortgage Professional

Trying to get approved for a mortgage loan can quickly become overwhelming. An experienced mortgage lender guides you through the process from start to finish, advising you on steps to take to get approved hassle-free. They also know which types of loans and lenders may offer more flexibility if you do not meet conventional requirements.

Connecting with a mortgage pro early in the home buying process can make all the difference in either getting your loan smoothly approved or identifying where exceptions may be needed to get you to the closing table. If you need personalized guidance on getting mortgage approved, contact a qualified lending professional today.