01 Jan 5 Options for Loan Originators When Borrowers Don’t Qualify
An NMLS loan originator provides huge value to the right borrowers. However, because every lender has its own qualification for borrowers, not every borrower can participate in a lending relationship. Unfortunately, situations like these happen all the time, and they end up providing very little benefit to either the lending institution or the borrower.
So, how can loan originators help when a borrower does not qualify? Originators may need to get creative to assist their potential borrowers.
1. Incorporate a Co-borrower or Guarantor
If a single individual does not qualify for a loan, consider adding a third party to assist with the loan. In many cases, a third party will bring additional assets or better credit to the table. Those attributes can sometimes get a borrower over the hump to make it through underwriting.
A co-borrower is someone who is equally responsible for the loan. A guarantor will step in to pay the loan if the original borrower defaults. Both of these can often be businesses or individuals. Either of these parties can add another layer of protection so that a loan can be approved.
2. Add More Collateral to the Transaction
Most mortgages include just one piece of real estate. However, if a borrower is having trouble qualifying with one piece of real estate, consider adding a mortgage to a second piece of property.
Adding real estate might not be an option for some types of loans (or borrowers), but for the right borrower, it can tip the scales in their favor. More collateral can make a huge difference when the loan is evaluated by a lender or in underwriting.
3. Provide the Borrower with Tips to Reduce Their Debt-to-Income Ratio
A borrower’s debt-to-income ratio is important for virtually any loan and any lender, with a few exceptions. If you can see that a potential borrower’s ratio might be high, consider providing some advice about how to strategically pay off the debt to qualify for the loan.
Sometimes simply moving a few payments around (or refinancing smaller debts) can go a long way to help borrowers qualify for a new loan.
4. Review Credit Histories with the Borrower to Spot Errors
Sometimes, a borrower might not qualify for a loan because of poor credit. However, poor credit scores are not always the borrower’s fault. Errors and fraud can negatively impact a credit score. In fact, roughly 40% of Americans do not think their credit scores accurately reflect their financial responsibility.
In these situations, you can sometimes point borrowers to resources to help them address errors on their credit reports. Once those errors are corrected, the borrower may be able to come back and qualify for the loan.
5. Consider Other Lending Options
Not every borrower will qualify for traditional lending options. Instead, a loan originator might need to cast a wider net to help the borrower.
CCIG works with borrowers to help them create a lending arrangement that works for them, even when they have been turned away by other lenders. CCIG also provides loan originators with referral fees and supplemental income opportunities — so it is a win-win for everyone involved. Contact us today to learn more about our process.