Orion’s brokers know that underwriters make decisions on borrowers without ever seeing them in-person, but rather based on the paperwork submitted in the loan application. The process to determine if a potential borrower is qualified for a loan includes pulling credit reports, ordering an appraisal, verifying income, employment, and assets, and double-checking the source of down payment funds, among other things. About one out of every 12 applications for single-family homes are rejected historically, but that number fluctuates depending on lending conditions, or loosening and tightening of credit conditions.

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Our brokers also know that some common reasons loans will be rejected are issues with credit history and score, a DTI ratio including all debt obligations, plus the mortgage amount against monthly gross income that is above 43 percent (putting it into the non-QM status), a shaky job history that shows getting laid off or recent job changes, no detail of paper trail (W-2s, pay stubs, asset statements, etc.), an appraisal that comes in low, or problems with a home inspection. Additionally, your client’s income sources matter in the sense of how much is commissions and bonuses versus a regular salary. In the event of rejection, brokers can once again prove their worth by working with borrowers on fixing the issue. Some common fixes include improving your client’s credit, paying off debt, increasing savings, or choosing a different property.

Orion and other lenders use credit reports because they are arguably the best indicator of the likelihood of repayment by a borrower. And things are changing from a tri-merge to a bi-merge. Every broker should know the following terms that show up on credit reports. The credit score represents the overall likelihood a consumer will pay their debts. A tradeline is each separate credit account. A revolving account does not have a fixed number of payments (e.g., credit cards), whereas installment credit (e.g., mortgages) involves a set number of scheduled payments over time. Utilization is a term used to describe the percentage of currently outstanding debt against the credit limit.

Orion and our brokers have been examining hard pulls versus soft pulls in 2023 as the cost of running credit reports has gone up. A hard inquiry (or “hard pull”) can hurt the overall credit score versus a soft inquiry (“soft pull”) where the potential borrower did not specifically apply for the offer, not impacting credit scores. Disputes can suspend the mortgage application process until a final dispute resolution is reported.

Brokers maybe concerned when they see the term “original creditor” as it means an account has been turned over to a collection agency or sold to a debt buyer. If there are serious delinquencies or late payments on accounts such as bankruptcy or foreclosure, these count as derogatory marks. FCRA stands for Fair Credit Reporting Act, which ensures that consumers know their rights and that lenders understand regulatory and compliance responsibilities. Finally, the comments section does not allow for explicit negative impacts or derogatory marks, but inworking with your client you can identify comments such as “payment date not reported” or “deferred.”

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Underwriting has not loosened up for self-employed borrowers. Prior to the pandemic, the underwriting guidelines for self-employed borrowers were either one or two years of personal and business tax returns (if applicable) depending on length of self-employment.

During the pandemic, guidelines on self-employed borrowers tightened up due to the number of businesses that were negatively impacted either by having to close due to government regulations, or through lost business and declining revenue. Despite many businesses returning to full operations after the pandemic, many guidelines put in place require not only the tax returns but also a year-to-date profit and loss, plus bank statements for the prior three to six months for the business to show the income was in line with the profit and loss revenues. These guidelines also apply for applicants who own investment property and the net income from those properties are needed for qualifying.

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