In Denial

According to the analysis, in 2022 nearly 2.5 million applications nationwide were recorded as denied and another 2.2 million were withdrawn, compared to 1.25 million for the other four reasons combined.

Talk to loan originators, though, and they offer a frontline perspective for why so many mortgage applications failed to close in the Lone Star state.

‘Don’t Trust The Banks’

You might have noticed that none of the six reasons for loans to fail mention anything about cultural differences.

That brings us back to Camposano, a senior loan officer with Fairway Independent Mortgage Corp. and Team Camposano in Eagle Pass. Located southwest of San Antonio, Eagle Pass is on the border with Mexico.

“There’s a lot of Hispanics,” Camposano said. “And we see a lot of people who don’t trust the banks.” She said it is a cultural thing, with Hispanics preferring to pay in cash and refusing to open bank accounts.

“We see that a lot in our industry, or at least on the border, with the Hispanic culture,” Camposano said. “We struggle with them having to establish credit. They don’t want to do that.”

Which, not surprisingly, can make completing applications for pre-approval of mortgages a challenge. That, and some other issues, she said.

“We do have a lot of people also that change jobs a lot,” Camposano said. “So it makes it harder for us to get an approval. … We have people that have, like, eight or nine jobs. So it just makes it more difficult tracking down the employers, getting the verifications of employment filled out.”

While pre-approvals do happen, she said, “what normally would take maybe 24 to 48 hours …, we’re seeing it sometimes take three weeks, four weeks, just to actually get them pre-approved.”

Because of that, she added, “people get discouraged.”

Camposano also noted that a majority of the people she works with, “like 90%,” are first-time homebuyers, “They’re kind of nervous, … but that’s where I, as a mortgage professional, will walk them through the whole process to where they feel comfortable.”

Buyer Education

Because so many of her clients are first-time buyers, Camposano says educating them on the process is key to helping them eventually close their loan.

“We do a lot of the first-time homebuyer programs that the state of Texas offers,” she said. “And one of the requirements is that they do take a home-buying course.”

Camposano said that helps “a little bit,” but she and her team supplement that education to make sure clients know “the steps that they’ll be going through on the whole home-buying process, … which usually takes about 30 to 45 days in our market to close.”

Linda Davidson agrees that buyer education is often a key to getting loans closed. Davidson, area leader, branch manager, and senior loan officer for Fairway’s Heritage Group in Garland estimates that two out of every five of her clients need a “get mortgage ready” action plan. Garland is about 20 miles northeast of Dallas.

“So they are not, at that point, prepared to purchase, or we would be setting them up for failure to even try,” Davidson said. “So we give them a written outline on exactly what they need to do to get mortgage ready. Sometimes it’s to put them in a credit repair. Sometimes it’s just building credit. Sometimes it’s just education — ‘these are the things you need to do.’ Sometimes it’s saving money.”

Even if a client uses a down payment assistance program, she said, “it’s not paying for everything. So every situation’s different. And I love when clients call us and say, ‘I’m not buying for a year from now, but can you tell me what I need to do?’”

And despite all of that education, some clients just don’t follow the advice, Davidson said.

“Sometimes … circumstances are just so much out of their control,” she said. “Life, you know, happened. And sometimes it’s just … the desire to be a homeowner is not as strong as the desire to not break the bad habits that are already there. So it really depends on the person.”

Davidson said she also was told early in her career that the best thing she could learn “is to be better than an underwriter. And I can truthfully say that I’ve never had a loan turned down that we’ve sent to underwriting.”

That’s because she tries to gather everything before it’s sent, she said.

“We get the documentation upfront, we review it upfront — whether it’s alternative credit letters, whether it’s funds to close — whatever it is, we do it upfront so we make sure that we don’t close late or ugly at that point,” Davidson said. “I think that’s one of the big keys of closing.”

‘Date The Rate’

As in many places, homebuyers in Texas face affordability issues. With interest rates hovering between 6% and 7% and prices still elevated, it’s even tougher these days to afford a home, especially for first-timers.

“It’s kind of hard when it’s just one income and you’re having to pay a $2,000 mortgage payment,” Camposano said. “People want to have a comfortable payment, but with the prices for houses, it’s just not likely.”

That means loan originators have to be creative, “whether we do a two-one buydown or buy points just to get them to feel comfortable with the payment,” she said. “Like we say, ‘you’re only going to date the rate. You can always refinance later.’”

The flip side of affordability, she added, is when potential homebuyers get pre-approved for a loan, but then can’t find a house within their budget.

“We really don’t see any denials in our market,” she said. “It’s really more that the client was not able to find a house, or something changed in their job history that put the application on hold temporarily.”

Davidson says the hot housing market during the pandemic made it especially difficult for first-time buyers.

“It was almost impossible to get your contract accepted because there were multiple, multiple, multiple offers with 20% and 30% and 40% down, and then paying over with no contingency on anything,” she said. “So it was really, really hard for our first-time homebuyers.”

“Then that shifted around May of 2022,” she continued, “And then we started seeing our seller willing to take those government loans, those low down loans, that kind of thing.”

Davidson said the Dallas-Forth Worth area does have “a major shortage of inventory, which is bringing back the multiple-offer market, and making buyers reluctant to accept buyers with government loans.

“It’s not a weak file, it’s a good file, it just has a family that is looking for homeownership,” she said. “But I get it, on the seller’s side,” she said. “If you are being offered 60 grand over on a strong conventional mortgage, then I get it.”

Camposano also defended buyers using government loans, such as FHA or VA loans. “There’s not really a difference between an FHA and a conventional loan,” she said. “I know some people say, ‘well, the appraisers are really picky.’ In my opinion, I think that’s a myth.”

In general, she said, “our sellers have no objections” to borrowers with government loans.

For both Camposano and Davidson, the bottom line for homebuyers is to work with a loan originator who knows the area and can best prepare them in advance for the process.

“So I think, first and foremost, go to a trusted mortgage professional that knows the market, knows the area, and that knows their guidelines,” she said. “That is, to me, one of the most important things. Listen to the education that they’re giving you.”

For Camposano, the most important thing for a buyer is to not do anything that could alter their financial or credit situation.

“Don’t do any major purchases, any major changes without consulting with us first,” she said. “Anything that you’re going to do, consult with us before anything because we definitely do not want any hiccups down the road. We want to get you into that house within 30 to 45 days, and everybody’s happy.”