Getting a Loan: What If You Don’t Meet the Underwriting Criteria?

Have you ever been turned down for a loan? If so, you might be familiar with some of the terminology banks tend to use in such situations. For example, perhaps you were told that you did not meet the bank’s underwriting criteria. But what does that mean?

The easiest way to explain underwriting criteria is to say that it is the minimum qualifications a bank will accept for loan approval. If you were to apply for a traditional bank loan, the bank would look at your:

• total income
• total expenses
• credit score and history
• current employment
• any assets you might have.

The bank would leave no stone unturned in its efforts to figure out whether you can afford to take out a loan. You could meet all the requirements but one and still be rejected. Not meeting each and every requirement means you don’t meet their underwriting criteria.

Turning to Private Lenders

So what is a borrower to do when a bank says no? One option is to turn to private lenders. A good example would be mortgage lending. There are dozens of private mortgage lenders ready to help out buyers who cannot get traditional bank and credit union loans. Nearly all of them make their services available through mortgage brokers.

In a car loan scenario, private lending looks a little bit different. There aren’t many private lenders who do for car buyers what mortgage lenders do for home buyers. But there are still options. For example, almost all of the major automakers will finance vehicle purchases through their own in-house lending organizations. There is also the buy-here-pay-here option whereby the dealer finances the purchase.

Hard Money Loans

Hard money and bridge loans are available for certain types of needs. Actium Partners, a Salt Lake City hard money firm active throughout Utah, lends mostly to investors who specialize in real estate. They have also been known to lend to companies looking to expand their businesses.

Other hard money lenders fund property flippers, builders, and even companies looking to restructure their debts. Hard money is private money, so lenders can be flexible in terms of the needs they are willing to fund. Just know this: hard money lenders isn’t available for car loans, purchasing a primary residence, or other personal needs.

Underwriting Criteria Differs

The main take away here is that lenders have different underwriting criteria based on their individual business models. In the case of a private mortgage lender, for example, it’s easier for the lender to look past a lower credit score as long as the borrower’s income can support the loan. The same goes for a car loan financed by a dealer.

Hard money and bridge loans tend to have entirely different underwriting criteria. Firms like Actium Partners rarely look at credit scores and histories for the purposes of determining loan approval. Those things are only looked at in the context of determining rates and terms. So on what do they base approval? Collateral.

Hard money lenders require that borrowers put up some sort of collateral as backing. Usually, collateral is a piece of real estate. Lenders are looking for collateral that has more than enough value to support the loans they make. As long as that value is there, the underwriting criteria has been met.

The truth about lending is that one size does not fit all. Traditional lenders have their underwriting criteria. Alternative lenders have their own criteria. As such, being turned down for a loan is not necessarily the end of the world. There are other options.

When seeking a loan but falling short on meeting underwriting criteria, navigating the lending landscape can be daunting. Outsourcing the mortgage underwriting process presents a strategic solution. Streamlining expertise and resources through outsourcing ensures adherence to stringent standards, improving the chances of loan approval for applicants who may not initially meet the criteria.