Mortgage lenders are allowed to make there own application processes, so sometimes if not done with a formal written document, and with the use of employees and other loan officers or brokers, it can be unclear on whether or not the applicant is simply an inquiry or an applicant.
When the loan process begins with a potential applicant asking for the mortgage lender’s qualifications, which may include loan amount, interest rates, loan to value ratio and debt to income ratio, it is considered just an inquiry. However, it is how the mortgage lender responds that qualifies the person as an inquiry or applicant, not what the applicant says or asks for. Meaning, the mortgage lender calls the shot when it comes to whether or not the information is just an inquiry or actual application.
For example, if a mortgage lender verbally disqualifies a potential borrower on legitimate underwriting basis, then the lender is treating the inquiry as an application. If enough information has been collected by the lender to qualify a loan, regardless if it is done through written documentation, and a denial has been communicated to the applicant, then it is considered an application. This is true regardless of the amount of information that has been collected, whether or not any fees have been paid, the lender’s application process, if the prospective applicant has identified a loan amount, or whether the communication is verbal or written.
A mortgage lender can treat an inquiry as an inquiry if the information given is general, such as loan terms, the maximum amount that could be borrowed under various loan programs, and of course explaining the loan process that the prospect must follow in order to submit a mortgage application. If however, after this initial meeting occurs, and the mortgage lender has an opportunity to review the inquirers information and decides not to approve the inquirer and notifies him or her of this decision, the inquiry just became an application, and the mortgage lender is responsible for paper work to address this denied application.
An example of this would be if in the process of reviewing the inquirers information and the mortgage lender finds out about a pre-qualification aspect that is not met, such as not having a certain credit score or bankruptcy, and the mortgage lender does not approve this information, then this case has been treated as an application.
Another example of distinguishing an inquiry from an application is if the mortgage lender communicates with the potential borrower that his or her qualifications do not fall within the mortgage lender’s guidelines, but offers compensating factors that might get the application approved, this is still an inquiry.
However, if the mortgage lender does not give positive compensating factors and the applicant is left with the impression that the lender would not approve the loan, then the inquiry would have turned into a denied application. The denial does not have to be explicit in nature and can be conveyed in any sort of communication that would lead a reasonable person to conclude that an application would be or has been denied.
If a prospective applicant is urged to continue, then the mortgage lender must further define what will be taking place or constitutes as an application. The mortgage lender can decide the qualifying factor for an application. For example, the lender may want the applicant to show a written contract to purchase a certain property and file a formal application with the lender to be reviewed, and then accepted or denied.
Because it can be somewhat unclear in what is an inquiry and application, if you are unsure in the response you get, go ahead and ask the lender. If they do deny at any point in the process, whether it be beginning or end, they just give you a valid reason why. This reason why must be legitimate, meaning it is based only on your financial history and current information, and not on such factor as age, race, ethnicity etc.
Always speak directly and honestly with the mortgage lender or his or her staff, and understand all terms of a mortgage before you do apply. Also, pay attention to how they speak with you, and whether or not they turn your inquiry into an application by making decisions on the spot. If you have any discrepancies or questions, get clear by asking for clarification. Never make any decisions unless it is based on your own free will and on accurate, verified information.
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