Overview

Lenders look for a complete, consistent story: steady income, manageable debt, reliable credit history, and clean documentation. When an application shows inconsistencies, missing paperwork, or high risk markers, underwriters escalate the file for manual review or request more evidence. In my practice—over 15 years working with borrowers across mortgage, personal, and small-business lending—I’ve seen the same handful of issues repeatedly cause multi-week delays.

Why lenders escalate files (brief)

  • Automated underwriting systems and manual underwriters flag discrepancies that increase default risk.
  • Missing or unverifiable income requires third-party verification or additional tax documents.
  • Recent negative events (bankruptcies, collections) prompt condition requirements or overlays from investors.

Common red flags and what they mean

1) Low or volatile credit scores

Why it matters: Credit scores are a primary signal of past payment behavior. Scores below common thresholds (for example, <620 for many conventional mortgage products) typically trigger extra review, higher pricing, or denial. Lenders may ask for explanations of derogatory items, recent late payments, or proof of rehabilitation (e.g., payment plans).

How it delays approval: The lender may pull full credit reports, order manual underwriting, or require compensating factors. That can add days to weeks.

Fixes and documentation to provide:

  • Pay down revolving balances and bring delinquent accounts current before applying.
  • Pull your own credit reports from the three bureaus to check for errors and dispute inaccuracies (see CFPB guidance: https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/). In my experience, simple disputes can remove reporting errors that raise scores within 30–45 days.

2) High debt-to-income (DTI) ratio

Why it matters: DTI shows how much of your gross income goes to fixed debt payments. A high DTI (commonly above ~43% for many conforming loans) signals limited capacity to absorb new monthly payments.

How it delays approval: Lenders may request evidence of ability to repay, ask for a co-borrower, or seek loan program exceptions. Underwriters often require additional documentation to prove discretionary income.

Fixes and documentation:

  • Lower monthly debt (pay down credit cards or refinance high-cost debts).
  • Verify the DTI calculation with accurate income documentation. See our guide on calculating DTI: Debt-to-Income Ratio.

3) Inconsistent or unverifiable income (self-employed, gig, seasonal)

Why it matters: Lenders prefer predictable income streams. Self-employed, gig, and seasonal workers often show income volatility or use tax deductions that reduce showable net income. This creates uncertainty about future cash flow.

How it delays approval: Expect requests for multiple years of tax returns, signed profit-and-loss statements, bank statements, or even client contracts. Some lenders move to bank-statement underwriting, which takes extra time to collect and analyze.

Fixes and documentation:

  • Provide two years of personal and business tax returns, year-to-date profit-and-loss statements, and 12–24 months of bank statements when requested.
  • Include signed client contracts, invoices, and a written explanation of cyclical income.
  • See our deeper guidance for self-employed borrowers: How Lenders Evaluate Self-Employed Borrowers.

4) Employment gaps or frequent job changes

Why it matters: Underwriters want to see stable employment or a clear path between jobs. Multiple short-term roles or unexplained gaps raise questions about future earnings.

How it delays approval: Lenders typically request employer verification, written explanations, and sometimes paystubs covering the transition period.

Fixes and documentation:

  • Submit a letter of explanation with dates and reasons for gaps (e.g., caregiving, training, industry seasonality).
  • Supply offer letters, recent paystubs, and HR verification contacts.

5) Large, recent deposits or assets without explanation

Why it matters: Unexplained large deposits can indicate undisclosed loans, gifts, or fraud. Underwriters need to trace the source to confirm the funds are eligible for down payments or reserves.

How it delays approval: Each large deposit typically requires a paper trail: bank statements, gift letters, cancelled checks, or transfer documents. Tracing can take several days to a few weeks depending on third-party responsiveness.

Fixes and documentation:

  • Keep detailed records of money moving in and out of accounts. When receiving a gift, get a signed gift letter and donor bank statements showing the transfer.

6) Multiple recent credit inquiries or new accounts

Why it matters: Recent shopping for credit or new lines of credit can increase risk. Lenders worry about increased obligations or rate-shopping that changes available credit.

How it delays approval: Underwriters recalculate ratios, may require explanation letters, and sometimes ask applicants to close recently opened unsecured lines.

Fixes:

  • Avoid opening new credit accounts in the 90 days before applying. If inquiries exist, provide a written explanation.

7) Prior defaults, collections, foreclosures, or bankruptcy

Why it matters: Past serious delinquencies are strong predictors of future risk. Each loan program has specific waiting periods and documentation requirements after these events.

How it delays approval: Lenders check for discharge dates, re-establishment of credit, and documented means of recovery. Secondary-market overlays (investor rules) can impose longer waiting periods.

Fixes and timeline guidance:

  • Provide court discharge documents, proof of debt resolution, and evidence of on-time payments since the event. For mortgage-specific waiting periods, consult investor guides (Fannie Mae, Freddie Mac) and discuss program options with your loan officer.

8) Incomplete or inconsistent documentation

Why it matters: Missing W-2s, unsigned disclosures, or mismatched names and Social Security numbers force underwriters to pause and gather corrected paperwork.

How it delays approval: Simple errors often become the longest delays because they require back-and-forth communication between borrower, loan officer, and third parties.

Fixes:

  • Double-check that names, addresses, and SSNs match across all documents. Upload clear, full-page scans (not cropped photos) and respond to document requests promptly.

How lenders ask for documentation (typical timeline)

  • Initial application to pre-approval: 1–7 days for basic credit/income checks.
  • Post-submission underwriting: 1–3 weeks depending on complexity and how quickly you provide requested items.
  • Final conditions and closing: 1–2 weeks after clearing all conditions (longer if title/third parties delay).

Practical pre-application checklist (my recommended steps)

  1. Pull your credit reports from all three bureaus and fix errors (CFPB: https://www.consumerfinance.gov/).
  2. Calculate your DTI and reduce high balances where possible. See our Debt-to-Income Ratio guide.
  3. Assemble two years of tax returns, recent paystubs, and 12–24 months of bank statements for self-employed applicants. Refer to How Underwriting Uses Alternative Data for acceptable alternatives.
  4. Prepare written explanations for any gaps, large deposits, or recent inquiries.
  5. Talk to your loan officer about specific program overlays (for example, FHA, VA, and conforming products have different thresholds).

Real-world examples (short)

  • A borrower with a 590 credit score saw underwriting stall; after disputing two reporting errors and bringing a collection current, the file cleared in six weeks.
  • A self-employed borrower applying for a small business loan overcame an initial denial after supplying 24 months of bank statements and three signed client contracts, proving consistent cash flow.

What lenders commonly request when they see red flags

  • Full tax returns (Form 1040) and business returns (Schedule C, K-1)
  • Bank statements for 12+ months
  • Employer verification and recent paystubs
  • Letters of explanation for gaps, inquiries, or large deposits
  • Gift letters and proof of gift transfers

Frequently asked questions (brief)

Q: Will a single late payment delay my loan?
A: One recent 30-day late can trigger questions. Lenders look at recency, frequency, and account type. If it’s isolated and you provide context, many lenders will accommodate with conditions.

Q: How long should I wait after bankruptcy to apply for a mortgage?
A: Waiting periods vary by program—commonly 2–4 years for Chapter 7/13 under many investor guidelines. Discuss options with your lender; some niche products and manual underwrites may allow exceptions with stronger compensating factors.

Q: Can alternative data speed approval for self-employed borrowers?
A: Alternative data—like consistent bank-statement patterns, rent payment history, or verified invoices—can help demonstrate repayment ability but requires additional analysis and documentation (see How Underwriting Uses Alternative Data).

Internal resources on FinHelp

Authoritative sources and further reading

  • Consumer Financial Protection Bureau (CFPB) — credit reports and consumer protections: https://www.consumerfinance.gov/
  • Internal Revenue Service (IRS) — tax record guidance and retrieving tax transcripts: https://www.irs.gov/
  • Fannie Mae and Freddie Mac loan guides — program-specific waiting periods and documentation (discuss with your loan officer for the latest investor overlays).

Professional disclaimer

This article is educational and does not replace personalized advice. Underwriting rules, investor overlays, and program requirements change frequently; consult your lender or a qualified financial advisor for guidance specific to your situation.

Final takeaway

Many delays are preventable. The single best step is preparation: confirm your credit file, assemble complete income documentation, and be ready to explain anomalies. In my experience, applicants who prepare the documentation in advance cut average approval times by weeks and reduce stress during underwriting.