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The process that mortgage lenders use to assess your creditworthiness and determine whether to approve you for that loan is called underwriting. Here is what you need to know about the mortgage underwriting process. The bank, credit union or lender has to determine whether you are likely to be able to pay back the home loan before deciding whether to approve your mortgage application , and does this through underwriting.
Before underwriting, a loan officer or mortgage broker collects the many documents necessary for your application. An underwriter then verifies your identification, checks your credit history and assesses your financial situation — including your income, cash reserves, equity investment, financial assets and other risk factors.
A mortgage underwriter can assess your loan application manually or run it through a software program, known as automated underwriting, to determine whether to approve you for a loan. It was all fun and games until you started the mortgage process.
Now you have to choose the right lender, gather your documents, and start the mortgage underwriting process. Sounds boring, but understanding all this underwriting stuff is an important step in the process of getting your home sweet home. Time to rip off the Band-Aid. Mortgage underwriting is the process a lender uses to determine whether or not you qualify for a mortgage. It works like this: You submit an application and a specialist, called an underwriter, reviews it and checks out your finances.
Basically, they want to see if loaning you money is risky or not. More on those in a bit. As part of the mortgage approval process, underwriters use specific guidelines and even computer programs to check the levels of risk in your mortgage loan. There are two ways to do this: automated underwriting and manual underwriting. Automated underwriting is a computer-generated process. It can be used for several kinds of loans, not just mortgages.
With just a small amount of info like your Social Security number, address and annual income , the program can gather things like your credit history—if you have a credit score.
And since the automated underwriting system is preset with certain rules and guidelines, it can process things quickly. Manual underwriting is done by a person, not a computer program. The underwriter working on your loan reviews your loan application and uses supporting documentation to figure out whether or not you can afford a mortgage.
If you have special circumstances, like a decent net worth but no credit history aka you have money but no debt , your lender might choose manual underwriting instead of an automated process. Your loan underwriter is ultimately the person who decides whether you can qualify for a mortgage. A credit score says nothing about your real financial situation.
The underwriter will review your credit report to see how well you made payments on, or paid off car loans, student loans and other lines of credit. They look for clues that will help them predict your ability to pay back what you borrow. When trying to determine whether you have the means to pay off the loan, the underwriter will review your employment, income, debt and assets. They want to see that you, and any co-borrowers, have the ability to make the payments both now and in the future.
Using the current market value of the home, the underwriter will make sure it serves as ample collateral for the loan. This assures the lender that they can recover the unpaid balance in the case of a default. The value of a home is determined by the size, location, condition and features of the property. Comparable homes in the neighborhood also help conclude its value. Getting a valuation, such as an appraisal protects both buyer and lender by ensuring you only pay what the home is worth.
If the home is worth less than the asking price, you may have to bring more money to the closing, negotiate a lower price or walk away altogether. The title search ensures there are no liens, claims, unpaid taxes, judgments or unpaid HOA dues on the property.
Once the title search is complete, the title insurer will issue an insurance policy to guarantee the accuracy of the research.
It includes the loan terms, your projected monthly payments and your final costs. Review this document carefully, especially the funds you need to bring to closing, and if you have any questions, ask your lender.
Each situation is different, but underwriting can take anywhere from a few days to several weeks. Missing signatures or documents, and issues with the appraisal or title insurance are some of the things that can hold up the process. Be very responsive to requests for information, and if you need more time to gather requested documents, continue to communicate status with your mortgage loan officer. Your lender handles much of the underwriting process for you.
But there are things you can do to make sure your experience is a positive one. While your loan is processing, avoid taking on new debt or making other financial changes like closing credit cards or other accounts. Anything that affects your debt-to-income ratio may impact your mortgage approval. During the underwriting process, there may be questions or the need for more information. Responding promptly to these requests will keep your application moving forward.
Lenders can pull your credit and recheck your finances any time before you close on the loan. Any changes to your financial profile could torpedo the application. A career change can alter the amount the lender has approved for you to borrow. If your lender contacts you for additional information, respond to it as quickly as possible or your application may be delayed.
What is an underwriter? The mortgage underwriting process. The financial review. The appraisal. The title search. The decision. How long does underwriting take? Mistakes to avoid.
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