Although you’re not likely to see or hear from this person during the mortgage loan process, the underwriter decides whether to approve, suspend or deny your home-buying loan. That’s where his job ends.
To get to that point, he first needs to look at your credit history, verify your employment and income, evaluate your debt-to-income ratio (DTI) and confirm the source of your down payment. He also may order an appraisal to make sure the home’s selling price matches its value.
“The mortgage underwriter is a person who analyzes the loan structure, borrower’s credit, income, debt load and the home being financed to decide if the loan meets the risk profile required by the loan program,” says Mike Scott, a senior loan mortgage originator for Independent Bank.
Different loan programs allow different risks. For example, Scott explains, an FHA loan will often allow a higher debt load than a conventional loan. A VA loan examines the borrower’s net income and residual income. So, a married person with 10 children needs more residual income to qualify for the loan because each person in the household adds more to the general bills.
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What is a mortgage underwriter?
According to Study.com, all mortgage underwriters must be licensed within the state where they’re employed. Each financial organization has their own criterion over and above licensure.
Generally, most lending institutions hire someone with at least a bachelor’s degree to fill this position, says Scott.
He is tasked with deciding whether or not you’re a good risk – if you’ll be able to make the monthly payments for the home you want to buy. The underwriter looks at how you’ve handled money in the past and a few other financial scenarios.
Underwriters rarely contact the buyer directly which distinguishes them from others involved in the home buying process.
The real estate agent’s job is to help you find the home that fits your wants and needs and facilitate the purchase. For providing these services he earns a commission.
Mortgage brokers act as the middlemen between the borrowers and lenders. They originate the loan and have a variety of lenders at their disposal to meet your needs. Mortgage brokers work closely with the agents, underwriters, lenders and title companies.
The lender, which is usually not an individual but a financial institution, mortgage bank or credit union, gives you the money you need to buy the home. The loan officer or loan consultant who works for the lender will be your main point of contact. He helps you with the loan application, getting a credit report, filing the appropriate documents and choosing the right loan type.
Others you may meet or hear from during the mortgage process include the seller of the home you want, his selling or listing agent, an inspector and an appraiser. The inspector checks the house over for structural integrity, a good roof, the right plumbing and electricity. An appraiser values what the home and land is worth based on current marketing data. But the person that holds your home-buying future in his hands is the underwriter.
What do mortgage underwriters look at?
“The loan underwriting process is often shrouded in mystery, usually leading to an anxious borrower,” says Matthew Yu, vice president of Socotra Capital. “Underwriting isn’t all that scary unless you have blemishes on your file.”
The mortgage underwriter evaluates your credit history and payment records, which tells him how much debt you have, how long you’ve had it and if you’re making consistent payments in order to eliminate this debt. That’s not all they look at though and your credit score won’t be the only benchmarks used to determine your risk. Rent payments, utility payments, insurance premiums and other monthly bills also come into play. Your entire financial image is considered.
An underwriter will also evaluate your capacity to take on a loan, which includes looking at your income and assets. Usually, they ask for two years’ worth of tax returns to verify your income. If you’re self-employed you may be asked for additional paperwork. In order to close on the loan, you need money in the bank — your assets — for closing costs and other fees required in the process.
When assessing your risk, the underwriter will also consider whether you plan to make a 10 or 20 percent down payment.
An appraisal lets the underwriter know the value of the home you’re buying. He wants to ensure his company isn’t loaning you money for a house you won’t be able to resell down the road.
A survey of the property is also required to determine property lines and the location of the home on that land. This enables the underwriter to get a copy of the title insurance and discover, hopefully, there are no liens, unpaid taxes or judgments on the property.
The borrower submits the documents requested, Yu explains, and they are ticked off a checklist. When an item isn’t satisfactory, then a substitute is requested.
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What does it mean when a loan is in underwriting?
While all your documents and other requested items are being considered, your mortgage loan is considered to be in underwriting.
“Sometimes an underwriter will initially issue a conditional approval due to missing or incomplete documentation, due to the property requiring repairs or needing explanations on some of the items documented such as the source of a large or unusual deposit,” says Scott.
In this case, the processor or loan officer then works to meet the conditions and the file is sent back to the underwriter for final approval before closing.
How long does it take for the underwriter to decide?
Decision time varies by lender but can take anywhere from one day to two weeks, says Yu.
A key determining factor on how long a loan takes is how many underwriters the lender has on staff. Even though you may have stellar credit, submitted the right documents and everything is a “go,” you still must wait until your turn comes up for underwriting.
“A consumer can always ask for an update on the loan process,” says Yu. “Any loan officer or mortgage broker should be familiar with the underwriting process and can shed some light on what’s going on behind that curtain.”
How to Have the Best Underwriting Experience
Your lender will navigate most of the underwriting process for you. However, you can help keep the process simple and efficient by responding to your mortgage underwriter’s questions and requests promptly, and by being upfront about your financial picture.
Even though a mortgage underwriter works behind the scenes when deciding whether or not to grant you a home buying loan, he’s a very significant piece of the puzzle and can bring you closer to owning the home of your dreams.