April 25th, 2019 9:20 AM by Jackie A. Graves, President
Be prepared for
mortgage underwriting to speed up the process.
A home may be the largest purchase you'll ever make, so it
shouldn't come as a surprise that a financial institution will want to verify
that you can afford it – now and in the future – through the underwriting
What Is Mortgage Underwriting?
Mortgage underwriting assesses the risk of lending money to a
potential homebuyer. During this process, you'll submit a loan application,
along with documentation to support your earnings, assets and liabilities.
You'll also consent to a credit check. The lender will perform an appraisal of
the property, which determines whether the offer you've submitted on a home is
an appropriate value.
Two important reasons for the mortgage underwriting process are:
But mortgage underwriting can take days or drag on for weeks,
especially if you're not prepared to submit full documentation, or if your loan
needs to go through manual underwriting. If you have your paperwork organized
and are ready to work with your lender, the experience can be efficient.
How You Can Prepare for Mortgage Underwriting
Schedule an initial consultation with a mortgage lending officer
to determine if you are ready to buy a home, says Ron Haynie, senior vice
president of mortgage finance policy for the Independent Community Bankers of
America. "There are also HUD-approved housing counselors who can help with
special government programs targeted to first-time borrowers or low- to
moderate-income borrowers," he says.
A great place to start your preparation for the underwriting
process is a toolkit offered by the Consumer
Financial Protection Bureau, which will guide you step by step
through buying a home, from just considering your options to closing on a home.
The underwriting process will begin once you fill out an
application with a lender. You'll be asked for information, including your
address, birth date, previous residences, Social Security number and income –
and all of it will have to be backed up by documentation.
Get your paperwork in order before you start the process, as you
would for a CPA who is doing your tax returns.
"Consumers should have a good understanding of their
financial situation and should be prepared to provide proof of income,
employment and assets," which could include bank accounts, investments and
real estate assets, Haynie says. "They should also be prepared to disclose
their debts, such as credit cards, auto and student loans."
What Mortgage Underwriters Examine
Major factors mortgage underwriters consider are:
and assets. If you're employed by a company, underwriters will ask for pay
Income verification can get complicated, though, if you have
inconsistencies due to a bonus or another factor. The underwriter might then
reach out to your employer to find out more about bonuses, overtime wages and
longer-term equity awards, and possibly to seek additional documentation, Oakes
If you're self-employed, more paperwork is likely to be
involved, especially around tax returns. This could include personal tax
returns and all relevant schedules because the financial institution wants to
know more about the long-term viability of your business, Oakes says.
The lender will want to know where your down payment is coming
from – mortgages typically require a down payment, except for special programs
that offer low or no down payments – and will need documentation to verify your
funding source. The lender also wants to ensure that you're not borrowing money
from somewhere else to make the down payment possible, so you'll need to show
how the money got to your account, whether through wages, gifts or other
Credit history and score. The credit score of the
home purchaser is a vital component of the underwriting process. Your score can
influence your interest rate and which mortgage programs are available to you.
You can obtain your credit score for free through AnnualCreditReport.com,
the only site federally authorized to provide free credit reports, and through
some credit card companies. Review the report at least six months before you
plan to apply for a mortgage so you can make improvements and correct any
value. One of the pivotal parts of the underwriting process is
confirming the value of your property. Even though you've agreed to a price
with the seller, an appraiser who evaluates the home's condition and the value
of similar nearby homes has to back up the price.
Your property's appraisal will then be matched with your
mortgage amount. The loan-to-value ratio, which describes the size of your loan
compared with the value of the property, also helps evaluate risk. An LTV ratio
of 80% – such as a $160,000 mortgage on a $200,000 property – is a dividing
line; if you borrow more than 80%, you'll typically have to pay mortgage insurance to the lender, says
Bill Banfield, executive vice president of capital markets at Quicken Loans.
Other property-related factors influencing underwriting include
property taxes, home insurance and homeowners association dues, if applicable,
Banfield says. Also, the lender will obtain a review of the title of the home
to ensure there are no issues – such as liens – associated with it, Oakes says.
Appraisals are subject to appraiser availability and access to
the home, however, so this is a potential point for underwriting to stall.
How to Speed Up the Underwriting Process
A prospective homeowner can make the mortgage underwriting
process go as quickly as possible by:
"You can really streamline your own process," Banfield
Using digital exchanges is another way to speed up the process
dramatically. In Banfield's experience, digital exchanges, such as when the
consumer allows the lender to connect directly to another bank to confirm
assets, simplify document sharing.
Another way to make the process less taxing is to obtain a
verified preapproval letter before you make an offer on a home.
Prequalification can give you an idea of how much you might be able to borrow,
but preapproval is more concrete. Preapproval means the lender will examine
your income, assets and credit to verify your risk factors. It allows you to be
a step ahead, Banfield says. If you're preapproved, all you'll need is an
approved home offer and an appraisal, he says. You might even be able to lock
in an interest rate.
What to Do if You're Rejected in Mortgage Underwriting
If you can't get a lender to approve your loan application, you
have options, depending on the reasons for your rejection.
If you're not approved because of a low credit score, take a
step back for a few months and work on improving your credit rating. Focus on
getting your accounts current and paying down balances.
Or you may need to adjust your offer if the appraiser doesn't
agree that the home is worth what you've offered to pay. Go back to the sellers
and see if they'll reduce the price to the appraised value so you can get your
If your income, assets or both aren't enough to afford the home
you want, you could choose a more affordable property, save more money for your
down payment, or look for assistance through a co-signed loan.
Typically, applications are either approved or denied, but
sometimes, mortgages are suspended in underwriting. If that's the case, you may
need to provide more documentation to verify employment, income or assets.
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