What does a mortgage underwriter do and why is it important?
Mortgage underwriting is a key component when purchasing a home. The underwriter decides whether a loan request will be approved or declined.
Let's imagine you've been preapproved for a mortgage and your offer is accepted for a home that has everything you're looking for. The house is within your budget, has the perfect number of bedrooms, and is in an ideal location – perhaps Charlotte, NC, or San Diego, CA. So what's next? To get the mortgage, you need an underwriter's stamp of approval.
Mortgage underwriting is a key component when purchasing a home. The underwriter decides whether a loan request will be approved or declined. But how? Let's discuss what a mortgage underwriter does, what the process looks like, how long it takes, and common reasons why a mortgage loan might be denied.
What does an underwriter evaluate?
Mortgage underwriters assess each client's file individually, determining the most suitable lender based on their circumstances while considering lender policies for optimal approval outcomes.
What does a mortgage underwriter do?
Reviews income, assets, credit history, appraisal, and title work
The loan originator inputs the borrower's information into an automated underwriting engine. Then, a mortgage underwriter reviews all of the borrower's documentation and validates the information.
Fulfills requirements that vary depending on the type of loan
An underwriter's role is to fulfill the requirements set by the type of mortgage loan you've been approved for, such as an FHA, Conventional, USDA, or VA loan.
Is responsible for making the final credit decision
The underwriter is the individual who makes the final credit decision based on income, assets, credit history, appraisal, and title work.
What are the steps in the underwriting process?
First, the underwriter evaluates a client's credit report, income, and assets. Next, the underwriter sends out a list of conditions to the client containing the items needed to verify information. Once the appraisal and the missing items are provided to the underwriter, the file moves to a status called CTC (Clear to Close).
How long does the process take?
Each step can take 1-3 days
The underwriting process typically begins a few days after a borrower has received an accepted offer. Underwriters review a loan 2-4 times during the process.
It is possible to close the buyer's transaction in 2 weeks
Once a file is submitted, the brokerage receives approval in one business day. By doing the initial underwrite for the underwriter, brokers can close the buyer's transaction in 2 weeks, making this an aggressive offer for the listing agent.
Reasons why a mortgage application is denied
Income, assets, and credit history
It boils down to the applicant's income, assets, and credit history. Common issues surrounding income include an insufficient history of work, work hours that vary too much over a short period of time, not being able to verify overtime or bonus income, recently switching from hourly pay to commission, and recently starting a new business as primary income.
Additional factors include asset source verification and credit history issues such as late payments, repossessions, bankruptcies, and foreclosures.
If income details are not properly verified
Loan applications can be denied in the underwriting process after the initial pre-approval if income details are not properly verified.
Why is it important for lenders?
Proper underwriting ensures loan documents, borrower eligibility, and collateral meet agency and investor guidelines. The loan may have to remain on the lender's warehouse line if not sellable, limiting how much they can lend out in the future.
Why is it important for homebuyers?
Mortgage underwriting is an important step in the lending process because it guarantees that documentation provided by the borrower and/or third parties conforms to a lender's guidelines.
The bottom line
The process of getting a mortgage can be extremely stressful, but it doesn't have to be. Working with the right lender and loan officer makes the experience as smooth as possible. The underwriting process is important because lenders have to verify your ability to pay back the loan. Make sure to tell all debt obligations to your lender upfront so you can know of potential issues ahead of time.