If you're like most of the home shoppers out there, you'll need a mortgage to buy a house. Thus, it's important to be savvy about the entire mortgage process, which includes underwriting.
If you're just beginning the search for your first house, or if it has been some time since you last purchased a home, here's everything you need to know about mortgage underwriting and what to expect.
What Is Mortgage Underwriting?
Mortgage underwriting is the process that your lender uses to evaluate their risk of letting you borrow money. While its main aim is to protect the bank, lender, or credit union, it can also protect you, the buyer, since it's assessing your ability to pay back the loan. Many of us see what we consider to be our dream home and decide to buy it even though it's considerably more than an established budget. Mortgage underwriting can help bring you back to reality and ensure you don't get in over your head.
How does a lender assess your payback ability?
By reviewing a variety of documents, such as:
- Credit history
- Tax returns
All of which can help provide insight as to your current and future financial stability.
What Is the Underwriter Looking For?
All of this sounds very general. What exactly is your mortgage underwriter looking for?
Your credit score. Many lenders have minimum requirements you must meet. That's why it's incredibly important to protect your credit score and be aware of all that impacts it.
Your full credit report. In addition to reviewing your credit score, an underwriter looks at your entire credit report, specifically your loan and payment history.
Property appraisal. It has to be verified that the home you intend to buy meets the lender's collateral requirements.
Based on the information gleaned from your submitted material, your mortgage underwriter may ask you to provide more documentation to help them better understand your situation.
Underwriting Isn't Cut and Dried
While there are general guidelines that underwriters follow, the good news is that having something unfavorable in a report doesn't necessarily disqualify you for the home loan. If you fall short in one area, strengths in others may be enough to approve you for the loan. Remember, the lender is looking at your financial situation on the whole, so individual elements may not cause you to be turned down for a mortgage.
Approved, Denied, Suspended
The best outcome for your mortgage underwriting process is that you are approved and can secure your loan.
What many people don't realize is that your mortgage can be approved but with conditions. It's important to understand what those conditions are and to meet them so your loan request isn't denied. More often than not, it's simply a matter of providing a copy of a document to your underwriter.
If you are denied, it's important to understand why so that you can work on strengthening any weak areas. A big reason why mortgages are denied? Too much debt. Start off on the right foot by paying down your debts before you go into the loan process.
There are situations when you can be neither approved nor denied. In this case, your application is deemed "suspended," which means the mortgage underwriter wasn't able to decide one way or the other based on the information that you provided. They'll likely tell you what additional documentation you can provide to reactivate your mortgage application.
When Does Underwriting Come Into Play?
What step is mortgage underwriting on your home loan journey? You may be surprised that it is one of the last.
Step 1. Prequalify. Before you start house hunting, you will want to get prequalified, as this step helps you determine the loan amount you can borrow, and thus, helps you set a budget.
Step 2. Preapproval. You don't have to get prequalified, but you should get preapproved. Since you are required to submit financial documentation to get preapproved, this shows a seller that you're a serious buyer and could be a determining factor when it comes to getting your dream home.
Step 3. Find your house. Now that you have a better understanding of how much you can afford, the time has come to house hunt. Homes with in-demand features can sell quickly, so don't wait to tour homes that you're interested in, as they likely won't be on the market for long!
Step 4. Officially apply. A preapproval letter doesn't guarantee a loan, so once you have found your home, it's time to officially apply for a mortgage.
Step 5. Appraisal. Once you've found your home, have made an offer the seller is interested in accepting, and have completed your loan application, it's time for a home appraisal. A lender will assess the amount you have offered to pay to determine if it's appropriate based on several factors, including the condition of the home. It's important to note that typically, the buyer pays for the home appraisal.
Step 6. Verification that the property can be transferred. It has to be verified that the person selling is allowed to sell the home and that the property can be transferred to you.
Step 7. Mortgage underwriting. The underwriter gets to work, analyzing any risks that come with lending you money.
Step 8. Approval and closing. The final step of the home loan process is to get approved and complete all paperwork, which includes paying all associated fees.
How Long Does Underwriting Take?
The timeline for mortgage underwriting is different for everyone, as it depends on several factors. It can be done in as little as a few days or can take several weeks.
What can you do to help speed up your mortgage underwriting process? First, make sure you have all of your financial documents ready to go before even applying for a mortgage. You can also review your credit score well in advance to ensure there are no errors on your report that need to be disputed, as getting mistakes corrected can take quite a bit of time.
Also, it's important you don't make any big changes while the loan request is being evaluated. For example, if you decide to quit your job or make a separate large purchase, that could delay the processing time, as new information now needs to be taken into account.
You're Not Alone
As you can see, you have enough on your plate when it comes to purchasing a home. You shouldn't have to deal with going from broker to broker to compare mortgage rates. With help from Lendgo, lenders come to you! Whether you're looking to buy a home or refinance, we can help you explore your money-saving options. See what rates are waiting for you today!