Mortgage underwriting process: how does it work?
For many people, the mortgage underwriting process is one of the most confusing parts of buying a home. However, it is important to understand what underwriting is, how it works and why it is a critical step in mortgage loan approval. Armed with this knowledge, you should be much better prepared to go through the mortgage process and come out with a positive outcome.
What is mortgage underwriting?
Basically, mortgage underwriting is a critical step in the lender’s decision-making process as to whether you will receive final approval for a home loan. During this process, underwriters will take the time to check your financial documentation to assess the risk of lending to you. Upon review, if the mortgage insurer believes that you are able to make your mortgage payment each month, they will issue a final approval and you can proceed with it. buy the house.
In fact, this process can take anywhere from a few days to a few weeks, depending on how quickly the underwriter receives all of your financial documents and how many other mortgage applications are being processed at that time.
If you have any further questions about underwriting or the rest of the mortgage industry, visit Credible to find out more.
What factors does a mortgage insurer look at?
The vast majority of what underwriters do is review and audit your financial statements to make sure that you are willing and able to pay off your mortgage.
Before applying for a home loan, be sure to compare mortgage rates. Can believable introduce you to several mortgage lenders and provide you with personalized rates in minutes (plus it has no impact on your credit!).
With this in mind, there are several factors that a mortgage underwriter will consider when making their decision:
- Credit report
- Debt-to-income ratio
- Deposit and assets
- Home evaluation
- Income and employment
1. Credit report
One of the first things the underwriter will look at is your credit report and more precisely, your credit rating. Each loan program has different minimum credit score requirements that must be met, so the underwriter will make sure that your score is high enough to be approved. Additionally, they’ll likely be looking for red flags, such as a bad payment history, that could indicate you’re more likely to default on the loan.
If you are confident in your credit rating, you can insert some of your information into Credible’s free online tool to find out what type of mortgage rates you qualify for today.
2. Debt-to-income ratio (DTI)
Your debt to income ratio will also appear on your credit report. A DTI ratio is simply a measure of your current income against all existing debt. It serves as an indicator of whether or not you can afford to take on more debt in the form of a mortgage, and in general, it shouldn’t be more than 45%.
3. Deposit and assets
Next, the underwriter will review recent statements for many assets such as bank accounts or retirement accounts. Here, the mortgage insurer is trying to make sure that you have enough money to make your deposit, plus a little extra cash so you can continue to make your mortgage payments even if your income declines.
If you are looking to buy a home in the current market, you can explore your mortgage options by visiting Credible to compare rates and lenders and get a mortgage pre-approval letter in minutes.
4. Home evaluation
Typically, mortgage lenders also require that an appraisal be done to verify the market value of the property you are purchasing. This is done in order to ensure that the property is worth the loan amount. If it is determined that the property is worth less than the loan amount given to you, you may need to renegotiate the purchase price with the seller.
5. Income and employment
Finally, the underwriter will usually call your employer to check your employment history and to perform an analysis of your income. While it may sound complicated, it is simply an additional check that you are making enough money to pay your mortgage payments.
Use Credible to get in touch with experienced mortgage lenders and answer your questions.
5 steps to getting a mortgage approved
Now that you know what underwriters will be looking for when evaluating your loan request, it is important to review the steps to get approved for a mortgage.
- Shop around for pre-approval
- Complete a loan application and collect the documents
- Go through the subscription process
- Receive conditional approval
- Get a final decision
Take a moment to review them to better understand where the underwriting fits in the process.
1. Shop around for pre-approval
The first step in getting a mortgage is to compare rates and lenders to find the right lender to pre-approve you for a loan. A mortgage pre-approval is a letter from the lender that specifies the amount he is willing to lend you based on an initial overview of your finances. This letter is usually submitted with an offer to prove to the seller that you are financially capable of purchasing the house.
With Credible’s easy online tool, you can compare rates from multiple lenders almost instantly, without impacting your credit. See the daily rates below.
2. Complete a loan application and collect the documents
Once you’ve submitted an offer and it’s been accepted, it’s officially time to complete your loan application. After completing the application, you will work with a loan officer to create a financial documentation package to give to the underwriter.
3. Follow the subscription process
Once your file is complete, it will be sent to the underwriter for review. This is where the underwriter takes the time to verify all of your documents and the information you entered on your loan application.
4. Receive conditional approval
You will likely receive what is called a “conditional loan approval” before you receive your final decision. Conditional approval means that you will likely be approved for a loan, however, the underwriter needs additional or updated information before the loan is processed. As long as you can provide the additional information and it is considered satisfactory, you should be able to move forward with it. loan closing.
5. Get a final decision
Once the underwriter has all the information they need, they will make their final decision. In this case, you will either be approved, denied or suspended. When a loan application is “on hold,” it means that there is a problem preventing the underwriter from making a decision on your loan application.
When you are ready to begin the mortgage process, you can use Credible to compare rates and lenders online.