A Basic Guide to the Mortgage Underwriting Process
What is Mortgage Underwriting?
One of the final steps in the home buying process is the mortgage underwriting process. Mortgage underwriting is when an underwriter evaluates and determines if you qualify for the desired mortgage that matches the lender’s guidelines. Reviewing your financial documents in-depth helps the underwriter to evaluate and assess the risk in your ability to repay the loan.
Typically, prospective borrowers purchasing a home will receive a mortgage pre-approval first to help give them a competitive edge when negotiating the terms of sale. Once the prospective borrowers find a property, the loan can be submitted to underwriting for a more in-depth assessment of their financial information.
What Do Mortgage Underwriters Look For?
To determine your ability to pay back your mortgage, an underwriter will look at the following items:
– Credit History
The underwriter will review your credit score, credit report and credit history to see how you’ve handled debt in the past, such as credit card bills or student loans. Most importantly, the underwriter wants to know that you can make stable monthly debt repayments.
– Income and Employment History
The reason you may have to submit employment documents such as pay stubs or employment verification letters is that the underwriter needs to review your income records. Understanding how much money you are earning each month helps evaluate how much debt you can handle.
This mainly refers to liquid assets, such as cash in a checking or savings account. The underwriter needs to make sure you have enough liquid assets to cover closing costs and your first monthly mortgage payment. Learn more about asset-based mortgage programs!
The mortgage underwriter will review your liabilities to understand your other financial responsibilities better.
– Property Value & Down Payment
The mortgage underwriter will review the ordered appraisal to make sure that the desired loan-to-value is in-line with the property value. Additionally, he/she will review your down payment as another way to evaluate risk on the loan.
Reviewing all of these factors helps the mortgage underwriter paint a better picture of your financial situation overall.
How Long Does Mortgage Underwriting Take?
The mortgage underwriting process may vary according to the complexity of the loan. Some people may need to submit more documents than others as well, which may lengthen the process. This process may range from a couple of days to a couple of weeks.
GuardHill has in-house underwriting teams which allow us to close some mortgages in as little as three weeks.
What Happens After Mortgage Underwriting?
Once the mortgage underwriter reviews all of your financial documents, you will get a loan decision. If your loan is approved (with or without conditions), the underwriter will draft a mortgage commitment. A mortgage commitment letter outlines the final agreed terms of your loan, such as the program, loan amount, monthly payment, and any fees.
Here are the following loan decision outcomes:
Congratulations! If your mortgage is approved by underwriting, you will schedule a closing date!
– Approved with Conditions
Your loan may be approved with conditions, which means that the underwriter needs to verify additional information, such as a large deposit that needs an explanation, before issuing final approval. Once you clear those conditions, the underwriter will take another look and approve.
If your mortgage is denied, your loan originator will work with the underwriter to understand the reasoning behind the denial. Often, the debt-to-income ratio is too high, and the loan amount needs to be slightly adjusted. Other times, the credit score may be too low for the desired loan program.