Mortgage underwriting is the process lenders use to determine if you are eligible for the money you want to lend. The lender will have to determine if you can pay it back before deciding whether to approve or decline your application.
The mortgage underwriter happens to be the person who approves and denies your loan application. Because the level of risk can be very high, mortgage lenders will then employ mortgage underwriters to evaluate the risk involved in lending to you.
The Mortgage Underwriting Process
• Getting pre-approved
A preapproval doesn’t mean you will get a loan offer, but rather thorough investigations that serve as an indication of your borrowing capacity, such as how much loan you’re likely to get from the lender and at what interest rate.
• Income, asset, and employment verification
The next step is the underwriting process for income, assets, and employment verification. This process requires a thorough investigation, which means the lender’s underwriter will have to check your financial situation to see if you are capable of repaying the loan and also verify your employment status.
For this process, your documents, such as W-2s, pay stubs, and bank statements, will be needed for verification. And for those who are self-employed, you’ll need to provide more documents, such as your profit and loss statements.
• Appraisal
A rating will be conducted on your property’s worth to ensure that the amount you are borrowing is worth the value of the home you’re buying. If the home value doesn’t align with the mortgage amount, you could negotiate the price with the seller, but bear in mind that you’ll be the one to pay for the extra amount.
• Title search and title insurance
A title search, such as property history, mortgages, claims, liens, easement rights, zoning ordinances, pending legal action, unpaid taxes, and restrictive covenants, will be thoroughly carried out on the house by title insurance to make sure the house has no legal claims on it and to be sure it can be transferred as well.
If any legal claims are on it, either you check with the seller to find out if it’s fixable before the end of the day or you don’t buy the house at all.
Then, the title insurer will issue an insurance policy that shows that the house has been thoroughly searched.
While two policies are given to protect both the lender and the property owner, it’s important to know that the policies being issued are optional for the property owner and always required for the lender.
• Underwriting decision
After all the necessary steps are completed, if the underwriter is pleased with your application, the appraisal, and the title search, your loan will be cleared for closing. This means you can proceed with the final step, which is the closing of the property.
Tips to Get Through Mortgage Underwriting
Here are some tips on how you can get through mortgage underwriting:
- Lenders can recheck your credit at any time before the loan closes, so protect your credit score.
- Don’t apply for new credit.
- Avoid making big purchases; this will help decrease your cash reserves if purchased on a credit card and increase your credit utilization, or the percentage of available credit used.
- Ensure that you pay your bills on time.
- Keep your current credit account open. If you close your account, it will decrease your available credit and increase credit utilization.
- Keep your job, as it is a determining factor for the amount you are qualified to borrow.
- Income and employment history are the key factors in a lender’s decision.
FAQs
How long does underwriting take?
Underwriting usually takes about 2–6 weeks, depending on the complexity of the loan and the borrower’s finances.
What happens during underwriting?
Underwriters verify documents, check property details, and assess the borrower’s finances to determine loan approval.
Can a loan be denied during underwriting?
Yes, if the underwriter finds major issues like low credit scores or high debt, the loan may be denied.
How can I improve my chances of loan approval?
Having a good credit score, low debt, stable income, and providing accurate information can help get loan approval.
What happens after underwriting approval?
After approval, you’ll move to the closing process, where you’ll sign paperwork and pay closing costs to finalize the loan.
