What Does It Mean When a Loan Goes To Underwriting?
Do you have any idea of what entails the underwriting process? Did you know that your finances go through a process called underwriting before you can officially be approved for a mortgage?
The underwriting process generally leads to a decision that determines whether or not a loan will be approved. It is during this stage when your lender evaluates the situation at hand and is left to determine if you qualify for the loan. Several factors are used by the lender to get a final decision on a mortgage loan. Each of these factors is carefully analyzed during the underwriting process with the use of specialized software programs.
Here is a summary of how the underwriting process goes:
- Mortgage underwriters get to examine your application and documents to either approve or decline your request.
- Computers are capable of approving mortgages, but human underwriters are always there to verify whether or not your documents are in line with the information provided on your application.
- A proof of your income and assets is always requested by underwriters and they may have further requests along the line.
Other things an underwriter should do
- Credit history check: An underwriter would look at your credit score and create a credit report from it. With the help of your overall credit score, they search for things like late payment, bankruptcies, overuse of credit and others.
- Call for an Appraisal: An underwriter will hire an appraisal to determine if the amount the lender offers for the property actually matches the real price of the home.
- A Check on your Income and Employment: As a buyer, before you get approved for a mortgage, you’ll be asked by an underwriter to prove your current income and employment situation.
- Check out your Debt-to-Income Ratio (DTI): This study will help tell lenders how much money you spend versus how much income you make. The DTI can be calculated by simply summing up your monthly minimum debt payments and dividing it by your monthly pretax income. Your debts are examined by an underwriter and compare them to your income to be sure you end up with more than enough cash flow to handle your monthly mortgage payments, taxes, and insurance.
- Study your Down Payments and Savings: The underwriter also has the job to study your savings account to make sure you are left with enough savings to carry on your income or to use as a down payment at closing.
Throughout the underwriting process, it is advisable to always provide prompt response to every request of your lender. Doing so will greatly improve your chances of being approved and will move the underwriting process along smoothly and in a timely manner. If you are so determined to complete the underwriting process fast and be approved for your loan, it is best for you to maintain a financial stability status. A few tips are listed below on how to go about that:
- Never try to do something that might lead to decreasing your credit score. A most common in this case is trying to apply for new credit lines during underwriting.
- Respond to inquiries as fast as possible and be upfront and honest about your finances.
- Have a steady job during this period. It is important to demonstrate employment stability.
- Save as much money as you can. You need enough cash to handle the closing costs, and payments and other expenses during the home purchase.
- Keep with up with monthly payment and always be on time. Pay off any debts and do not do anything that may lead to increasing your debts.
- Do not deducts funds from your savings account during the underwriting process.
The easiest way to avoid errors during the underwriting process is to disclose all your financial history to your lender before your initial loan preapproval. Always let the lender go through your credit history after reviewing it yourself, you need to be sure it’s error free. File your tax returns, pay bills on time and do not spend savings or add your debt load within the underwriting timeframe.