If you are like most of the home shoppers out there, you will need a mortgage to buy a house. And once you request a mortgage for the property you would like to buy, you will still need to obtain approval on your final mortgage approval due to the mortgage underwriting process, which defines the degree of risk as the mortgagor. Thus, it is essential to be savvy about the entire mortgage process, which includes mortgage underwriting.

So if you are 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!

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What Is Mortgage Underwriting?

Mortgage underwriting is the process that your lender uses to evaluate their risk of letting you borrow money. The financial institution, such as a bank or credit union, must decide and establish if the borrower can pay off their mortgages before concluding the loan application's approval. And this concluding approval will be done through the mortgage underwriting process.

While its main aim is to protect the bank, lender, or credit union, it can also protect you, the buyer, since it assesses your ability to repay the loan. Many of us see what we consider our dream home and buy it even though it is considerably more than our budget can afford. Mortgage underwriting can help bring you back to reality and ensure you don't get over your head.

However, before the underwriting process, the financial institution or creditor will gather all the necessary documentation for your mortgage request. An underwriter will then validate your proof of identity, review your credit standing, and evaluate your financial status, such as your earnings, properties, or other liabilities.

But how does a lender assess your payback ability?

By reviewing a variety of documents, like your:

  • Credit history
  • Income
  • Assets
  • Tax returns

All of which can help provide insight into your current and future financial stability.

What Is the Mortgage Underwriter Looking For?

The primary responsibility of the mortgage underwriter is to determine the extent of the risk the creditor is considering when they grant you the mortgage. They undergo cycles or phases that let them assess your financial status and the possibility of repaying the mortgage promptly. All of this sounds very general. But 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 complete 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 gained from your submitted material, your mortgage underwriter may ask you to provide more documentation to help them better understand your situation.

Mortgage Underwriting Isn't Cut and Dried

While there are general guidelines that mortgage 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. The mortgage underwriter can provide an approval recommendation for your mortgage according to other factors, such as if you have ample bank savings, property investment, or properties that generate income. One of the most critical considerations also that are being taken by the mortgage underwriter for approval is if the client has an excellent credit score coupled with good savings.

Remember, the lender is looking at your financial situation, 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.

Many people need to realize that their mortgage can be approved with conditions. It is essential to understand what those conditions are and to meet them so your loan request will successfully be approved and granted. But more often than not, it is simply a matter of providing a copy of a document to your underwriter.

If you are denied, it is essential to understand why so that you can work on strengthening any weak areas. One of the biggest reasons why mortgages are being denied is because of too much debt. Start off on the right foot by paying down or settling all your debts before you go into the loan process.

There are situations in which you can be neither approved nor denied.

In this case, your application is deemed "suspended," which means the mortgage underwriter could not decide one way or the other based on the information you provided. They will likely tell you what additional documentation you can provide to reactivate your mortgage application.

Buying that dream home will be nearly finished when you are free of any of these outcomes and have already obtained the approval of your loan application. Because the last stage, of course, will be the closing day! This is where the creditor finances your mortgage and bestows payment to the selling party in return for granting the property title. This will be when you indicate acceptance by signing all the necessary final documentation, resolving the closing costs, and finally getting the keys to your dream home.

When Does Mortgage 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. Pre-qualify. Before you start house hunting, you'll want to get pre-qualified, as this step helps you determine the loan amount you can borrow and, thus, enables you to set a budget.

Step 2. Pre-approval. You don't have to get pre-qualified, but you should get pre-approved. Since you must submit financial documentation to get pre-approved, this shows a seller that you're a serious buyer and could be a determining factor in getting your dream home.

Step 3. Find your house. Now that you better understand 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 you are interested in, as they likely will only be on the market for a while!

Step 4. Officially apply. A pre-approval letter doesn't guarantee a loan, so once you have found your home, it's time to apply for a mortgage formally.

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 home's condition. 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 assigned to you.

Step 7. Mortgage underwriting. The underwriter gets to work analyzing any risks 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 Mortgage 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, ensure you have all 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 is crucial you don't make any significant changes while the loan request is being evaluated. For example, if you decide to quit your job or make a large purchase, that could delay the processing time, as new information needs to be considered.

Final Thoughts on Mortgage Underwriting

You're Not Alone!

As you can see, you have enough on your plate when purchasing a home. It would be best not to go from broker to broker to compare mortgage rates. You will certainly need a trustworthy mortgage underwriter to guide you in facing the challenges of the underwriting process. They will assist you in understanding whether you are financially equipped and prepared to purchase a house.

With help from LendGo, lenders come to you! Whether you want to buy a home or refinance, we can help you explore your money-saving options. See what rates are waiting for you today!

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