The least visible part of buying a home is the underwriting of a mortgage loan.
While homebuyers have the task of locating the perfect home, making an offer and pushing through the negotiation stage of the process, underwriters are hard at work on the loan details.
Here’s a bit more on how the loan underwriting process unfolds.
Underwriting purpose
This is the lender’s evaluation arm of its home lending services. Underwriters will examine the applicant’s financial health and determine their credit worthiness with the goal of approving them for a loan.
What do underwriters look for?
Essentially, an underwriter’s primary task is to assess the applicant’s borrowing risk. They ask the big question: Is the applicant worth the lending risk or not?
To figure this out, underwriters will sift through credit scores, credit reports, debt-to-income ratios, loan-to-value data and other pertinent financial data that can speak to the applicant’s overall risk. If everything checks out to the standard set out by the lender, then the underwriter can move the approval process forward.
Additional questions underwriters look to answer
The decision on whether to approve the applicant also hinges on other factors, such as whether the borrower plans to take up the purchase property as the primary residence. Type of property and loan parameters also weigh in on the lending decision. The number of units within the property and the amortization schedule are two other considerations the underwriting team will want to understand.
Loan-to-value ratio and relative strength of credit score compared to debt-to-income levels, for example, will also play a role of any lending decision.
What underwriters must verify
Once an applicant is pre-approved, the pace of the lending mortgage process really picks up. Remember, a preapproval can be done in a short amount of time since an application can be filled out online. The primary questions will be easy to answer.
Once the final approval process begins, underwriters will verify income and assets. Borrowers will need to provide the appropriate documents, such as tax returns, to fulfill this lending requirement. The lender will want to learn more about your bank accounts, retirement savings, investments, cash value of insurance policies and other financial accounts.
If everything checks out, the lender will provide a written commitment on how much it will be able to lend to the borrower, pending a few other steps.
Appraisal process and title procedures
If the homebuyer makes a successful offer on a home, the lender will order an appraisal to ensure that the home’s value matches up to the asking price.
The lender will also dig into the home’s title and insurance status. Claims, liens, easement rights or pending legal action against the property are some of the red flags lenders will be on the lookout for. Lending companies must make sure the home is free from liabilities before making a lending decision.
Final decision
After looking underneath all financial stones, the lending company will make a decision. It will either be denied, approved or approved with conditions.
If the applicant gets the all-clear notice, then they can proceed with the purchase of the home and enter the final stages of the home buying process. For those who are not immediately approved, they will have an opportunity to provide some updated documents to remove the conditional status of the application.
If you are ready to get started on your home loan, contact us today!