Steps in the Mortgage Underwriting Process

Loan approval ouija boardWhen you apply for a mortgage loan, your application is subject to underwriter approval. Underwriting is the process through which a loan application is either approved or denied. Additionally, it is used to assess a borrower's loan program eligibility. Over the past decade, the underwriting process has changed considerably. Historically, loans were passed around a table before a loan committee, which determined whether or not to accept a borrower's application. But now, fewer and fewer people do the actual underwriting; instead, computers perform this function.

This is known as automated underwriting.
As the name implies, a software program (rather than a person) processes the application and either approves it unconditionally or accepts it with restrictions. Surprisingly, this has proved to be a substantial benefit for a large number of borrowers. It turns out that obtaining human approval was much more difficult than obtaining machine approval. Generally, the computer has been programmed to be much more forgiving of credit, income, and debt problems than human underwriters were. The computer is indifferent about losing its employment if an overwhelming number of bad loans are authorized.

The underwriter's initial step is to examine the software program's output. He or she will verify that the data was input properly. Monthly income, credit history, credit score, and total cash assets will all be considered in the underwriting decision. Following that, the underwriter will review the house appraisal.

The appraiser is responsible for evaluating the property's worth and deciding if it complies with the loan program's criteria, as well as identifying any property defects. If the appraiser has reservations about a certain element of the home, he or she will seek an in-depth assessment from a specialist.

Credit history and credit score

After an initial evaluation of the loan application and comments from the software program, the underwriter will carefully analyze the applicant's credit record. Frequently, an underwriter will seek an explanation letter for any unfavorable entries. The credit score of the applicant is critical in the approval process.

Although a credit score of 750 is ideal, most loan programs allow for a lesser score with a higher interest rate to account for risk.

Monthly Income

Monthly income determination may be challenging for the loan officer and underwriter. Some employees are paid hourly, some are compensated twice weekly, while still others are compensated every other week. Monthly income is critical for calculating the debt-to-income ratio.

Debt to income is a straightforward computation that compares the monthly debt payment to the monthly gross income.

Title insurance policy

Prior to settlement, a title insurance agent will submit a title insurance report to the lender. The underwriter will examine the title insurance report to see if there are any problems with the property's chain of title or if there is anything in the report that may cause a problem for the lender in the event of a foreclosure.

For instance, some houses are situated on a private road, and the deed may compel all residents to contribute to road upkeep. The maintenance agreement must be drafted in such a manner that the lender or investor accepts it.

Questions that are often asked:

Q. Does the underwriter need the appraisal?
A. Assuming that all required documentation is in order, the underwriter may examine the application and condition approval on an acceptable appraisal.

Q. Does the underwriter work for the mortgage company?
A. Yes.

Q. How long does underwriting take for a mortgage?
A. One hour is a reasonable estimate, assuming all "I's" are dotted and "ts" are crossed.

Q. Who is the mortgage underwriter?
A. The underwriter is the person who decides whether to accept or deny a loan application.

Q. What does the mortgage underwriter look for?
A. He or she is analyzing the applicant's credit history and credit score in order to evaluate if the applicant's credit profile satisfies the loan program's criteria.