Once you’ve finally found a home that you love, the next step of documenting and legalizing your stay could be severe.
Before you get the key to your house and start living there, you need first to sort out the mortgage loan. Mortgages and finances could be tough, especially if it is not your thing. Not everyone will give you a mortgage loan, of course. It is hard to trust people with an amount of money unless you assess the risk of lending money to them. This is why a mortgage loan process could be complicated.
But there are steps and let me break those down for you.
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A mortgage underwriter in simple words is someone who works as a middleman between you and your mortgage lender. Responsible for assessing the amount of risk you possess, the mortgage underwriter gives approval or denies your request of getting a loan.
The basic concept is as simple, but it involves a lot more than this.
An application is submitted to the underwriter which includes information about your credit score, history, other personal information, property reports, insurance and mortgage history etc. and the underwriter is then required to assess your position based on the application.
It solely depends on several factors. The end decision is of the underwriter.
Suppose the underwriter feels that you will be able to pay off your mortgage in the given period and that you’re responsible enough to be handling the money. In that case, the underwriter will approve your application and send it to the mortgage lender. However, if anywhere in your application or your history, it is reflected that you may be a risk to be investing in, the request could be denied, and you may not get the loan.
This is a very critical responsibility that the underwriter goes through because it involves analyzing information and then coming to a conclusion about whether a person is eligible to receive the loan or not.
Like it has been mentioned above, there are a few things that an underwriter will scrutinize in your case. Typically, there are three Cs that make or break your application. Let’s look into those in detail.
Credit: A good credit score will surely sway the ball in your court, if you have a good credit score it means you have been paying off your loans on time and this case would be no different. If you have a bad credit score, you can make it better by being consistent in paying off debts. Maybe, later on, your application is approved.
Capacity: This is typically referred to as your capacity to repay the loan and is dependent on your debt to income ratio. How much income do you bring in each month? What percentage of liability will you be able to give back and still be able to manage routine expenses? It is essential to gain perspective with all the math involved: your cash flow should be more than what you are required to pay, then only you will be able to pay back the loan. You can improve your capacity by having other sources of income on your application like a pension fund, etc.; this will help strengthen your application and improve the chances of being approved.
Collateral: This refers to the amount of interest acquired on your property and what loans are guaranteed in collateral. What underwriters do is place a value on your house and then make an estimate, they want to make sure that borrowers will be able to pay back the money if it is set to default. Underwriters will examine whether you will be able to pay back the downpayment of the house.
During underwriting, expect a few visits to your home, inspection teams visiting your work and analyzing the validity of documents. All of this is important to assess the risk of investing in you, so don’t get upset over the standard procedure.
Let’s assume your application was top-notch, and the underwriter approved your application. The mortgage lender is ready to give you a loan. Good news, right?
But that isn’t the finish line. Several things happen after the underwriting gets approved.
There will be lots and lots of double-checking. Your mortgage company will send agents to double-check all documents and verify your case again.
Now that you have been approved for a mortgage loan, you must know that you can move on to the final stage. But how much more time?
Once you’ve been approved, the hard part is over. This means that in only a couple of days you will get your final call and you can proceed with buying the house.
The average time from underwriting to closing is usually five days, with a three-day mandatory cooling period. Once this time limit is done and there is nothing else in the application left, you will receive a final Closing Disclosure (CD) from either your mortgage company or the underwriter itself.
Mortgage underwriting is a complicated and time-consuming process. Involving critical examination of the application and the credibility of the applicant, an underwriter approves or denies the loan application.
If it is denied, you may have to go through the process again after improving your credit score and falling in the criteria. The underwriter usually gives a reason and an explanation of why they rejected your application, so you can work on it later to apply for the mortgage again. Or even try another mortgage company with a different underwriter.
This article gives you a basic understanding of what mortgage underwriting is and how you can strengthen your application to improve your chances of being approved.