In this article we are going to discuss the loan underwriting process and its importance to the overall mortgage process.
Loan underwriting is the process lenders use to verify and confirm that the loan, the borrowers, and the property meet all the lender’s requirements. The person performing the analysis is called the underwriter and is the person that will ultimately approve or deny the loan. Most borrowers will never meet with the underwriter of the loan. They will work with a mortgage broker or a loan officer, who will interface with the loan underwriter.
In a typical underwriting process, the underwriter reviews the following information and documentation:
- borrowers’ credit scores, credit history, income levels, and employment history to assess their ability and willingness to repay the loan;
- borrowers’ indebtedness level to ensure they can pay all their current debts and the mortgage;
- borrowers’ identity and legal status;
- property’s appraisal and condition to ensure the property is worth the amount agreed in the purchase contract;
- property’s title to ensure the property can transfer to the buyer, and confirm that lender is getting the correct lien position; and
- loan’s amounts and terms meet the lender’s requirements.
The underwriting process can take anywhere from one day to a month or more. The duration depends on the quality of the documentation available, how busy is the underwriter, and how quickly the underwriter can become comfortable that the borrowers, the loan, and the property meet the lender’s criteria.
During the underwriting process, underwriters will typically ask for additional information until they get the level of comfort they need to approve the loan. For example, the underwriter may ask for additional pay stubs to confirm the income and employment history of the borrowers; or he may ask for confirmation from the borrowers that they are planning to live in the property after closing; or any other piece of information or documentation that will help him approve the loan.
Although all banks follow the same overall underwriting process, there are differences in how each lender implements its own specific process. For example, some lenders allow the underwriting process to start without a complete file. The mortgage broker or loan officer can start sending the information to the underwriter as soon as he collects it. He first sends information about the borrower, then he sends information about the property and the appraisal, and continues to send information and documentation as they become available.
Other lenders require a complete file before they allow the underwriting process to start. The mortgage broker or loan officer collects all the necessary information and send one complete file to the underwriter for review and approval.
The underwriting process is usually the main reason why mortgage brokers and loan officers request additional information from borrowers throughout the loan process. They are simply trying to fulfill the underwriters’ requests.
Once the underwriter approves the loan, the lender draws the loan documents that the borrowers will need to sign at closing, and the borrowers are one step closer to getting the keys to their new home.