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Your Mortgage, What to Expect: UnderwritingPosted by
We are now at the halfway point of the mortgage process. Underwriting.
What is mortgage underwriting?
During the mortgage underwriting stage, your application moves from the desk of the loan processor to the mortgage underwriter. The mortgage underwriter will ensure your financial profile matches your lender’s guidelines and loan criteria and he or she will ultimately make the final decision: to approve or deny your loan request.
How Underwriters Assess Risk, the “Three C’s” of underwriting:
- Capacity: Do you have the means and resources to pay off your debts? Underwriters assess your available resources by reviewing your employment history, your income, your debts and your asset statements. (Note: If you are self-employed, you may be asked to provide much more documentation of your income and work status.)
They will also review your savings, checking, 401(k), and IRA accounts to ensure you can still pay your mortgage if you lose your job or become ill. Underwriters will pay particular attention to your debt-to-income ratio; they want to make sure you have enough money to fulfill your current financial obligations, as well as take on a new mortgage.
- Credit: Do you have solid repayment and credit history? Your credit is one of the most critical factors in the loan approval process. The underwriter will review your credit score to see how you have handled past bills (like auto loans, student loans, and home equity lines of credit) and predict your ability to make the proposed mortgage payments on time and in full.
- Collateral: What is the value and type of property? The mortgage underwriter must make sure the loan amount meets the loan-to-value requirements of the product. Otherwise, in the case of a default, a lender may not be able to recover the unpaid balance of the loan. An underwriter will typically order a home appraisal which will assess the home’s current worth.
Also, the underwriter will likely review the type of property you are looking to buy, because different kinds of properties carry different risks. For example, many lenders consider an investment property a riskier investment; this is because, historically, a borrower is more likely to walk away from an investment property than their primary residence in a difficult financial situation.
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