Getting a mortgage is never easy. Think of it as an up-hill battle. In this battle, you will come across an underwriter who is will make sure everything is A-Okay. It’s not fun, and it’s not something anyone wants to go through. Nevertheless, it is essential to the process. Let’s discuss mortgage underwriting and how it works.
What is Mortgage Underwriting?
To simplify, underwriting is the process where the lender checks your assets, property, and income details. They do so to approve your loan.
Before the lender can accept your application, they need to find out the extend of the risk you pose. This involves running various eligibility checks. There are wider legal regulations, along with the lending criteria of the lender.
What are the Responsibilities of a Mortgage Underwriter?
The mortgage lender has a partner in crime, a mortgage underwriter. It is the responsibility of the underwriter to conduct a detailed analysis of your mortgage application. Additionally, they must make the final decision.
Firstly, the underwriter must carefully read your mortgage application. Then, they must arrive at a risk assessment according to their findings. Next, they match them with the borrower’s, as in your, profile.
Throughout these steps, it is their duty to keep an eye out for inconsistencies. They can ask more questions or even require further documentation.
After all this, the underwriter can either approve the mortgage, advise changes to the deal, or decline it.
What Checks are Included During Mortgage Underwriting?
Before the underwriter can arrive at a conclusion, they must run the following checks:
Affordability: This check involves calculation regarding income multiple and borrower-specific affordability.
Lender Policy: It covers the criteria you should meet, such as legal status, age, deposit, loan-to-values, credit history, etc.
Credit Reporting: Scoring that determines your ability to repay as well as creditworthiness.
Property: To look for high-risk properties and constructions materials or methods that are against the criteria of the lender.
Fraud and Money Laundering: To locate the source of your money and clear up any irregularities.
The process of mortgage underwriting has three stages:
Assessing the Risk Involved in the Loan
This evaluation is by-the-numbers. The underwriter will measure the risk factors against your credit history. They will evaluate whether this is a positive investment for the lending institution. Furthermore, they scrutinise your affordability.
Ensuring you Meet the Criteria
Sometimes, the criteria are specific, such as the loan is only for first-time buyers. You must meet all the requirements. Therefore, the underwriter can provide an alternative in such cases.
The next step is important. It involves checking the paperwork to make sure that everything is signed and submitted correctly.
An underwriter’s basic concern is whether you can pay back the money without any hindrance. Your past credit history is a reliable source of information, but it is not enough. They cannot simply approve your application on this basis.
When During the Mortgage Process Does Underwriting Take Place?
Since every mortgage lender is different, their methods are unique as well. Depending on their approach, the mortgage underwriting process takes place accordingly.
You must understand that there are different levels of manual checks. The same applies to automated checks. They come together to form a risk assessment. Underwriting plays a major role in this.
Initial stages of your mortgage application do not require any human input. A computer will take care of them.
Consider the following stages:
Pre-soft Credit Check Phase
The purpose of these top of the funnel checks is to filter out applicants. Filtering out takes places based on term, instances of bad credit, as well as age.
Score carding Phase
This stage involves assessing your employment status, income, and debts. As a result, it generates a score. Your score must meet the minimum criteria set by the lender.
Suppose you make it this far. At this point, the lender will issue a mortgage agreement in principle (AIP)
Yes, the computer can very well carry out these broader checks. Nevertheless, the final decision rests on the shoulder of a person. The mortgage underwriter, of course. They will manually do the following:
Property Valuation and Underwriting Phase
The underwriter will carefully evaluate your property. Then, they must conduct a detailed review of your finances. Moreover, they will investigate your personal circumstances surround the loan in question.
The underwriter has the right to ask for additional supporting information.
How Long Does Mortgage Underwriting Take?
Since most of the underwriting process depends upon a human, there is no specific timeframe. It varies from situation to situation. Consequently, the length of the process is impacted by:
- The complexity of your application.
- If the lender is preoccupied.
- The experience of the mortgage underwriter.
Consider a scenario where your application is complex. If a junior underwriter is handling it, then it can take a few days to run the required checks. On the other hand, if a senior underwriter is more likely to arrive at a decision quickly.
Suppose you submit your application during spring. In comparison to Christmas time, it may take longer. Spring is a busy time for underwriters as property sales are up.
On the average, mortgage underwriting takes up to 3 or 4 working days. Within a week, all applications are complete. Although, it can take longer if more information is required by the underwriter.
What Can You Do to Speed Up the Underwriting Process?
Most people consider underwriting as a secretive process. This is mainly because it may happen behind closed doors. You can do the following to help speed up the process:
Full Disclosure Since the Start: Instead of waiting around for the lender to discover information, let them know right away. Hiding important information isn’t going to help you. It is ideal to tell the lender so that they can figure out if that is a deal breaker. If not, they can tell you how to deal with it.
Get your documents in Order: One of the main reasons mortgage underwriting gets delayed is because of documentations. So, it is best to make sure that all your documents are in order. This way, you can readily provide them to the lender as per requirement. Thus, your loan can get approval on time.
Reasons for Declining Your Mortgage During the Underwriting Process
Plenty of reasons exist for declining your mortgage application during underwriting.
Mostly, it is because you didn’t meet the lender’s criteria. Perhaps it’s due to red flags appearing in your application or that your circumstances are now different.
Common reasons for your application declining during mortgage underwriting include:
- Your job or income changing.
- A lot of credit applications within a short period.
- Due to debts.
- Not meeting the affordability criteria.
- Undisclosed cases of bad credit.
- Inconsistent income.
- You applied for the wrong type of mortgage in your situation.
In most cases, lenders tell the reason for rejecting your mortgage application. If they do not discuss it with you, you should ask them. Also, you can work with a mortgage broker who will handle it for you.
After finding out the issue, you have a better chance of fixing it. For example, you can improve your credit score and reduce your debts. Additionally, you can save for a larger deposit.
When your mortgage application gets declined during the underwriting stage, it appears on your credit report. Then, it is ideal to wait for a few months before you apply again. Waiting is crucial, even if it is another lender.
The Underwriter is Not Your Enemy
Surely, during the battle of mortgage underwriting, the underwriter appears as an enemy. That is not the case. You are not going up against them in a fight. If your mortgage application doesn’t get an approval, then no one wins. Therefore, it is best not to view it as a competition.
Instead, think about how the underwriter will help see the issues in your application. You can then fix them to meet the lender’s criteria and legalities. Furthermore, they can make decisions that computers cannot.
In certain cases, the underwriter may ask for additional information. Take that as an opportunity to explain your situation to them. Maybe you both can see eye-to-eye.
The process of underwriting can seem tiring, but you need to go through it to achieve your goal. Which is to get your hands on a mortgage. In the long run, you will benefit from the underwriting as it will improve your financial management skills. Who doesn’t like a good credit score? Here’s to having enough financial stability to get a mortgage.