Inside the Underwriting Process: What You Need to Know
Learn about the underwriting process and gain insight into the steps necessary to get your loan approved. Gather the information you need to not only understand the process, but navigate it effectively.
Inside the Underwriting Process: What You Need to Know
Are you considering taking out a mortgage loan? If so, you may want to familiarize yourself with the underwriting process.
Underwriting is the process where a loan officer, usually employed by the lender, takes a close look at a potential borrower's financial situation and credit history in order to evaluate the risk associated with granting a mortgage loan. This process can be lengthy and, at times, intimidating, but it is necessary to ensure you and the lender are aware of all the potential risks.
What Information Does the Underwriter Need?
The loan officer will be reviewing your financial information in order to get a better understanding of your situation and the risk involved with granting a mortgage loan. They will likely need information on your:
- Current income and employment status
- Total assets
- Debt balances and payments
- Current credit score
- Bank statements
The loan officer may also ask you to explain anything that appears on your credit report that could have a negative effect on your application.
What Do Underwriters Look At?
Underwriters want to ensure the lender is making a sound investment decision by granting you a loan and that you are capable of making regular payments. They will take into consideration several factors like your:
- Income
- Assets
- Debts
- Credit history
- Employment history
- Savings
Underwriters will also likely check to see if the property you are looking to purchase is a reasonable price based on the current market. This helps the lender figure out the loan-to-value ratio.
What Happens After the Underwriter Evaluates the Information?
Once the underwriter has evaluated all the necessary information, they will make a decision. There may be several outcomes: they can approve your loan, deny it, or request additional information.
If approved, the lender will likely issue a conditional loan approval. This means you have met all of the criteria, and the only items left to complete are the loan conditions. These are often paperwork- and procedure-related and are easy to meet. Once you have provided all the necessary information, the loan will be finalized and you can move forward with the purchase.
Conclusion
Now you understand the importance of the underwriting process and what to expect if and when your loan application reaches that stage. The underwriter's decision can make or break your purchase of a new home, so it is important to be prepared and provide the loan officer with accurate and in-depth information.