Let’s imagine you’ve been preapproved for a mortgage and your offer is accepted for a home that has everything you’re looking for. The house is within your budget, has the perfect number of bedrooms, and is in an ideal location – perhaps Charlotte, NC, or San Diego, CA. So what’s next? To get the mortgage, you need an underwriter’s stamp of approval.
Mortgage underwriting is a key component when purchasing a home. The underwriter decides whether a loan request will be approved or declined. But how? Let’s discuss what a mortgage underwriter does, what the process looks like, how long it takes, and common reasons why a mortgage loan might be denied.
What does an underwriter evaluate?
Mortgage underwriters evaluate every client’s file on a case-by-case basis and determine the best lender according to the client’s situation and combine it with the knowledge of lenders policies in order to determine where the client will have the best chance of approval/product according to their situation. -John Balok, Senior Underwriter at Orbis Mortgage Group in Montreal, QC
What does a mortgage underwriter do?
Reviews income, assets, credit history, appraisal, and title work
The loan originator inputs the borrower’s information into an automated underwriting engine to receive approval or denial. Then, a mortgage underwriter reviews all of the borrower’s documentation and validates the information that was input into the system. If the loan originator’s job is done adequately, the underwriting process is very quick and seamless. The underwriter typically needs additional documentation – such as title work, survey, appraisal, home insurance, etc. – that was not available at the time of initial underwriting. Once those documents become available, the file is submitted back to underwriting to have all conditions cleared. – Dean Kennemer (NMLS 248739), Owner/Broker at Guarantee Mortgage in Mont Belvieu, TX
Fulfills requirements that vary depending on the type of loan
An underwriter’s role is to fulfill the requirements set by the type of mortgage loan you’ve been approved for, such as an FHA, Conventional, USDA, or VA loan. After running your file through an automated underwriting system, the underwriter verifies that all document requests are complete and accurate. Once those requests are complete, the underwriter will issue a “Clear to Close” on your file, and you can then sign final closing documents on your purchase. – Amber Kaye Baisden (NMLS 2009898), Senior Mortgage Loan Officer at 5280 Loans in Westminster, CO
Is responsible for making the final credit decision
The underwriter is the individual who makes the final credit decision based on income, assets, credit history, appraisal, and title work. The underwriting process can take anywhere between 1 day to 3 weeks or more depending on how much information is initially given and whether any of it requires further explanation. – John T. Hedrick (NMLS 1849774), Owner/President at Ace Mortgage Group LLC in Wake Forest, NC
What are the steps in the underwriting process?
First, the underwriter evaluates a client’s credit report, income, and assets to see if they satisfy the minimum loan program requirements. Next, the underwriter sends out a list of conditions to the client containing the items needed to verify information. This process takes place while the appraisal is being handled by an appraiser. Once the appraisal and the missing items are provided to the underwriter, the file moves to a status called CTC (Clear to Close). After the CTC is achieved, the file moves to Doc Drawing. This is the phase where the loan document drawer works with the Escrow or Title Officer to prepare loan documents for the buyer to sign. – Truss Financial (NMLS 1252701) in Ladera Ranch, CA
How long does the process take?
Each step can take 1-3 days
The underwriting process typically begins a few days after a borrower has received an accepted offer during a purchase or for a refinance when a loan application is complete. Underwriters review a loan 2-4 times during the process. This includes an initial underwrite, a review of follow-up items requested after initial underwrite including the appraisal, and final approval, clearing a borrower’s loan for closing. Each of these steps can take 1-3 days. Working with an experienced loan officer who understands the process is imperative for a successful home purchase or refinance. – Brie Fisher (NMLS 266979), Sr. Mortgage Consultant at Belay Mortgage Group in Vancouver, WA
It is possible to close the buyer’s transaction in 2 weeks
Once a file is submitted, the brokerage receives approval in one business day. By doing the initial underwrite for the underwriter, brokers can close the buyer’s transaction in 2 weeks, making this an aggressive offer for the listing agent. – Lisa Marie Schwartz (NMLS 229814), President/Mortgage Broker Owner at Fox Valley Mutual in Evergreen, CO
Reasons why a mortgage application is denied
Income, assets, and credit history
It boils down to the applicant’s income, assets, and credit history. Common issues surrounding income include an insufficient history of work, work hours that vary too much over a short period of time, not being able to verify overtime or bonus income, recently switching from hourly pay to commission, and recently starting a new business as primary income.
With assets, underwriters need to know where the applicant acquired the money. The sources of large deposits and gifts need to be explained and documented. A bad loan officer or loan processor can sink a loan application if they do a poor job of asking questions about an asset’s source upfront.
The final factor is credit. Past derogatory credit events that can prevent loan approval include major or recent late payments, repossessions, bankruptcies, and foreclosures. A credit report is verified very early in the loan process, and every loan product has specific guidelines regarding credit history. – Larry Cappelletti (NMLS 157933), Owner/ Senior Loan Officer at E5 Home Loans in Phoenix, AZ
If income details are not properly verified
Loan applications can be denied in the underwriting process after the initial pre-approval if income details are not properly verified. For example, I have seen a pre-approval written for an application because their income looks good on the surface but once it went into underwriting, the paystubs were analyzed and a big portion of the income was Restricted Stock Units, which many investors will not accept, and the loan needed to be flipped to a different investor. A good loan officer is aware of all of these aspects in order to prevent hiccups in the process. – Nathan Kowarsky (NMLS 294599), CEO at Clear Mortgage Capital in Irvine, CA
Why is it important for lenders?
From the lender’s standpoint, proper underwriting ensures the loan documents, borrower eligibility, and collateral all meet agency and investor guidelines. This is important to the lender because if a deficiency is found in the documentation or file quality, the loan may not be purchased correctly. The loan may have to remain on the lender’s warehouse line if not sellable, limiting how much they can lend out in the future.
Ideally, with a strong, consistent underwriting platform in place, lenders are able to turn high-quality loans quickly and efficiently. The lender should be able to rely on their underwriters to ensure they are in compliance with lending regulations and guidelines as well. This helps avoid costly audits, fines, and regulatory sanctions for failing to follow guidelines. Staying in compliance is extremely important for all lenders. – Fairway Mortgage (NMLS 2289) in Charlotte, NC
Why is it important for homebuyers?
Mortgage underwriting is an important step in the lending process because it guarantees that documentation provided by the borrower and/or third parties conforms to a lender’s guidelines. If your loan officer does a proper job of ensuring that your documentation meets requirements, there should be little chance of an underwriter denying your loan approval. The loan officer is the borrower’s advocate, so the borrower should always be forthright in order to set themselves up for success.– Justin Boyd (NMLS 227765), Vice President & Founder at JB Mortgage Group in Austin, TX
The bottom line
The process of getting a mortgage can be extremely stressful, but it doesn’t have to be. Working with the right lender and loan officer makes the experience as smooth as possible. The underwriting process is important because lenders have to verify your ability to pay back the loan. Underwriters review all income documents including W2s, tax returns, bank statements, and credit reports to determine if you qualify based on general underwriting guidelines. Once the approval is issued, the lenderl orders an appraisal of the property to make sure the home is worth what you are paying. Make sure to tell all debt obligations to your lender upfront so you can know of potential issues ahead of time. – Erez Shimoni (NMLS 460222), Loan Officer at Petra Cephas in Somerset, NJ
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