A lender checks your finances and sees if you can get a home loan through the process of mortgage underwriting.
When you hit "submit" on a mortgage application, underwriting is what happens behind the scenes. This is the part of the loan process where a trained professional called an underwriter looks at your finances to see if you can reasonably pay back the loan you want.
The underwriter's job is to look at everything and answer this big question. They will check your job history, bank statements, and credit report, and then compare your monthly debts to your income. They will also check out the property itself. The lender needs to know that the house you're buying is worth what you're paying for it because it will be used as collateral for the loan.
The government says that underwriting has to be done. The Consumer Financial Protection Bureau enforces the Ability-to-Repay rule, which says that lenders can't approve a mortgage until they've done everything they can to make sure the borrower can make the payments. This isn't just what the lender wants. The law says that.
I understand why a lot of people think of underwriting as a black box. You give them a lot of papers and then you wait. But once you know what the underwriter wants, the whole thing makes a lot more sense. Let's talk about the most important things they look at.
The debt-to-income ratio is probably the most talked-about number in the whole mortgage process. DTI tells you how much of your gross monthly income goes to paying off debts. This number helps lenders figure out if you can make your mortgage payment without too much stress.
It's not too hard to figure out your own DTI. Add up all of your monthly debt payments, such as your car loan, student loan, credit card minimums, and any other costs of living. Then divide that number by the amount of money you make each month. If you make $8,000 a month and have $2,400 in total monthly debts, your DTI is 30%. AmeriSave can help you figure out where you stand before you even apply.
Fannie Mae's rules say that the highest DTI for manually underwritten conventional loans should be 36%. That limit goes up to 45% if you have good credit and enough money. Sometimes, Desktop Underwriter, their automated system, will approve loans with DTI ratios as high as 50%. FHA loans are usually a little more flexible with DTI, but VA loans don't have a set limit at all. Instead, they rely on the automated underwriting system to look at everything.
The underwriter can see how you've handled borrowed money in the past by looking at your credit score. A score of at least 620 is usually needed for a regular loan, but FHA loans will accept scores as low as 500 if you put down at least 10%. Your score isn't the only thing that matters here. The underwriter will also look at your payment history, how much of your available credit you're using, whether you have any collections or judgments, and how long your accounts have been open.
I always tell people who are borrowing money that their credit report could change while the loan is being processed. People get stuck here. Getting a new credit card, getting a loan for furniture, or even co-signing a loan for someone else could change your score enough to change whether or not you get approved. The best thing to do after you send in your application is to limit your credit activity.
Having a steady income is a requirement for getting a mortgage. If you get paid by the hour, the underwriter will want to see that you've been with your current employer for at least six months to a year and that you've worked for at least two years overall. AmeriSave helps people with all kinds of incomes, and your loan officer will tell you what papers you need for your situation.
For self-employed borrowers, the process is a little different. The underwriter will look at at least one to two years of tax returns and figure out your average net income. The underwriter will want to see at least 24 months of your commissions, bonuses, or overtime pay before they count it toward your qualifying amount.
Your job will also be checked again just before the closing, which is usually within 48 hours of the closing date. This is another reason not to make any big changes to your job while you're getting a loan. You don't want to have to deal with the problems that come with changing jobs at the end.
The underwriter needs to make sure you have enough money for your down payment, closing costs, and any extra money you might need. They will check your bank statements, investment accounts, and retirement accounts to make sure the money is there. Someone will probably ask you about any large or strange deposits you make into your accounts. The underwriter wants to make sure that your money came from a legal source, so you will need to keep track of any gifts, transfers, or unexpected money that comes in during the review period.
Cash reserves are important because they show the lender that you have some extra money in case something goes wrong after you close. You may need to have anywhere from zero to six months' worth of mortgage payments in the bank, depending on the type of loan you have and how much you put down. If you work with a lender like AmeriSave early on, you'll know exactly how much money you need to have on hand.
The underwriter doesn't just look at you. They also look at the property. A licensed appraiser will come to the house and write a report that tells you how much it is worth on the market right now based on how it looks and how much similar homes in the area have sold for in the past.
Why is this so important? This is because the lender is giving you a loan that is secured by the property. If you stop paying and the lender has to foreclose, they need to know that they will get their money back. The appraiser's value must be high enough to cover the loan amount. If the appraisal is lower than the purchase price, the underwriter can't ignore the difference. You might have to talk to the seller again about the price, bring extra money to make up the difference, or even walk away from the deal in some cases.
The FHA loan appraisal also checks for health and safety issues. Things like broken windows, peeling paint, and missing handrails may need to be fixed before the loan can close. AmeriSave's loan officers can help you understand what to expect from your loan type so you won't be surprised by the appraisal condition.
When the underwriter is done looking over your application, they will give you one of three answers. Understanding what each one means will help you feel better. If you get a full approval, that means everything is in order and you're ready to move on to closing. Everyone wants this to happen, but it doesn't always happen right away.
Most of the time, the answer is a conditional yes. This means that the underwriter will most likely approve your loan, but they need a few more things from you first. They might want an updated pay stub, a letter explaining a gap in your work history, or proof that you paid off an old collection account. Most of the time, these things don't stop people from making a deal. The underwriter is just being careful. The process will keep going if you answer quickly.
If the underwriter denies the loan, it means that they think the risk is too high to approve it as it is now. There are a few reasons for this: the DTI is too high, the credit score is too low, there aren't enough assets, or there is a problem with the property. If your lender turns down your request, they must send you a letter explaining why. This information can help you figure out how to be better prepared next time. The AmeriSave team can look at your situation and help you make a plan that makes sense for getting ready for a loan.
There is no one answer to this question because every loan is different. According to ICE Mortgage Technology, it usually takes between 43 and 49 days to close on a regular purchase loan, from the time you apply to the time you close. A lot of that time is spent on underwriting. Real estate agents who work with borrowers a lot say that the underwriting process can take anywhere from a few days for a simple file to a few weeks for a more complicated one.
What can speed things up? Being organized is the most important thing. Make sure you have all the papers you need ready before you apply. This includes your last two years of W-2s, your most recent pay stubs, your last two months of bank statements, and your tax returns if you work for yourself. The quicker you respond to any follow-up requests from the underwriter, the quicker your file will move through the process. AmeriSave's online tools let you upload your documents and keep track of them so that nothing gets lost.
What could make things take longer? Missing paperwork, deposits in your bank account that you don't understand, a low appraisal, or changes to your credit profile in the middle of the process. People in the DFW metroplex had to wait a week to close because they bought a new appliance package two days before signing. You might not think so, but it's more common than you think.
You can't control everything that happens during the underwriting process, but you can control how ready you are. These things will help your file move along quickly. Don't change jobs, take on more debt, or make big cash deposits while you're getting a loan. Any of these things could lead to a re-verification or a request for more paperwork. Try to keep your financial situation as stable and predictable as possible from the time you apply until you close.
If possible, respond to every request from your lender or loan officer on the same day. A lot of the time, underwriters have to work on more than one file at a time. If you send your file back quickly, it will stay near the top of the pile. AmeriSave lets you talk to your loan team directly, so you can ask questions and send in paperwork right away.
Be honest and open about everything. If you lose your job, get a side job, or get money from a family member, you should tell your lender right away. The underwriter will find out anyway, so it's better to be honest about these things from the start than to have to explain them later.
It may seem like a big deal to get a mortgage, but it's really just the lender's way of making sure the loan is good for both of you. The underwriter wants to know that you can afford the payment, that your credit history shows that you are a responsible borrower, and that the property is worth the money. The more you get ready ahead of time, the easier it will be. Get your paperwork together early, keep your money in order, and respond to requests right away. AmeriSave is a good place to start if you want a team that will guide you through every step and keep you up to date.
A mortgage underwriter checks to see if you meet the lending rules for the loan you've applied for by looking at your income, debts, credit history, and assets. They also compare the property to the appraisal report to make sure it is worth the amount of the loan. The underwriter is like the person who makes sure your finances and the loan program's rules are in sync. AmeriSave can help you understand what the underwriter will be looking for in your case.
Yes, it is possible, but it doesn't happen very often. The underwriter says they will approve your loan if you meet certain conditions. If you can't meet those requirements or if your financial situation changes before closing, the approval could be taken away. This is why you shouldn't take on any new debt or change jobs while you're going through the process. AmeriSave's Resource Center has resources for borrowers that can help you stay on track.
You should add up all of the money you owe each month, like your credit card minimums, student loans, auto loans, and any other housing costs you already have. Now, divide that number by your gross monthly income before taxes. For example, if you make $6,000 a month and owe $2,000, your DTI is about 33%. You can use AmeriSave's rate tools to see how a new mortgage payment would affect your ratio.
It depends on what kind of loan it is. Most regular loans that Fannie Mae and Freddie Mac back need a score of at least 620. FHA loans will accept scores as low as 500 if you put down 10%. They can take scores as low as 580 with a 3.5% down payment. VA and USDA loans have different rules for each lender. AmeriSave can help you find the right programs for you, no matter what your credit history is like.
Not very often. The underwriter will talk to your loan officer or processor and let you know if they need any documents or explanations. The person who connects you to the underwriting team is your loan officer. That's one reason why the people you work with are important. The loan team at AmeriSave will keep you updated at every step, so you'll never have to worry about what's going on with your file.
A low appraisal can be a problem because the bank won't lend you more than what the house is worth. If your contract has an appraisal contingency, you can renegotiate the price with the seller, pay the difference in cash, use comparable sales data to challenge the appraisal, or walk away. Your AmeriSave loan officer can go over all of your choices with you and help you pick the best one.
The main steps are the same. The underwriter still checks your debts, income, credit, and the value of the property. The only difference is that you already own the house. This means you might be able to get easier options like an FHA Streamline or a VA Interest Rate Reduction Refinance Loan that don't need as much paperwork. AmeriSave has a number of refinance programs with options that can make the underwriting process easier, depending on the type of loan you have now.
Don't open new credit accounts, buy big things on credit, co-sign someone else's loan, change jobs, or put a lot of money into your bank accounts without saying where it came from. Any of these things could change your money situation enough to make it take longer or not happen at all. The best thing to do is keep everything as stable as possible until you sign the closing papers. AmeriSave goes over these rules with each borrower at the start of the process so that there are no surprises.
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