So you’ve submitted your mortgage application to your lender. What happens next? It will be seen by several people, including the loan processor and underwriter. The loan processor will gather all of the related documents necessary to analyze the application. The underwriter will make sure the details of your loan and loan documents meet the lender’s guidelines. To know how the underwriter makes the final decision to approve or deny your loan, you must understand what takes place during underwriting.
The main task of the underwriter is to assess your risk as a borrower and determine your ability to repay the mortgage. Underwriting consists of examining the following:
Income and Employment
During underwriting, both your income and employment will be verified via phone, fax or mail through your employer or recent tax returns. Generally, you must have two years of consistent employment. Your average income will be calculated, analyzed and used to determine your debt-to-income ratio (DTI). This means your income must be able to cover your existing debts and new mortgage with funds left over for other expenses.
Underwriters also verify your assets, such as savings, checking account, 401k and IRA accounts. These totals help the underwriter determine if you have enough of a financial cushion in the event that a hardship occurs. It also shows your history ofsavings and the way you handle money.
When all of these factors have been analyzed, the underwriter can make a determination as to the riskiness of the loan. Providing all the necessary documentation helps the underwriter do the job more efficiently. Keep in mind, the process can take anywhere from a few days to a few weeks based on the complexity of the loan and the due diligence required.
Everything doesn’t have to be perfect for the underwriter to approve the loan. A strong income, large down payment and savings could offset any credit issues that a borrower might be dealing with, while good credit and income can offset a low down payment. Underwriting is all about the financial stability of the borrower versus the amount of risk to the lender.
If you’re thinking of submitting a mortgage application, a ditech Home Loan Specialist can help you determine the right mortgage for your situation and the documentation needed for underwriting.