Don’t be Overwhelmed by Underwriting
As you begin the process of searching for a mortgage, underwriting is one of the first terms that you’re likely to encounter. While many understand it to be an essential step toward a loan’s approval, it’s not always clear what the process involves.
Since the goal of buying a home typically hinges on a loan approval, the high-stakes of applying for a mortgage can be stressful, particularly when transparency is lacking. Shedding some light on underwriting will reveal that it’s not designed to keep you from your goal and shouldn’t be cause for concern.
An underwriter is responsible for confirming your eligibility for loan approval. While they may not be your primary contact at a mortgage company, they will work closely with your loan officer to ensure all the necessary documentation is submitted and accounted for. Providing all requested information quickly and in an organized manner will go a long way toward minimizing any uncertainty. If you have already gone through a pre-qualification process, and the information you provided was accurate, consider underwriting a simple confirmation rather than a new hurdle.
The underwriter will be reviewing your credit score and history. They want to see that your financial history doesn’t include any red flags that might indicate you won’t be able to repay a mortgage. Since pre-qualification typically includes a credit check, there shouldn’t be any surprises unless you’ve taken on new debt or missed payments in the interim.
Underwriters also have to confirm your current financial situation. They will often verify your employment and ask you to provide recent statements for any bank accounts and details of your other assets. They will compare your income to the credit report to confirm that your debt-to-income ratio meets the requirements of the loan you are pursuing. A stable income and having appropriate reserve funds is key to mortgage approval, so unless you change jobs during the process or make a large purchase without discussing it with your loan officer, there’s no reason to expect a problem.
They will also be tasked with documenting the source of any down payment funds you may be using. While many loan programs allow the gifting of a down payment, it typically must be accompanied by a letter stating that the money is a gift and not a personal loan. Down payments drawn from personal savings or investment accounts will be supported by previous bank statements that show the origin of the money.
In addition to vetting your finances, an underwriter will take into account the home you are planning to purchase. They will likely be the person to order an appraisal of the property. This valuation protects the bank, and you, from paying more than the house is worth.
Any down payment requirement will be based on the appraised value, meaning any gap between it and the sales price would need to be made up in cash from you, on top of any down payment necessary to close the loan.
The path to a successful underwriting starts with a lender you can trust. Learn more about getting started with Open Mortgage by exploring the resources available at OpenMortgage.com or calling today to discuss your options with one of our experienced professionals.