How Mortgage Underwriting Works

Published on April 19th, 2017

After you apply for a mortgage loan, submit your documents and discuss your options with your loan officer, your application goes from the processor to the underwriter. The job of the underwriter is to make sure your financial situation passes our lending criteria. The underwriting team has the power to make the final decision of approving or denying your request for a mortgage.

The underwriter’s main task is to assess the risk of lending you the mortgage loan. They review your bill-payment history, credit score, source and reliability of income, and the property itself. This information allows underwriters to predict your ability to make your mortgage payments on time.  When underwriters assess the risk, they look at the three C’s: capacity, credit and collateral.

Capacity: Underwriters first ask the question, “Can this borrower repay their mortgage?” They determine this by analyzing your employment, income, debt and assets. By taking a close look at your debt-to-income ratio, they can determine if you have enough money to make payments on a new mortgage while still paying your current bills. Underwriters also consider if it would be possible for you  to pay your mortgage for a period of time if you lose your job by looking at your savings, checking, 401(k) and IRA accounts.

Credit: Credit history is one of the most important factors reviewed during the approval process. Underwriters can look at your credit report to see how you’ve handled and repaid your debts in the past, including car loans, student loans and other expenses. Underwriters can estimate your ability to make mortgage payments on time by assessing your situation.

Collateral: By collateral, we mean that the home you are financing will be collateral on the new loan. The underwriter also orders the home appraisal, ensuring the total of down payment and loan amount does not exceed the property’s value. Assessing a home’s current worth is precautionary to make sure the lender doesn’t lend too much money. Another thing they look at is the purpose for the loan. From an underwriter’s perspective, if a borrower is in a tight financial situation, they are more likely to walk away from an investment property than their primary residence.

Even if your financial situation isn’t perfect, we may be able to help. Your loan officer, processor and underwriter will work together as a team to put you in the best financial situation possible and find the right loan product for you. If you are looking for a home or are interested in refinancing your mortgage, call 1-844-77-vLoan or get a free rate quote to explore your options.

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