Underwriters are a bit like jurors: They soberly weigh the evidence and render a verdict. Unlike jurors, underwriters sometimes reach out to those they are, well, judging to obtain additional information, clarify a matter, or otherwise help the case for mortgage approval.
If the underwriter finds that you’re fiscally fit enough to take on a mortgage and that the amount you want to borrow is a manageable size, you’re on your way to a home purchase. So you want to put your best foot forward where the underwriter is concerned. By learning about underwriting, you’ll be prepared for the document-gathering and hurdles ahead.
What Is Mortgage Underwriting?
Underwriters protect a bank, credit union, or mortgage company by making sure that they only give loan approval to aspiring homeowners who have a good chance of paying the lender back.
If you’re wondering what is the underwriting process, here are some of their tasks:
• Verify documents and financial information and make sure that enough savings exist to supplement income or contribute toward the down payment.
• Check an applicant’s credit score and history and note any bankruptcies, late payments, significant debts, or other red flags.
• Calculate the debt-to-income ratio by adding up monthly debt payments and dividing that number by monthly pretax income.
• Request additional documents and ask questions if necessary. For example, if a homebuyer has had more than one job over the past year and their income is not consistent, an underwriter may want to see more assets.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
5 Steps of the Mortgage Underwriting Process
The mortgage-seeking journey is a winding path that eventually arrives at the underwriter. Automated underwriting may approve your loan application, though a human underwriter will verify your application and documentation. If the software refers your application to manual underwriting, that’s usually a slower process.
Here are common steps leading to underwriting:
1. Explore Your Budget
Prequalifying for a mortgage is a quick move that will provide a ballpark budget for your home purchase, based on self-reported financial info. And you can employ a home affordability calculator to get a feel for your top price.
Think, too, about lending questions you’ll have during the mortgage process.
2. Get Preapproved for a Loan
Shop around for the best deal, and best-fitting loan, with a mortgage broker or direct lender. This is the time to submit documentation of your income, employment, assets, and debts and allow a hard pull of your credit score. What credit score is needed to buy a house? Much depends on whether you plan to use a conventional or government-backed mortgage loan (an FHA loan is more lenient).
A mortgage preapproval letter, often good for 30 to 90 days, indicates the lender’s willingness to lend you a particular amount at a tentative or locked interest rate. A preapproval letter also allows a buyer to act quickly in a seller’s market.
3. Find Your Home
Once you find a home that meets your needs, you’ll need to agree on a price. Ideally it is within the amount you’ve budgeted and been preapproved for.
4. Apply for the Loan
You may choose one of the lenders you gained preapproval from, or another lender, to apply for the mortgage. You’ll receive a loan estimate within three business days from each lender you apply with.
If you go with one of the former, you submitted documents in order to get preapproved. Still, the lender will likely ask for further documentation now that you’re ready to act on a purchase, and will take another look at your credit.
5. Wait for the Underwriting Verdict
A loan processor will confirm your information, and then it’s time for the underwriter to review your credit scores and history, employment history, income, debts, assets, and requested mortgage amount.
The underwriter will order an appraisal of the chosen property and get a copy of the title insurance, which shows that there are no liens or judgments. Finally, the underwriter will consider your down payment.
Then comes the decision on your mortgage application: approved, suspended (more documentation is needed), or denied. How long does underwriting take? The verdict could come in as little as a few days.
Required Information for Underwriting
Lenders are going to request a lot of documents from mortgage loan applicants.
Income verification. The lender will want to see W-2s from the past two years, your two most recent bank statements, and two most recent pay stubs. Those who are self-employed will need to document stable work and payments and ideally have a business website. Applicants will typically need to show evidence of at least two years of self-employment income in the same field.
Any additional income. Pension, Social Security, alimony, dividends, and the like all count.
Proof of assets. This can include checking and savings accounts, real estate you own, retirement savings, and personal property. A lender might want to see that a down payment and closing costs have been in an applicant’s account for a while.
Debts. Your debt-to-income ratio matters greatly, so list all monthly debt payments, each creditor’s name and address, account numbers, loan balances, and minimum payment amounts.
Gift letter. If you’ve received money from a family member or another person to put toward your home purchase, the lender will request a gift letter for the mortgage and proof of that funding in your account.
Rent payments. Renters will likely need to show evidence of payments for the past 12 months and give contact information for landlords for two years.
How Long Does Underwriting Take?
Underwriting may take a couple of days to more than a week. It all depends on how complicated someone’s finances are and how busy an underwriter is. Thankfully, underwriters typically do everything online these days, so an applicant can upload documents to a website or simply email them.
Can You Speed Up the Mortgage Underwriting Process?
Most of the methods used to speed up the underwriting process are not in the hands of the borrower but rather methods lenders can use to accelerate their review. An applicant can help ensure an efficient underwriting process by making sure they submit all the requested information and documents the first time around, thereby lessening the likelihood an underwriter will have questions.
How You Can Improve Your Chance of Being Approved
Before applicants try to get a mortgage, they can take a number of steps to improve their chances of getting approved.
Lighten the debt load. It’s critical to pay off as much debt as possible and to try to keep your credit utilization ratio below 30%, though some lenders like to see a ratio below 25%.
Applicants can pay off debt faster by making a budget (and sticking to it), using cash instead of credit cards to make purchases, and negotiating interest rates with creditors.
Look at credit reports. Applicants should also scour their credit reports and fix any mistakes so that their score is as high as possible. Federal law guarantees the right to access credit reports from each of the three major credit bureaus annually for free.
The reports show only credit history, not credit scores. There are ways to monitor your credit scores and track your money at no cost.
Attempt to boost income. Applicants may want to apply for higher-paying jobs or get to know the benefits of a side hustle so they can save more money.
Ask for a gift or loan partner. You could also ask a family member for a gift to put toward the down payment, or you could ask a relative with a stable credit history and income if they would apply for the loan as a co-borrower or cosigner.
With an underwriter extending a hand, a solution may be found that leads to approval.
The Takeaway
Ready to apply for a mortgage? Prepare for a probing look at your private life — the financial one — by an underwriter, who is gauging the risk of lending you a bundle of money. The underwriter looks at a homebuyer’s finances and history, the loan amount, and the chosen property and renders a verdict.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
How long does it take for the mortgage underwriter to make a decision?
Underwriting can take anywhere from a couple days to a few weeks, depending in part on the complexity of a mortgage applicant’s financial situation and how thorough applicants are in submitting requested documents.
Is underwriting the last step before closing?
Not quite. After the underwriter signs off on the loan, it’s likely that your lender will want to do a final verification of your employment status, credit score, income, or all of the above. You’ll then be sent closing documents to review, and you’ll need to arrange payment of the closing costs, usually via a cashier’s check or bank transfer. At that point, you should be headed to a closing.
How often do underwriters deny loans?
About one in 10 loan applications are denied, according to the Consumer Finance Protection Bureau. Denials are less common for conventional loan applicants than for those applying for Federal Housing Administration (FHA) loans. Denial rates tend to be higher for refinance applicants than for home purchasers.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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