Understanding Mortgage Underwriting

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Identifying Real Estate Risks After having a difficult time financially for quite some time, I realized that part of my problem was my personal housing costs. I really began evaluating what I wanted out of a home, and I realized that I needed to shop for a place that would work better for what I needed. I started paying more and more attention to real estate risks, and it occurred to me that I hadn't invested in a smart property. After talking with my real estate agent, I started focusing on changing my ways, and it was incredible to see how much brighter my future became.

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Unless you have the cash to buy a home, you will be needing a mortgage. Mortgages involve extremely large sums of money, and the process from application to approval can be long and stressful. A lot of the approval determination rides on the underwriting process. Read on to learn what underwriting is and how it can affect your ability to get the loan and therefore get the home.

What is Underwriting?

The decision to approve or turn down your loan is based on several weeks of deliberation and research on the part of the lender. The lender must ensure that you are financially sound enough to pay back the loan on time and in full. To do so, you must meet the requirements in areas like:

  • Income
  • Debt
  • Collateral

and more.

Each lending institution has their own underwriting standards and the type of loan also affects the loan requirements. For example, FHA and VA loans, which are guaranteed by the government, might not have the same underwriting requirements as conventional loans.

What Happens During Underwriting?

Once you fill out a mortgage loan application and supply the supporting documentation, the process begins. The loan officer you've been working with is not likely to be the underwriter – this position requires specialized training. The underwriter will review the application and your supporting documents for completeness and verify the information. For most mortgage loans, borrowers are asked to supply the following:

  1. Tax returns
  2. Bank statements
  3. W-2 forms
  4. 1099 forms

Additionally, the underwriter will evaluate the credit-worthiness of the applicant. This means a check of the credit report, the credit score, and the source of the borrower's income. Employment is checked, and the borrower's debt-to-income ratio is considered.

Can You Make the Underwriting Process Faster?

Most borrowers are extremely anxious during the underwriting process, and understandably so. To ensure that there are few, if any, snags in the process, do the following:

  1. Fill out the loan application using accurate information. Don't leave blanks, and contact your mortgage lending representative if you have questions about any item in the application.
  2. Supply all needed documents. Once you have submitted your application, it is not unusual for the underwriter to request additional documents. For example, they may want to see more than the usual number of years of income or tax returns. The quicker you can comply with these requests, the quicker the underwriting process will be.

To learn more about the underwriting process and buying a home, speak to a real estate agent who helps people buy family homes.

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