You’ve been through the home search process. You’ve been to the open houses, spent your coffee breaks searching home listings, and you’ve found the house you need. Now you just go to the bank, fill out some paperwork, and you’ve got a mortgage, right?
Unfortunately, you’re only at the beginning of the process. Even if you’ve been pre-qualified, you need to go through the underwriting process. So, what does it mean when a loan is in underwriting? Let’s go through the process, starting with the underwriter.
When you first started looking for a home, you probably got pre-qualified for a loan. And if you haven’t gotten pre-qualified yet, it’s a good idea. When you pre-qualify, you provide some basic information, and the lender pulls a credit report. This process helps you establish roughly what kind of mortgage you’ll be able to qualify for.
But not all houses are the same, and the lender might want to verify the home’s value. They also might have questions about your credit, your ability to pay, and other financial matters. This is where a mortgage underwriter comes in.
The underwriter’s first task will be to have your future home appraised. This is to ensure that the amount of money the lender is providing is appropriate for the home’s actual value. At the same time, they will take a quick look at the documents you submitted for pre-qualification. In some cases, the underwriter may ask for some financial information.
Here are a few things you may need to provide during the mortgage underwriting process:
- They can investigate your credit history. During pre-qualification, the loan officer just looks at your overall score. The underwriter will look at individual line items like late payments and defaults. They may ask you to provide additional information, such as proof that a late payment has been paid up.
- They can ask you to provide proof of income and employment. Typically, this means providing a few pay stubs. In some cases, they may ask for recent tax returns.
- They can ask for proof of savings. Almost every mortgage requires a down payment, and the underwriter will need to look at your savings account to ensure that you can afford that down payment.
- They can require proof of insurance. Most mortgages require you to provide proof of homeowners insurance prior to closing. If you haven’t already, it’s time to start looking for a policy!
- They can examine your debt to income ratio (DTI). DTI is a measurement of the amount of money you spend compared to the amount of money you earn. In this case, spending includes existing debt payments. The underwriter will need to see that you can cover all your current expenses, as well as the mortgage payment, homeowners insurance, and taxes.
It’s important to remember that the underwriter is there to help you as much as the lender. After all, it’s their job to make sure you don’t sign a mortgage you can’t afford to pay back.
If you provide all the necessary paperwork underwriting will typically between two days to a week. However, the exact amount of time that loan underwriting will take can vary widely depending on your individual circumstances. Some underwriting processes are simple and straightforward. On the other hand,if you don't provide all the documents needed or are in a complex situation like self-employment, that can cause severe delays as the underwriter may ask for more documentation.
The best thing you can do is provide any documentation in as timely a manner as possible. The sooner the underwriter gets all the paperwork they need, the faster they’ll be able to make a decision on your loan.
It’s tough to say precisely how long final approval takes. Again, it depends on your circumstances. If your financial situation is relatively simple and you have good credit, it can take as little as a few days. The more documentation is required, the longer the process will take. In some cases, it can take several weeks for the underwriter to make a decision.
While going on, don’t forget about other steps in the home buying process. For example, you should make sure to ask for a home inspection. You’ll also need to be able to pay for all of the closing costs.
The underwriter will ultimately render one of four decisions. Here’s a short explanation of what each of them means.
- Approved- This is the best-case scenario. Congratulations! You qualified for your loan. Pop the champagne and proceed to your closing.
- Approved with conditions- This means that your loan is approved, but that there is still documentation required. Typically, this means you need to provide more proof of income or other information like proof of insurance, marriage certificates, and so on. As long as you can provide this information, you’ll be able to close.
- Suspended- A suspended loan means that the underwriter did not have enough information to make a decision. Typically, this means that you failed to provide information on your employment, income, or credit record. Your best bet is to contact your lender and see if you can resume your application. If not, you’ll have to start an entirely new loan application.
- Denied- In this case, the lender is unwilling to move forward with a loan under the current terms. This generally happens because you are carrying too much debt, or because your credit score is too low. There are a couple of ways you can fix this.
First, you can pay down some debt and reapply in a few months. This is the best option if you can afford it. Not only will you be able to qualify for your mortgage, but you’ll also be carrying less debt.
Second, you can reapply with different terms. For example, if you apply with a larger down payment, you may qualify to take out a smaller mortgage.
One way or another, let’s assume you’ve finally gotten approved. The final step is to close on your home.
On closing day, your lender actually delivers the loan funds to the seller, and the seller signs over the title to you. It’s also the day you pay your realtor’s commission, as well as any other closing costs. After that, you’re ready to move in!