Buying a house comes with a whirlwind of emotions – it’s fun, it’s exciting, and of course, it’s stressful.
While there are a few lucky individuals out there who are able to pay cash for their new homes, the vast majority of homebuyers rely on mortgages to buy their homes.
Getting a mortgage is an important first step in the house-hunting process. You have lots of options to choose from! You can turn to a retail lender or, if you want to save some time and stress, work with a mortgage broker. A broker will save you the trouble of visiting multiple lenders and having multiple credit checks done (which can wreak havoc on your score).
Whether you turn to a retail lender or work with a mortgage broker, the underwriting process for a mortgage is more or less the same. Understanding this process is vital – and it’s the first step you’ll need to take if you want to become a homeowner.
Ready to learn more? In this post, we’ll walk you through the underwriting process – and tell you why it matters – for a less stressful homebuying experience.
What to Expect During the Underwriting Process
Underwriting is the process of assessing risk and determining whether or not to provide you with a loan. Lenders use a variety of factors to assess risk, most of them related to your financial background.
After your loan goes to underwriting, it is typically reviewed by a committee. The goal of the review is to make sure that all of the information in the application matches what is in the file. If there are any discrepancies, or if something looks suspicious, the loan will be sent back to underwriting for further clarification.
The underwriting process can take anywhere from a few days to several weeks. In most cases, the lender may request additional information from the applicant before making a decision. Once an underwriter has made a decision, the applicant will be notified of the decision in writing.
This process can add time to the approval timeline, but it’s important that everything is verified so that you don’t end up with an unexpected denial.
Here are some more details about how the process works.
1. Submit an Application
First things first – you’ve got to submit an application to the mortgage broker. This will allow you to be preapproved for the loan. Pre-approval is a critical first step because it lets you, the homebuyer, as well as the broker, understand how much money you can afford to spend on your home.
Before you start shopping around for houses, make sure you’ve taken the time to get preapproved. This can save you some disappointment if you find out that the home you’ve fallen in love with just isn’t in your budget.
2. Verification of Income and Assets
Next, the lender will ask you to provide proof of your income and other assets (like other homes you own). You’ll submit banking records, business records if you own your own business, and information about savings accounts you might have.
This information will be verified to determine how easily you can afford the requested mortgage amount. Another important component of this step is the evaluation of your debt-to-income ratio.
In order to give the lender the best picture possible of your financial situation and creditworthiness, you’ll provide documents like tax documents, W2s, paystubs, bank statements, and more. This is essentially just backing up everything you’ve provided! You may have to submit documents verifying your identity, too, like a driver’s license and Social Security card.
The most important step in the verification process? Your credit check. Lenders will take a look at your credit history to verify your habits as they relate to past and current debts.
3. Property Appraisal
A property appraisal is another important step in securing a mortgage. Sellers often list their homes based on the amount they want to get – perhaps how much they need to pay off their own mortgages – instead of what it’s worth. An appraiser will take a close look at the property to make sure it’s valued appropriately.
This appraisal is done by a third party so that everyone’s interests are protected. He or she will examine the condition and features of the home as well as any other property values nearby. This will determine the value of the property you’re planning to buy.
4. Title Search and Title Insurance
Next, a title company will double check that the property you want to purchase is actually available for sale. They’ll research the history of the home’s ownership as well as title records, zoning records, and other legal records. This will root out if there are any pending issues that might affect the sale of the home.
Once the title search is complete, the title company will issue a title insurance policy. This guarantees that their results were accurate. This is almost always a standard procedure during the underwriting process – it protects the lender as well as the homeowner, especially if a separate policy is issued to the buyer as well.
5. Receiving the Underwriter’s Decision
After weeks of waiting, the results are in – it’s time to find out the underwriter’s decision. There can be three decisions – approved, suspended, or denied.
- Approved: This is the best possible outcome, because it means you can buy (and can afford to buy) the home you love. Now you just wait for a closing date!
- Suspended: This means that the underwriters were unable to reach a decision. It could be because they were unable to verify bank or employment records. You’ll be notified of what next steps you need to take.
- Denied: Although this is likely the decision you don’t want to get, it doesn’t necessarily signal the end. You just have more hoops to jump through! You may need to pay down some debt or dispute a few issues on your credit report. Talk to your mortgage broker to determine the next steps.
What Happens After Your Loan Goes to Underwriting?
Once the loan has been approved, your file is ready for closing. The process should be finished within a few business days.
Now that you know a little more about what to expect after your loan goes to underwriting, it’s time to start your house hunting journey. Good luck!
