How It Works: Processing & Underwriting

Now that you’ve made it through the mortgage application and your loan has been sent in for processing and underwriting, things really start moving. All mortgage files follow a similar path in order to get approved, and most loans take about 30-ish days to get there.  

Processing and underwriting is where some of the most important parts of the loan take place.  You see, behind the scenes, there are a lot of people all working together to get every piece of the puzzle in just the right place so that when the loan is ready to close, you have everything you need to sign that final paperwork and move into your new home.

For instance, the loan processor will be going through the file, making sure all of the correct documents are included, ordering things like title reports, homeowners insurance, appraisals and verifying employment history. These tasks take time to complete and rely heavily on what are referred to as “service providers” in order to make it all happen.

Then, as soon as all of the reports and documents that have been ordered are back, minus the appraisal which has its own timeline, the file is then ready to head into underwriting.  

Now you may be asking, what is underwriting?  Let’s go through it.

• Whether you are purchasing a home or refinancing your current residence, the lender will need to verify your income.  This involves calculating your gross monthly income to make sure you can afford the house payment, along with any other bills like car loans, credit cards, etc.  They also need to look at your past income history, usually over the last 2 years, in order to make an educated guess as to whether the amount you are making right now is likely to continue.  Remember, mortgages are typically 30 years so the lender has to be reasonably confident you can continue to make your payments for the life of the loan.
• The lender will also need to look at your assets - your checking and savings accounts, along with any retirement accounts that you plan to use for the down payment and/or closing costs.  They need to make sure that a) there are enough funds available to cover all of the costs, and b) the source of the funds is verifiable.  Basically, they are required by law to check for things like money laundering or fraud.
• Next, the property must also be evaluated by obtaining an appraisal report.  Typically this involves an appraiser inspecting the home and looking for anything that might affect the borrower’s ability to safely live there for a long time. Also, the appraiser has to check out all of the similar homes around it in order to determine the value. With home prices fluctuating with the market, appraising a property can be a daunting task that requires time, knowledge and expertise.
• Last is the credit report, and possibly the biggest part of the mortgage puzzle.  Though credit history - whether or not you make your monthly payments on time - is important, lenders are also looking at things like credit utilization.  Basically, are you using credit wisely or is there a pattern of maxing out cards then applying for a new one.

All of this information is used to determine whether or not you, the borrower, have a reasonable likelihood of paying back the lender.  When lenders loan out money they are taking a risk on whether or not they will get that back, so the loan file must be evaluated to make sure that risk level is as low as possible.

This involves an underwriter going through all of the documents, checking the math, reviewing the loan product guidelines to make sure the file meets the requirements, and preparing a checklist of any items that may have been missed or need a little more explanation. In fact, the loan processor or assistant will probably be reaching out to you to request a few minor things that are necessary for the loan and to provide updates on the status of the file.

As the borrower, this middle section of the loan process may just feel like a waiting game, and it kind of is. The best thing you can do during this time period is to stay on top of any of their requests for documents or information.  The quicker you can respond and get the team what they need, the sooner you can close your loan.

Though processing and underwriting does account for the majority of that 30-day timeline, a lot is happening in the background to make it all come together. Once the loan file is through this portion, and has received final approval, it's on to closing.

Thanks for reading and be sure to check out the rest of our blogposts on the mortgage loan process.  From start to finish, we have you covered.

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