What are Mortgage Underwriters looking for?
Once you’ve found a house, made an offer, and been pre-approved for a mortgage, you may think the tough work is done. You’d be wrong. Instead, you must first traverse the loan underwriting process, which is spearheaded by an underwriter.
Think of the underwriter as a Sherlock Holmes for the mortgage lending industry. With precisely three clues to work with — credit, collateral, and capacity – they must solve a mystery: whether you’ve represented yourself and your financial situation honestly, and how likely you are to pay back the mortgage on time.
The Detective’s Toolbox
An underwriter’s task very closely mirrors that of Mr. Holmes. The underwriter has to collect a series of clues. Papers, such as pay stubs, credit reports, tax returns, employment history, and bank statements, paved the way to solving the mystery. After sorting through the information by hand, the underwriter/detective would come to a conclusion. The underwriter must examine the clues wisely. They typically begin by looking at:
Credit is the pinnacle clue. It allows the underwriter to determine how you’ve behaved in the past in an attempt to predict your future behavior. Underwriters will look at your credit report from the three major credit bureaus: Equifax, TransUnion, and Experian. If anything stands out as a red flag – bankruptcies, unpaid bills, collections – you may be asked to provide a letter of explanation. This letter will ask you to detail the circumstances that led to the discrepancies on your credit report and the actions you have taken to resolve it.
Here’s where the underwriter examines whether the price of the home you are looking to purchase is worthy of the preapproved loan amount. This involves having a licensed professional, a home appraiser, complete a home appraisal. The appraisal will determine how much the home is worth by assessing the condition of the home – inspecting everything from the listed amenities to structural integrity to the neighborhood its located in. A home appraisal protects you as the homebuyer by bringing to light any possible issues that impact the safety and livability of the home as well as ensure that you are not paying more for the home than its value.
This clue helps the underwriter ascertain whether you are able to repay the mortgage by calculating your debt-to-income ratio or “DTI”. The underwriter will analyze your monthly income against your current debts and the future housing expenses to ensure you have the current and continued ability to manage your mortgage. You will be asked to provide your asset statements including your checking, savings, 401(k) and IRA accounts during this time.
Upfront Underwriting: New America Financial’s Approach
Traditionally, an underwriter takes a look at the clues and makes a determination once a buyer has chosen a house and wants to close on the loan. For all too many people, this means tremendous heartache when they don’t really qualify for the loan they had anticipated. Even with a pre-qualification letter, there’s no guarantee that you’ll receive the amount you had planned. After the hours spent trudging from house to house and the hopes built up from finding “the one,” the moment of refusal can be devastating.
That’s why New America Financial does things differently – it’s what we call, upfront underwriting! To spare you the disappointment of 12th-hour rejection, we handle the underwriting at the start of the process, not at the end. That way, you know you’re fully approved without the worries of looming deadlines.
Ready to buy a home? Talk with a Personal Loan Consultant to get started today!