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What Does an Underwriter Do?

The underwriter. He sounds like a superhero or a villain. In your life, he could be either. What is an underwriter and what does he do? If you are in the market to buy a house, you may find out very soon. An underwriter is a mystery person with a huge influence on your life that you will most likely never meet. Why are they so important?  

The Underwriter

When buying a house, unless you are paying cash outright, you will need a loan. A home loan, or a mortgage, is not easy to obtain and can take months to be obtained. The underwriter is the person who decides if you are approved for the loan, if the loan is suspended, or if your application was denied. To make this decision, the underwriter must take into account the “3 C’s.” 

Chain of command

The first person to look at your loan documents is the loan officer. She could give you a pre-approval on a loan to provide you with a qualifying price range. Finding houses in this price range will give you a better chance to be qualified for the loan. 

Once you are pre-approved by the loan company, you select the perfect home and sign the purchase contract. This is where the underwriter comes in. Just because your loan was pre-approved by the loan officer does not mean the underwriter will approve it as well. Sometimes, finding the perfect home may take a few months. During that time, you could have changed jobs, your credit score could have changed, and you could have made a significant withdrawal from your bank. Enter the underwriter. 

What Does the Underwriter Do?

The underwriter is the person whose job it is to thoroughly verify everything on your loan application with a fine-toothed comb. If something is missing, the underwriter will either suspend the loan or deny it. This is why, when filling out the loan application, you should provide every single document they ask for and then some! It can take two to six weeks for a loan application with no issues to go through. If the underwriter finds a discrepancy, it is in your best interest to provide the documents as soon as possible!

Which documents are needed?

When applying for a loan, you must supply at least the following documents: 

  • Pay stubs from the past 30 days
  • W-2’s from the past two years
  • Tax returns if you are self-employed 
  • Bank Statements from the past 4-6 months

The Three C’s

Getting approval can be a long process, especially if all the necessary papers are not included or the 3C’s are not up to par. The 3 C’s are Credit, Capacity, and Collateral. 

Credit scores are weighed heavily in the loan decision process. They look at credit history, loans, and credit cards you may have, and whether or not your payments were made on time. They also determine if you can take on large mortgage debt. This could get you disqualified immediately, so make sure to clean up your credit first.

Capacity is the amount of money you have on hand and the amount of money you have coming in. The underwriter looks at your last two tax returns and your bank statements from the past few months so he can tell how your income has changed in the past two years. These also show him if you have the funds to pay the mortgage, how well you save money, and if you will have enough left over to cover your other bills. 

Collateral is determined by the professional appraisal of the value of the home. The underwriter compares this to the loan amount to ensure that the loan-to-value ratio doesn’t exceed pre-established guidelines. 

Did I get the loan?

The underwriting process is a long one, and the answer cannot come soon enough. There are three possible answers you could receive: approved, suspended, and denied. 

Approved

If you are approved, hooray! It’s been a long, grueling road, and you made it! Make a toast! Frequently, there are conditions that come with approval that may have to do with the home, the appraisal, or even your financial worth, that need to be met before the loan is processed.

Suspended

If the underwriter suspends your loan, don’t worry! It just means he needs more documents before he can make an informed decision. This is when timing is of the essence. Providing him with your documentation in a timely manner will be your best decision.

Denied

If the underwriter denies your application, don’t give up hope! It means you are not qualified to get a loan from this lender. However, you can still apply for a different loan with a different lender.

Superhero or Villain?

The underwriter is a superhero of sorts. He is the one to make the final decision on whether you are eligible for a particular loan. Your job is to provide as much documentation as he requires as soon as possible. So, if denied, you can either move on to start another loan process, or you can purchase the home of your dreams and start packing!

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