Next in our series about buying a home is understanding what role the mortgage underwriter plays in the overall process.
So far in this series about the home buying process, we've explored How To Find The Right Real Estate Agent For Your First Home Purchase, What Role Does A Mortgage Banker Play In Buying A Home? and What Role Does A Mortgage Loan Processor Play In Buying A Home? Here, we learn about the mortgage underwriter.
What does a mortgage underwriter do?
We used to say that "a home is worth what a buyer is willing to pay." However, with most buyers needing financing, we now say that "a home is worth what a lender is willing to lend on the property." And that is where the underwriter comes in as the underwriter is the final say on what the bank is willing to invest in you and the property.
Once you've applied for a loan and worked with your mortgage banker and processor to make sure they have the documents needed to complete the approval, the mortgage underwriter gets involved to assess risk for both you and the bank by analyzing your credit history, income history and your bank accounts and making sure you aren't overextending your budget.
The underwriter has final approval and responsibility for the loan and must also ensure that all mortgages meet government guidelines.He or she will either approve, suspend or deny your mortgage application based on the information you provide. And this is often where you hear the lender horror stories, i.e., the delayed settlements, the requests for more information and denied loans.
What is the mortgage underwriter looking for?
A good lender will have prepared you for the underwriting stage of the loan process so that you have as few surprises as possible. Carefully choosing your lender is critical to the success of your transaction.
When the underwriter reviews your loan application, he or she is looking at the following information:
- What is your Income -- this includes salary/hourly wages, part-time or second job income, commission or bonuses, alimony or child support, retirement or social security, as well as rental income if relevant.
- What Debt do you have -- this includes student loans, car loans, leases and credit cards.
- What is your Credit History
- What Savings do you have -- this includes checking/savings, gifts, sales of assets, IRA, 401K, Keogh & SEP, or sale of previous home.
- Based on the information about, what is your Debt to Income Ratio -- this is a percentage of your gross monthly income that goes towards paying debts (including housing).
By the way, income and debt can include other sources such as alimony and child support income, but only if the borrower wishes to disclose this as a source of qualifying income.
By looking at these factors, the underwriter is able to assess risk for both the borrower and the lender. If there are any questions about your tax returns or other documents, the underwriter would reach out to the loan processor who would in turn follow up with you, the borrower, for clarification.
In the video below, Michael, a mortgage underwriter, explains:
"My role is important because it helps to make sure that you can afford the mortgage that you're applying for, and that way, you're not over-straining your family and your bills, and...you don't run the risk of any kind of foreclosure or late payments... so you stay in the house of your dreams".Here is the 1:46 minute video titled The Role of a Mortgage Underwriter:
What's your experience with obtaining a loan to buy a house? Was it a smooth experience or a horror story? We want to hear from you; please drop me a line anytime.