We recently discussed the role a Loan Officer has on your journey to homeownership. Once they advise you on the best loan option available and gather all of the proper documentation, they will hand your file off to an Underwriter. So, what exactly does an Underwriter do?
The Underwriting process is basically a deep-dive review of your loan file. The Underwriter will be looking at your current income, assets, and debts with a fine-tooth comb. They will be checking for accuracy and to ensure that you meet all of the guidelines required by your selected loan program.
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There are many factors that can influence a lender’s final decision on your mortgage loan. Here are a few items they will be reviewing:
Verifying Your Income
When you apply for a mortgage, you will likely be asked to provide some kind of documentation of your year-to-date earnings such as pay stubs, tax returns, bank statements and/or accounting records. The Underwriter will review these, along with your employment status, in order to determine how stable your income is. This is to ensure that you will be able to take on the monthly mortgage payments without any risk.
After reviewing your income, the Underwriter will then analyze your Debt-to-Income Ratio (DTI). You can easily calculate your DTI by dividing your total monthly expenses by your monthly income. The lower the ratio, the better. Again, this is to ensure that you won’t be overextending yourself by taking on any additional monthly obligations.
Your loan approval will weigh heavily on your credit history. The Underwriter will analyze your credit report, looking for any red flags that may ding you as a potential risk as a borrower. Make sure you’re practicing those healthy credit habits so that you can have the best chance of approval.
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While Underwriting may not be the most glamorous part of the loan process, it is an important step in assessing the financial risk of homeownership to both you and the lender. Your primary job during the time your loan is in underwriting is to move quickly on document requests and to provide honest answers. If all goes well, you’ll be able to hear these three beautiful words – “clear to close!”
By Meagan Rochard