Here are some questions and answers regarding the home loan approval process: “What do underwriters do?”
Once you actually apply for a home loan, your mortgage application will be organized by the loan processor and then sent to a loan underwriter, who will determine whether you qualify for a mortgage.
An underwriter can be your best friend or your worst enemy, so it’s important to put your best foot forward.
The phrase “you only get one chance to make a first impression” comes to mind here.
Trust me, you’ll want to do it right the first time to avoid falling into the pit of bureaucracy.
The underwriter will approve, place, or deny your mortgage application
- After you submit an official application for a home loan, your file will be sent to the underwriting department
- The human guarantor will then review your loan application and make a decision
- Their job is to approve, suspend or reject your request based on its contents
- It is crucial to submit a clean file to enhance your chances of loan approval
Simply put, the loan underwriter’s job is to approve, place, or deny your mortgage application.
If the loan consent, you will receive a list of “conditions” that must be met before you receive your loan documents. So in essence it is a conditional loan approval.
If the loan hangingYou will need to provide additional information or documentation for the loan to move it to conditional approved status.
If the loan decreasedYou will likely need to apply to another bank or mortgage lender, or take steps to fix whatever went wrong.
The Three C’s of Mortgage Underwriting
- Credit – payment behavior over time (your credit report)
- Capacity – Ability to repay the home loan (your income and assets)
- Collateral – the value of the underlying asset (property)
Now you may be wondering how do underwriters determine the outcome of your mortgage application?
Well, there are the “three Cs of underwriting,” also known as credit, capacity, and collateral.
Credit reputation relates to your credit history, including previous foreclosures, bankruptcies, and judgments, and essentially measures how willing you are to repay your debts.
[What credit score do I need to get a mortgage?]If you have prior mortgage delinquencies or even non-housing-related delinquencies, these should be taken into consideration.
These items are usually reflected in your three-digit credit score, which can literally wipe you out without any necessary additional security if you fall below a certain threshold.
Your history of supporting large amounts of debt is also important; If the most you’ve financed is a plasma TV, a guarantor might think twice before approving your six-figure loan application.
Capacity deals with the borrower’s actual ability to repay the loan, using things like debt-to-income ratio, salary, cash reserves, loan program and more.
This covers whether the loan is interest-only, an adjustable rate mortgage, a fixed rate mortgage, a cash-out refinance or simply the rate and term.
The guarantor wants to know that you can repay the mortgage you are applying for before granting approval.
[How much house can I afford?]Finally, escrows address the borrower’s down payment, loan-to-value ratio, property type, and use of the property, as the lender will be stuck with the home if the borrower fails to make their mortgage payments in a timely manner.
Mortgage insurance companies consider layered risks
- They don’t look at one aspect of your borrower profile in a vacuum
- They consider all the factors together to make a sound decision
- Those who have a risk in one area and who have the capacity to compensate for it may be approved
- While those with risks across the board may be rejected due to multi-layered risks
Now it is important to understand that the three C’s are not independent of each other.
All three must be considered simultaneously to understand the level of multi-layered risks that can be present in said loan application.
For example, if a borrower has a less-than-stellar credit score, limited asset reserves, and a minimal down payment, the risk layers could be considered excessive, leading to rejection.
This is the guarantor’s discretion, and can certainly be subjective based on other factors such as occupation, how long the borrower has been in business, why the credit score is less than perfect, etc.
The guarantor must decide, based on all criteria, whether the borrower represents an acceptable risk to the mortgage lender, and whether the final product can be resold without difficulty to investors.
Multi-layered risks are the main reason why the subprime mortgage crisis spiraled out of control. Dozens of borrowers applied for income-limited mortgages with zero financing, which is certainly risky, and were easily approved.
Rising housing prices covered the chaos for a while, but it didn’t take long before it all unraveled. This is why proper mortgage underwriting is critical to a healthy housing market.
What should you not do while underwriting?
one last thing. As the guarantor works to make a decision on your loan profile, you as a borrower must do your part as well.
this means no Apply for new lines of credit, such as a credit card or new car loan. Do not make large purchases.
If you do, it may appear on your credit report or be reflected in your credit score. The last thing you want is to have a lower credit score to jeopardize your loan application.
The same applies to moving assets from one bank account to another, or switching jobs. It may sound crazy, but everything you can think of has happened.
In short, you want to stay in holding mode while your loan goes through underwriting and is ideally funded.
Once the loan is funded and registered, you can get on with your business, whether that’s buying new furniture or applying for a new credit card.
But until then, you can make life easier for everyone (including yourself) by doing nothing!
Mortgage Underwriter FAQs
Do the guarantors work for the bank/lender?
Yes, guarantors are employees of banks, lenders and mortgage bankers. They work on the operational side of things, making loan decisions after the sales team brings the loan in the door. This means they work in the same building as the sales team.
How long does it take to subscribe?
It may only take a guarantor a few hours to comb through your loan file and approve, place a hold on it, or deny it. However, mortgage lenders only have so many guarantors available, and the number of loans in process will almost certainly exceed the number of employees. As such, you may be waiting in line most of the time for a pair of eyeballs to actually look at your loan.
So, if you’re wondering how quickly the IPO can go through, it may depend on how busy the company is and whether there is any backlog. Once your file reaches the underwriter, the average underwriting time is very fast, often 24 hours or less.
Why do guarantors take so long?
Well…I don’t know, because they’re approving a six-figure, seven-figure loan amount to a complete stranger. As mentioned earlier, the actual underwriting may not take long, but the number of available (human) underwriters may be low. So you can be on a waiting list. A clean loan file will get approved faster and with fewer conditions, so get it right before the guarantor sees it.
Do guarantors verify employment?
While employment is generally verified nowadays when you take out a mortgage, a guarantor may not check this. Alternatively, the loan processor may obtain a Verification of Employment (VOE). Many use Employment Number, an independent, third-party employment verification company now owned by the credit bureau Equifax.
How much do loan guarantors make?
They can earn good money. Salaries may be in the high five figures to low six figures if they are seasoned and skilled in underwriting all types of loans, including FHA, VA, etc. If you start as a junior underwriter, the salary may be less than $50,000. But once you become the main guarantor of the loan, the salary can jump significantly. It may also be possible to earn overtime.
Do guarantors make a commission?
They shouldn’t because that would be a conflict of interest. They should approve or deny loans based on the characteristics of the loan file, not because they need to reach a certain number. Compensating them for the quality of the loans may be a different story, but again it could lead to discrimination if they only choose the best loans.
Do underwriters work on weekends?
I’ve heard of some that have. I don’t know if they do this on a regular basis, but if the loan volume goes up over a short period of time, they could come on a Saturday or Sunday. The mortgage world is all about highs and lows, so sometimes it can be slow, and other times it’s impossible to keep up.
Are the guarantors warm and friendly?
It could be if you don’t rub it the wrong way. I look at mortgages like the DMV. Show up with the right papers and a good attitude and you’ll be in and out before you know it. Do the opposite at your peril!
(picture: Golk75)
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