The Underwriting Process
Most people are familiar with the beginning of the mortgage process – getting pre-approved by a mortgage lender to apply for a home loan, and the end – funding the loan and moving into their dream home.
However, the middle can get a little murky if you’re not familiar with the mortgage underwriting process.
The Role Of An Underwriter
Underwriters handle the “middle part” of a borrower’s loan application. Underwriters are essentially the loan gatekeepers who determine if a loan is acceptable to be funded. Underwriters must make sure that every compliance box is checked and every possible issue is addressed, and ensure the loan can be salable in the secondary market.
Underwriters have two primary concerns when determining the acceptability of a loan application:
1. Assess if the borrower can repay the loan.
Underwriters look at your employment, assets and credit history to determine if you will have the means to repay the loan. They’ll also evaluate your loan-to-value ratio of the loan and determine if you will need Private Mortgage Insurance (PMI).
2. Review and verify all other documentation associated with the loan.
Investors will only buy loans if they are 100% compliant with all underwriting guidelines and are “salable” on the secondary market. Most guidelines for salable loans are set by the housing agencies like Fannie Mae and Freddie Mac, by HUD (for FHA), or by investors that buy loans on the secondary market. No matter how perfect a loan looks, it will not be funded or sold to investors if it is not 100% compliant. Underwriters will review the entire loan file as well as all tax, title, insurance, and closing documents to ensure that everything is accurate and properly completed.
Underwriting At JVM Lending
At big commercial banks, the underwriting process can take a long time. JVM is a mortgage bank and can underwrite loans in-house – thus allowing our mortgage process to move much faster than big banks and most brokers (who have to submit loans to unaffiliated “wholesale lenders”). Keeping underwriting in-house and close to JVM’s loan origination staff guarantees service levels and speed that are nearly impossible to beat.
Frequently Asked Questions
What is mortgage underwriting?
Mortgage underwriting is the middle stage of the home loan process, between getting pre-approved and closing on your home. An underwriter reviews your loan application to determine whether it is acceptable to be funded, ensuring every compliance requirement is met and that the loan can be sold on the secondary market.
What does a mortgage underwriter look for?
Underwriters have two primary concerns. First, they assess whether the borrower has the ability to repay the loan by reviewing employment history, assets, and credit history. Second, they verify that all documentation associated with the loan is accurate and fully compliant with guidelines set by agencies like Fannie Mae, Freddie Mac, and HUD for the loan to be considered salable to investors.
What happens if a loan is not fully compliant during underwriting?
Even if a loan looks strong on the surface, it will not be funded or sold to investors unless it is 100% compliant with all underwriting guidelines. Underwriters review the entire loan file, including tax, title, insurance, and closing documents, to make sure everything is accurate and properly completed before the loan can move forward.
How long does the underwriting process take?
The timeline varies depending on the lender. At large commercial banks, underwriting can take a significant amount of time. Lenders like JVM Lending that underwrite loans in-house can move much faster, since there is no need to submit the loan to an unaffiliated wholesale lender. Keeping underwriting in-house also allows for better communication and service throughout the process.
What should I expect during underwriting as a borrower?
Your lender may request additional documentation as the process moves along and new questions arise. Common requests include letters of explanation for unusual bank deposits or credit inquiries. Responding to these requests promptly helps ensure your lender has everything needed to move your loan forward as quickly as possible.
What is the role of PMI in the underwriting process?
During underwriting, the underwriter will evaluate your loan-to-value ratio to determine whether Private Mortgage Insurance (PMI) is required. PMI is typically required when a borrower puts down less than 20% on a conventional loan. It protects the lender in the event the borrower defaults and is factored into the overall assessment of the loan’s acceptability.
Working With Your Underwriter
Communication is key when working with your lender during the underwriting stage. Your lender may request additional documentation or records as the process moves along, and additional concerns arise. An example would be an underwriter’s request to explain unusual deposits on a bank statement, or inquiries on a credit report.
Timely responses to your underwriter’s inquiries will help ensure that your lender has all the correct information and will help JVM fund your loan that much quicker.
