Mortgage Underwriting and Final Loan Approval
Mortgage underwriting determines loan approval.
The function of the Mortgage Underwriter is to review all aspects of your mortgage application to determine your ability and likelihood to repay the loan without defaulting. An Underwriter will review your loan package carefully, considering the collateral (the property), your credit history and your capacity to repay the loan, before making a final decision or issuing a final approval. Below are some of the key elements of a home loan package that will be carefully reviewed by a mortgage Underwriter before an approval can be issued.
The property is a mortgage lender’s “collateral” for the loan. The value, marketability and condition of the property are therefore very important to the mortgage Underwriter, who determines this information by reviewing the appraisal.
The mortgage Underwriter looks carefully at your ability and capacity to repay your new mortgage. Job stability and gross income, in relation to your existing and new expenses, is of critical importance. Most income must be verified as having been received for the past two years in order to be used for qualifying purposes.
A stable history of employment in the same line of work is considered ideal to a mortgage Underwriter. Instances of short employment duration with several employers may be looked upon unfavorably, as it may lead to unstable income – however, switching jobs within the same line of work for growth or advancement in your field is generally considered acceptable.
Your credit history is viewed as an indication of your willingness to repay the loan and ability to responsibly manage your finances. The mortgage Underwriter will look closely at your past payment record to help get a picture of your overall level of financial responsibility. Consistent patterns of late payments, collections, etc. are not regarded as favorable. Bankruptcies, foreclosures, deed-in-lieu of foreclosure and consumer credit counseling may be acceptable but typically must be discharged for at least four years unless extenuating circumstances exist and can be verified. Reasonable explanations for all derogatory credit will need to be provided and all outstanding collections, liens, and judgments will need to be paid-off through escrow (your Loan Officer can offer more detail on specific credit situations).
The amount of debt you have affects your ability to repay the mortgage loan. Excessive use of credit and high credit card balances in relation to your credit limits are factors that may affect the mortgage Underwriter’s final loan decision.
The funds you have available for a down payment, closing costs, cash reserves (money you have after all of the loan charges are paid), stocks, bonds, investments, etc. are collectively known as your liquid assets. The mortgage Underwriter will look at your liquid assets as an expression of your ability to save money and as your potential safety net in case your need to fall back on your savings. Cash reserves should equal at least 2-3 months of your new mortgage payment. All funds will need to be verified, but the source of funds to close is of particular importance. The mortgage Underwriter will look for a clear trail of where those funds came from and will scrutinize any large deposits (indicating a loan or other unacceptable assets). For this reason, it is not wise to move money around or make large deposits after your application without first consulting your Loan Officer to explain the changes.