What Does a Mortgage Underwriter Do?

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You've prepared to apply for a mortgage: you saved a down payment, paid off high-interest debt, and checked to make sure your credit report glows. Up to this point, the success of your application has been in your hands. But the power shifts once you find a house and have a sales contract written up. To get the mortgage -- and the key to the house -- you need an underwriter’s stamp of approval.

What is underwriting?

Underwriting is the process used by mortgage lenders to verify all the information you have provided. For example, an underwriter will look at your income, debts, and assets. Your lender will use an underwriter to check that your income is not a result of criminal activity and that the money in your accounts is your own (rather than a gift you failed to report). It wants to make sure that you are who you claim to be and that you have enough money to make mortgage payments.

Is an underwriter an actual person?

Most mortgage applications go through both automated and manual (human) underwriting. Frequently, mortgage lenders use Automated Underwriting Systems (AUS). This state-of-the-art software can quickly compare the information on your mortgage application to what they find in your credit history and their extensive records. For example, let’s say you listed your 2019 income as $75,000. If the AUS can only verify $45,000, the system will flag this data for human verification. Automation helps speed up the process, but manual underwriters dig into the nitty-gritty details to make sure every detail is correct.

What does an underwriter do?

It is intimidating to imagine someone combing through your personal information, peeking into your financial drawers, and asking questions your mother would not ask. But try to think of underwriters as the good guys. They don’t just protect the lender -- they also make sure you don't take on more debt than you can handle. Once you hear that your mortgage application has gone to underwriting, you can expect the underwriters (automated and human) to:

Examine your credit history: In addition to pulling your credit report, underwriters look for signs of financial distress: late payments, bankruptcies, and other red flags.

Verify employment and income: The underwriter makes sure you work where you say you work and earn as much as you claim to earn.

Calculate debt-to-income ratio (DTI): DTI is a percentage that indicates how much you spend each month versus how much you earn. It is calculated by dividing your monthly bills by your income. For example, if you earn $75,000 per year, that is $6,250 per month. If your monthly bills amount to $2,500, the calculation would look like this: $2,500 ÷ $6,250 = 0.40 (40%). DTI is important because it tells the lender how much you can afford for monthly mortgage payments. Different lenders will accept different DTIs, but generally, the lower your DTI, the better.

Order a home appraisal: Your lender will order an appraisal of the property to make sure it is actually worth the amount you have requested. If you fail to pay your loan, the lender can sell your home to help pay off your debt. Because of this, a lender must ensure that they are not lending you more than the home could be sold for if a default occurs.

If the appraisal concludes the house is worth less than the amount you want to borrow, don’t panic. You have options. A few of these include:

  • The seller can drop the price of the home.
  • You can offer more for a down payment, and take out a smaller loan.
  • You can back out of the deal and look at other houses.

Check your assets: An underwriter looks to see if you have sufficient funds to make the required down payment and pay closing costs. They may also examine any other assets you own, like retirement accounts, stocks, and personal property.

How long does underwriting take?

The underwriting process can take a few days to a few weeks, depending on how many issues the underwriter comes across. For example, if you are self-employed, the underwriter might require more documentation to prove your income source.

How you can help

Underwriting is one of the least fun parts of buying property. It is, however, necessary. Here are some of the ways you can make the underwriting experience easier on everyone involved:

  • Be honest. If you fib about your income or "forget" about a previous foreclosure, the underwriter will find out and the process will slow to a crawl until you provide an explanation.
  • Prioritize underwriter requests. Underwriters routinely ask loan applicants for additional financial documents. The faster you provide them, the faster your underwriter can proceed with the loan.
  • Do not switch jobs. Underwriters look for employment stability, so stick with your current employer, at least until the loan has closed.
  • Do not put anything on credit. That means no charging new furniture, buying a car, or otherwise increasing your debt and changing your DTI.

It is the underwriter who makes the final decision to approve or deny your mortgage. Even if you were pre-approved for a loan before heading out to find a house, you do not have a deal until the underwriter says you do. Do your part to help the underwriting process progress move forward without a hitch and you'll be enjoying your new home before you know it.

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