Are They Doing to Your Loan?
Initial application: Check. Paperwork completed and sent to your lender: Check. Home appraisal: Check.
You’re nearing the home-stretch of your loan application process. The last major checkpoint standing between you and your final loan status is the underwriting process.
Let’s dive into some of the most common questions homeowners have about the underwriting process.
Who Are Underwriters and What Do They Do?
Underwriters act as gatekeepers for the lender and its funds. Acting in the best interest of the lender, they assess the borrower’s ability to repay the loan—or the riskiness of lending money to a given borrower.
To determine your individual loan status, an underwriter pours over your documents and verifies the information you’ve provided. This includes information such as your current credit score, your income, and your home’s appraised value.
As they check the accuracy and completeness of your documents, you may be asked to supply further documentation. The underwriter determines if you meet the necessary borrowing requirements.
Why Is Underwriting Important Anyway?
Back between 2002 and 2008, guidelines for underwriters were fairly loose. Borrowers were allowed to access funds and buy the homes of their dreams—even when they lacked the funds and means to follow-through on paying that loan back.
And we all know how that housing bubble ended. Badly.
The housing crisis yielded fallout on borrowers and lenders alike. As a result, the industry’s guidelines became more rigorous.
Today, trained underwriters follow strict black-and-white guidelines intended to protect borrowers from taking on more mortgage responsibility than is safe for them. In other words, the guidelines help prevent borrowers from later defaulting on their loan.
What Should You as the Borrower Be Prepared for During the Underwriting Process?
Here are a couple of other important items to keep in mind while you’re going through the underwriting process:
Further Paperwork May Be Needed
While reviewing your loan, the underwriter may request additional paperwork to create a better picture of your financial situation. They may also ask for documents that you have sent over previously.
Send over any requested documents as soon as possible. This is vital to keeping the underwriting process moving along.
Depending on your loan type and the saturation of the current market, the underwriting process for your application may take up to 5 to 14 days.
Expect Disclosure Mailings
You may receive electronic or paper loan disclosures throughout the process. Although these lender disclosures may include cover letters that state you need to sign and return them, there is no need for you to take any action. They are simply being sent to you by the lender so that they remain in compliance with State and Federal disclosure laws.
What Happens to My Loan After the Underwriter Reviews It?
Once an underwriter looks through and analyzes your loan application and documents, they will issue one of three determinations:
Conditional Approval of Loan
When a conditional approval is issued, your loan is cleared to be funded by the lender. Your lender will discuss with you any remaining conditions specified by the underwriter, then schedule a time for you to close your new loan.
Suspension of Loan
The underwriter may suspend your loan when there is a question about a critical facet of your file. This could take the form of missing or incomplete information. If this happens, your lender will contact you to determine the cause for the suspension. They will help you identify the concern and take steps to correct it.
Once the information is corrected or clarified, the underwriter will reassess your loan. In many cases, the underwriter will issue a conditional approval of your loan.
Denial of Loan
An underwriter denies a borrower’s loan when the file indicates a high level of risk and the individual could default on the loan. This determination is based on industry benchmarks, not on the underwriter’s intuition or estimations.
For example, perhaps your credit score dipped during the mortgage application process. The underwriter can interpret this as inconsistent bill payments—a big risk for the lender.
If My Loan Application Is Suspended or Denied, What Happens Next?
When you choose Meridian Home Mortgage as your lender, your relationship with our team does not end if your loan is suspended or denied. This is where Meridian steps in to advocate for you.
We have an entire team dedicated to overcoming underwriting objections. We help unearth any underwriting errors and help you rework your application.
We will be candid with you at any time during the mortgage process if we do not believe your application has an opportunity to close. Just know that we are devoted to exhausting every last ounce of effort to match your family’s financial situation to a qualified loan program.
Meridian will be shouldering most of the work during the underwriting process. A large portion of our service to you is to gently, but proactively, nudge the underwriter to review your file as quickly as possible. But there are things you can do to help your loan close as quickly as possible. For more about this, check out our other blog, Do’s and Don’ts While Your Loan Is Being Underwritten.