Underwriting: What to Expect
What to Expect During Underwriting
Unless you are purchasing a property for cash, the mortgage underwriting process is part of the home-buying experience. In basic terms, underwriting is the process used by the lender for risk assessment, ensuring the borrower meets all loan requirements. How the underwriting process unfolds for individual borrowers may depend on their lender and the type of mortgage for which they are applying.
Document, Document, Document
The underwriting process requires lots of documentation. An underwriter is interested in the following information:
- Credit score
- Credit report
- Income
- Debts
- Debt to income ratio
- Financial assets
The property you intend to purchase is also part of the equation. An appraisal is necessary, because the underwriter must ensure it provides the lender with adequate collateral for the loan.
Keep in mind it is the underwriter’s job to ensure a loan is as risk-free as possible. All that documentation protects both the underwriter and the bank or mortgage company.
Automatic vs. Manual Underwriting
In most cases, the mortgage application is fed through an automated system, which either approves or declines the application, or more often, refers it to a manual underwriter, also known as a human being. When a manual underwriter gets involved, expect further financial scrutiny, but also the opportunity to explain any discrepancies or issues the automated system flagged.
Underwriter Conditions
If you loan doesn’t pass the underwriting process the first time around, don’t despair. That’s not uncommon, but once you satisfy the conditions set out by the underwriter, it’s more likely you’ll receive loan approval. Conditions generally consist of more documents, including additional bank statements. An underwriter may also request that you pay off certain debts prior to conditional loan approval, or clarify why you missed or were late paying particular bills.
Self-Employed Borrowers
If you or your spouse are self-employed, expect to provide even more intensive documentation during the underwriting process. There are special underwriting guidelines for the self-employed, far more stringent than for salaried workers. In most situations, a borrower must be self-employed for at least two years before qualifying for a mortgage, but there are exceptions. If you have been self-employed for at least one year, but have prior experience in the field and make as much as a self-employed person as you did when working for another entity, you may qualify for a mortgage.
Lenders look for “stable and consistent” income. Business incomes often fluctuate for a variety of reasons, and if your self-employment income does experience significant ups and downs, you may need to supply the lender with several years of tax returns to prove there is a reason for this fluctuation.
The Turnaround Time
Turnaround time for mortgage underwriting also varies, but in most cases borrowers receive an initial decision within 72 hours to one week of submitting the application and all necessary documentation. If you must fulfill conditions, the turnaround time may depend on how quickly you can meet these conditions.
Contact Us
If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.
