What Happens During Your Mortgage Underwriting?

What Happens During Your Mortgage Underwriting?


Did you ever wonder what's happening behind the scenes during mortgage underwriting? For many homeowners, securing the financing they need is essential to successfully purchase a home. Underwriting is an important step in your chosen mortgage lender's approval process. 


What is underwriting?

Your mortgage lender uses underwriting to take steps to verify your income, assets, debt, and property details along the path to approving your home loan. It's a way to reduce the mortgage lender's risk in providing you with the funds while ensuring you can actually afford the home you would like to buy.


What do you need for underwriting?

Your mortgage officer or lender will ask for a range of documents that answer questions concerning your income and ability to afford the home. These documents likely will include your tax returns, pay stubs, W-2s, W-9s, gift letters, and bank statements.


The lender will assess any debt you have, such as monies owed on vehicles, student loans, credit cards, or furniture. The lender looks at any retirement savings and investments. Taken together, these paint a picture of your financial health. 

 

What will happen during underwriting?

An underwriter is a financial expert specifically trained to do this kind of risk assessment work. The individual looks at your finances to determine how much risk the lender can take if they decide you qualify for a loan. 


Essentially, this underwriter decides if your loan will be approved or not. They want to ensure you don't receive a mortgage that you cannot afford and risks the lender initiating foreclosure proceedings.

 

During the underwriting process, the underwriter will:


#1 - Review your credit report.

The credit report shows your credit score and how you used your credit in the past. They search for red flags like bankruptcies, late payments, and overuse of credit. A clear record with a good credit score shows that you are responsible about repaying debts. This improves your chances of loan approval plus better loan terms and interest rates. 


#2 - Review your home appraisal.

The underwriter reviews the appraisal on the intended home. The appraisal is to verify that the amount you are asking for in funding aligns with the home's actual value. The appraiser pulls comparable sales from the neighborhood and inspects the home to make sure the purchase price is reasonable.


#3 - Verify your income.

The underwriter needs to prove your employment situation and actual income. You typically need three types of documents to verify your income, including:

 

  • W-2s from the last two years
  • Recent bank statements
  • Your most recent pay stubs. 

 

If you are self-employed or own a large share of a business, your underwriter will look for different documents like your profit and loss sheets, balance sheets, and personal and business tax returns.


The underwriter may ask questions about where certain deposits came from or for you to provide additional proof of assets.


#4 - Assess your debt-to-income ratio.

The debt-to-income ratio is a figure that shows how much money you spend versus how much money you earn. DTI is calculated by adding up your monthly minimum debt payments and dividing it by your monthly pretax income. The underwriter compares your debts to your income to verify you have enough income to afford your monthly mortgage payments, taxes, insurance.

 

In addition to monthly income verification, the lenders want to see your assets because these can be sold for cash if you default on your mortgage payments.

 

#5 - Verify down payment.

Lenders want to make sure you have enough funds to cover the down payment and closing costs on the home purchase. Underwriters also look at your bank statements and savings accounts to ensure that you have the funds your sale and purchase agreement outlines you would make at closing.


How long does loan underwriting take?

Depending on how busy the underwriter is, the approval process can take 2 to 3 business days to work through the different steps. Other parties can hold up the approval process, such as the appraiser, title insurance, and any other external items in the process.

 

Help speed along the underwriting process by actively responding to any requests from the team. Respond to any questions quickly and honestly. Avoid opening new credit lines during the process, as that will complicate your approval.


What happens after underwriting is finished?

Once the underwriter is complete, they will approve, approve with conditions, suspend, or deny the loan application. The approval will give you the all-clear to close on the home purchase. For any other determination, review the reason and see if you can take steps to improve your chances of a future approval.

Why Cash Buyers Dominate the 2024 Real Estate Market

By Luminate Marketing Team • 28 Apr, 2024
The 2024 real estate market is ROUGH. Losing to multiple offers, emotional frustration, and the stress from competing offers is discouraging to say the least. Notably 32% of home sales are being clinched by all-cash buyers, the strategic advantage of wielding cash has never been clearer. This resurgence in all-cash transactions underscores a market where immediacy and certainty reign supreme, especially as home prices continue their upward trajectory against a backdrop of scarce inventory. Within this context, it’s prudent to evaluate every option that can help you sell an existing home and get your offer accepted on a new home. Navigating the Alternatives iBuyers : These entities provide a quick, straightforward selling process for homeowners looking to bypass the traditional market. By making instant cash offers, iBuyers appeal to those seeking immediacy and convenience. However, this often comes at a cost, including service fees and potentially lower offer prices, as the iBuyer model is designed for speed over maximizing seller profits. Power Buyers : Power buyer programs cater to homeowners wishing to purchase their next home before selling their current one. They typically employ financial tools like bridge loans to facilitate this process, offering a solution to the timing mismatch between buying and selling. While this approach adds flexibility, it can also introduce complexity and additional costs into the transaction. But it's important to remember that not all of the innovative iBuyer and Power Buyer programs are the same. It's all about finding the right fit for your situation. Luminate's Unique Approach At Luminate Home Loans, we've carved out our own niche in the market. We offer a program that turns our clients into cash buyers. This isn't just a minor perk; it's a game-changer. Being a cash buyer makes your offer far more appealing to sellers, cutting through the delays that often come with loan approvals. Our approach is designed with you, the homeowner, in mind. We give you the immediate advantage of a cash offer, coupled with the flexibility to choose the best financing option for you down the line. It's about giving you control and confidence in your home-buying journey. If you're navigating the complexities of buying and selling homes, our program might just be the solution you've been searching for. We focus on ensuring our processes are straightforward, your personal information is secure, and the transition to your new home is as smooth as possible. With Luminate, you're not just moving houses. You're stepping into a well-thought-out system designed to get you into your dream home with ease and certainty. If this sounds like what you need, we're here to make it happen.

Understanding Economic Shifts: How Rising Fast Food Prices Intersect with the Housing Market

By Luminate Marketing Team • 21 Apr, 2024
Have you been noticing the prices of fast food and other products going up? Well, you're not alone. Across the country, families are feeling the financial pain of previously low-priced items suddenly costing double (or triple!) what they’re used to. For example, a lunch for two in California at a fast food chain can easily be $40 nowadays, which is a big jump for places that tout “cheap fast food.” But why exactly is this happening, and what does it have to do with you buying a home? Keep reading for more insights. Why Are Prices Going Up? Starting in April of 2024, the minimum wage for fast-food and healthcare facility employees in California was increased. As a result, their wages went from $16/hour to $20/hour in order to provide better wages and living conditions for these workers. This rise in minimum wage, while much needed for the economy, is happening all across the nation. And when businesses have to pay their employees more, they often raise their prices to cover the costs. Which, unfortunately, means the burger and fries you love might cost more now. What Does This Have to Do with Housing? In recent news, you may have heard of President Biden’s housing plan to help first-time homebuyers and to reduce housing costs. This plan would give money to first-time homebuyers and some families looking to sell their homes. But just like with the fast-food industry, the effects can vary. In some places like California, where not enough houses are available, making homes more affordable might not be enough. In other places, it might help a bit more. So, What's the Best Move for Homebuyers? If you're thinking about buying a home in the near future, it's good to know about these changes and plans. By staying informed and working with an expert lender, you can take advantage of any changes as soon as they happen. But even though extra money in the economy sounds great, it's important to look at the whole picture, like how many houses are available and how much they cost. If more homes become available and the costs of borrowing money for a home go down, this could be a better outcome for buyers vs money that is thrown into the economy. Conclusion Understanding these changes can help you make better, informed choices about your financial future. Whether you're saving up for a big purchase or just deciding where to grab lunch, let us help you save money where it counts! Reach out to us today so we can help you navigate your home-buying journey without having to skip out on the fries.

Buying Your First Rental Property (The Journey Is Easier Than You Might Think)

By Luminate Marketing Team • 14 Apr, 2024
Hello, aspiring real estate investors! Imagine embarking on an exciting journey, one that mirrors the adventure of setting sail on a grand voyage, but in this case, your destination is acquiring your first rental property. This journey isn’t just thrilling; it's a strategic move toward financial growth and building a substantial investment portfolio. Let’s navigate through this process together, turning complex information into an engaging and understandable guide. We'll draw from the deep well of knowledge provided by industry experts to ensure you’re well-equipped for the journey ahead. Preparing for Departure Before you dive into the real estate market, it’s crucial to ensure your financial foundation is solid. This means having a substantial down payment saved up, maintaining a healthy debt-to-income ratio, and organizing your financial documents. Think of these steps as preparing your vessel for the journey, ensuring it’s seaworthy and ready to navigate through financial seas. Becoming familiar with the rental property market is also essential. Understanding key metrics like Return on Investment (ROI) and the significance of location can help you make informed decisions. It’s akin to studying the stars for navigation, allowing you to identify promising territories and avoid potential pitfalls. Embarking on Your Voyage Choosing the right financing option is crucial and can be compared to selecting the best ship for your journey. With the fluctuating nature of mortgage rates, a strategic approach to financing, such as considering Adjustable-Rate Mortgages (ARMs), can optimize your cash flow and smooth the path toward your investment goals. Finding the right property is the heart of your adventure. It involves identifying a property that aligns with your investment strategy, whether it’s a charming single-family home or a multi-unit dwelling brimming with potential. This step requires thorough inspection and analysis, ensuring the property’s condition and potential appeal to tenants match your expectations. Due diligence is your moment to confront any hidden challenges. It involves a detailed examination of the property’s physical and financial condition, ensuring there are no hidden legal issues or maintenance nightmares that could derail your investment. Navigating Toward Treasure With your offer accepted, the real work begins. Transitioning from buyer to landlord involves unlocking the property’s potential and setting the stage for a successful rental venture. Whether you manage the property yourself or employ a professional property manager, the objective is to cultivate a profitable and well-maintained rental property. As you gain experience, your focus will shift toward expansion and leveraging your initial success to finance further investments. This stage is about growth, optimizing tax strategies, and building a robust portfolio that reflects your ambition and savvy investment choices. Charting a Successful Course In conclusion, the journey to buying and managing your first rental property, while filled with challenges, is ripe with opportunities for financial and personal development. It requires a blend of financial diligence, market insight, and strategic planning, guided by the wisdom of experienced investors. For those ready to take on this adventure, the rewards extend beyond financial gains to the enrichment of life’s experiences and the thrill of the chase. As you stand at the threshold of this exciting venture, remember that success lies in thorough preparation, continuous learning, and an adventurous spirit. Here’s to a prosperous journey and fruitful investments in the vibrant world of rental property ownership. Happy investing!
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