If like me, you are considering buying a new home, you might wonder what all of the different people in the process of buying and selling actually do. Especially one person I have never met – the mortgage underwriter. I decided to do a bit of research and discover exactly what a mortgage underwriter does and why they are so important.
What does a mortgage underwriter do? A mortgage underwriter reviews the financial information you have submitted with your mortgage application and the details of the property you want to buy. Then they decide whether to approve your mortgage, suspend your application and ask for more details, or deny your mortgage.
The mortgage underwriter looks at many different factors when reviewing your mortgage application, not just your income and how much the property costs. In fact, I was amazed to discover just how complex their job is, and how you can make it easier for them to says yes to your request.
How Mortgage Underwriting Works
Basically speaking, the mortgage underwriter is there to work out how risky it is for the lender to loan you money. This is the person who looks at your application and decides whether or not lending the money is a good risk.
The underwriter will ensure all of the required tax, insurance, title, and closing documents are correct and in place. Then they will review the appraisal of the house to ensure it is accurate, and take into consideration any home inspection report that has been carried out.
If they are on the fence about your credit history, or your ability to make your payments, they will take into consideration the value of the property you want to buy and if selling it would cover the cost of your loan if you were to default.
Underwriters In The Mortgage Loan Process
Many people work with a mortgage broker when they are looking to buy a home. The mortgage broker works for you and is the “middleman” in this stage of your home buying journey. The broker does all of the work, looking at which loans are available with which lenders and then recommends the best one for you. The broker will look at how much you earn and advise you on, roughly, how much you might be able to borrow. However, it is not, ultimately the broker’s decision.
The broker will help you gather up all of the information the lender will need, complete your application forms with you if you need help and then pass the paperwork to a loan processor or loan officer. The processor or loan officer will make basic checks and ensure no mistakes have been made in the forms before passing the file to the mortgage underwriter.
This is the point at which your application will be reviewed with an eye as to whether or not you can afford the mortgage if the house is worth the money, and if the lender should take a chance on loaning you the money.
Factors The Underwriter Considers
Whether or not to approve your loan is not as simple as whether or not you can afford to make your payments each month. The mortgage underwriter will consider a wide range of factors some of which I’ve already touched on. Other things the underwriter will look at might include, but not necessarily limited to:
- Credit Score Most lenders have a cut-off point for credit scores, and if your score falls below this, your application will not get as far as the underwriter. However, just because your score is above this point, doesn’t mean it will qualify you for the loan. Some people with a good credit score are already maxed out on available credit and therefore may be considered a greater risk. Other people might have a lower score simply because they do not have many, or any, open credit accounts.
- Credit History If you have a history of defaulting on credit cards, loans, or mortgages the mortgage underwriter will consider you a greater risk. If you have issues in your credit past, such as an ex-partner running up your credit cards and disappearing or being made redundant and losing your home, they may impact your ability to hear the magic word “yes” from your lender.
- Credit Experience You might have a fantastic income, a beautiful potential home at a bargain price and a fabulous, clean credit history but that can sometimes act against you. Unfair though it is, if you have never borrowed money, or borrowed very little, the mortgage underwriter might have reservations about lending you the money for your home.
- The Deposit Each lender has their own requirements around how much of a deposit you have to come up with before they will give you a loan. Mortgage underwriters will check to see how you came by this chunk of cash. They do this to make sure you didn’t take out a loan for the deposit and lumber yourself with a large loan and then try to get a mortgage on top of that.
- Savings Lenders want to see that you have a bit of cash set aside in case of emergencies. If your savings account is hovering around the $100 range, or your checking is filled by your paycheck then completely emptied by your bills every month it is another red flag for the underwriter
- Employment History In the past, having an applicant who had one stable, well-paying job since they left school was the golden grail for a mortgage underwriter. Those buyers had shown they were likely to stay in the same employment and were, therefore, less of a risk. These days it is far less common for someone to take a job straight out of school and stay in that job until they retire. However, mortgage underwriters still want to see people who hold down steady jobs and not those who flit from role to role.
- Employment Stability In a similar fashion, a mortgage applicant who has a job with, for example, a large government department is less likely to lose their job for no fault of their own. Compare this to someone who is working for a small tech start-up in the first year of operations.
- The Type Of Loan The mortgage underwriter also will consider the kind of loan for which you are applying. If you are asking for an adjustable rate mortgage the underwriter will look at your ability to make payments not just straight away, but whether you could still afford payments if the interest rate climbed.
As you can see, the underwriting process is not one which is cut and dried. You might check some boxes, and not others and still get your loan while another application you consider better off could easily be turned down.
How Long Will The Underwriter Take?
It is at this point in the house buying process that most people start getting the jitters and worrying about how long the mortgage approval process is going to take. Unfortunately, nobody can give a definitive answer to exactly how long your mortgage application will take to pass across the desk or screen of the mortgage underwriter.
All mortgage lenders have what they call a “turn time.” This is how long it takes from the moment your application is received to the moment you receive the lender’s decision. To those of us outside of the mortgage system, Turn Time is simply how long it takes to get an answer.
Factors Affecting Turn Time
Turn time varies from lender to lender and from day to day and mainly depends on how many files are in the queue for processing. If you have a few different options for a lender and you would like a quicker answer to your mortgage application you should consider:
- The bigger banks and mortgage lenders usually have a longer turn time because they have more applications to process. The underwriters with these large organizations typically have dozens of applications waiting for their attention and they may be juggling many applications at once.
- Mistakes in paperwork can hold up processing or result in you hearing that your application is suspended until the problem is fixed. While your broker and loan processor will both be checking the paperwork, you should take a proactive role and check it thoroughly before it is submitted.
- In a similar fashion, you should also double check you have included all of the correct supporting documents.
- Whether you are buying a property or refinancing the one you already own, this will affect the mortgage Underwriting process. New buyers are, generally speaking, in more of a hurry to close a deal and so often get priority over someone who wants to refinance the home in which they already live.
- Anything else you can imagine. Ok so that is a bit of an exaggeration but wildcard factors such as an underwriting office being closed because of a power-outage or excessive snowfall preventing staff reaching work, can all make your home loan decision take longer,
When it comes to turning time there can be one final surprise waiting for you. Turn time can mean “from the moment we receive your application until you hear yes or no” or it can mean “from when we first look at your application until you hear yes, no, or maybe.” If your answer is a maybe, be prepared to wait longer for a final decision and if you ask your broker about turn time ask for clarification on what that time estimate covers.
How You Can Make The Process Run More Smoothly
Mortgage Underwriters are just like the rest of us. Even if they do not mean to, it is likely that most of them, sitting at their desks all day crunching numbers, are going to look more favorably on an application that has crossed the t’s and dotted the i’s than one which is a nightmare to go through.
Your outcome will not hinge on how the mortgage underwriter feels when they get your paperwork, but you can take certain steps to ensure your application is as quick and easy as possible for them to process.
- Prepare before you begin house hunting. Before you even begin to start looking for a property save yourself some stress and potential disappointment by reviewing your situation. Check your credit score at three of the major companies, Equifax, Experian and TransUnion, and review your credit file for any mistakes or situations that might cause a mortgage underwriter to turn you down. So for example, if you have an unsecured debt on which you defaulted, you can ask for that debt to be removed after seven years. If your seven years is almost up it is worth waiting a few months and doing that before applying for a mortgage.
- Anticipate questions. For example, if you share an address with a family member who has the same, or a very similar name, it might be worth highlighting that you are Mark Cross Snr. and that the college drop out with a ton of student debt and maxed out credit cards at the same address is your son. This is the very reason you want to move is so that you won’t have a basement for him to live in any longer!
- Ensure documents are up to date. If you are asked for bank statement, paycheck stubs etc. make sure you provide the most recent, even if they are not the best. If you submit older paperwork the mortgage underwriter will immediately be suspicious about why you would not want them to see your current figures. Then you will experience a delay while the up to date documents are requested, submitted, and your entire application is reviewed again. Possibly with a less favorable eye.
- Provide additional information. Background info can be very useful for a mortgage underwriter if they come up against a red flag. You might have had to move through several jobs, which looks bad on paper, but if those jobs were with one company which was then bought out by another, and then another, that information is worth sharing. In this case, the mortgage underwriter would know you were a stable prospect and the changes were merely administrative.
Who Do Mortgage Underwriters Work For?
The mortgage underwriter works for the organization which is providing the money for your mortgage. They do not work on your behalf, as a mortgage broker does, nor do they have any obligation to ensure your application is approved. The mortgage underwriter’s obligation is to their employer, to ensure that loans are made with a minimum risk of the loan provider losing any money.
Do All Mortgage Underwriters Work The Same Way?
All mortgage underwriters have to view your application through the same legal framework but beyond that, there are a few differences, depending on the kind of mortgage for which you are asking, and the organization with whom you are applying. So the underwriter will look at your application to make sure everything, such as title and tax documents, meat the legal requirements and then work within any secondary guidelines and requirements, such as Federal Housing Administration, VA, Freddie Mac, etc. as well as within their own lender’s rules.
If you are applying to a large organization it is more likely that your paperwork will work it’s way to some distant city and land on the desk of a random mortgage underwriter with no interest in the outcome. It will probably take longer for a decision and if there are any issues the question and answer process may be very drawn out.
With a smaller lender you are more likely to have a sympathetic mortgage underwriter and a shorter turn time, but because they have less capital behind them, smaller lenders generally have less wiggle room and are more likely to turn down an application that falls into the grey area.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.