The home loan application process to get a mortgage approved could end up being somewhat scary with all the information you have to disclose. Although many borrowers who get through the application mistakenly think they’re all complete and soon to be approved. This is true but not all applicants will be approved for financing.
One of the most important steps that a lot of borrowers fail to realize is the underwriting phase. The loan processor sends the loan application to the underwriter. The underwriter’s role is to determine if the borrower is qualified for a mortgage loan.
What is underwriting?
The process of underwriting entails the analysis of your ability to repay the mortgage. An underwriter will approve or deny your mortgage loan based on your assets, credit report, debts, job status and history, and additional elements. It’s up to the assigned underwriter if they believe you are able to repay the loan.
Throughout this phase of the loan process some common problems can arise. In fact, your loan could possibly be delayed from closing or even stop it altogether if a few of those problems are not satisfied. The underwriter validates and confirms the information provided by the borrower on the loan application.
Among the issues that turn up during the underwriting phase that can cause problems include:
Assets – A prospective borrower might not disclose all liquid assets they have like their IRA or 401k accounts or an investment money market accounts. The underwriter needs to verify that you have sufficient funds for the down payment, a specific amount to cover liquid reserves for a set number of months per the loan product, and enough for closing costs.
Employment – A 24-month history of employment is very important in the mortgage industry. If a potential borrower became self-employed and they got their business license just over a year ago, that may become a huge problem.
The underwriter understands right away the borrower is not eligible under their traditional guidelines and won’t have two years of tax returns to show they were self-employed. However, some lenders can tie-in employment if you were studying your profession in college immediately prior to employment.
Credit History – An experienced loan officer will analyze your credit history and ask you to explain any red flags that alert them. Credit derogatory items such as an unpaid collection over $2,000, multiple months of housing lates in the last 24 months, or a dispute with a creditor.
Source of funds – A relative of yours will be giving you the $50,000 for your down payment. During the process you overlook the importance of disclosing where your relative got their money from. Federal banking laws require the lender to verify where the money comes from.
An experienced loan officer will ask these questions in the beginning to avoid potential problems in underwriting.