Mortgage Underwriter: What They Do and How to Make Them Your Ally

Do you need mortgage underwriter? Mortgage loans are associated with risks by both parties. The bank wants to know if they can trust you with the money, and you want to know whether you can trust the bank. While your weapon of choice is mostly research — the bank has professional mortgage underwriter to make the decision.

Let’s start with the definition: Mortgage underwriting is a process performed by the bank’s professional mortgage underwriter before a loan agreement is signed. The bank needs to check your credit history and income to ensure that you are qualified for the loan. In other words, the bank wants to see if you can afford it. 

In the simplest possible form, underwriting is the check of your financial stability and the risks. 

What is a Mortgage Underwriter?

A correct way to put it would be “who is a mortgage underwriter”. It’s a person who evaluates your application for a loan. The underwriter makes sure that you are eligible for the loan which you are applying for and that you can afford it. Most people don’t like underwriters since they have the power to say, “no, this guy that wants to buy a house won’t pay for it, don’t give them anything”. However, mortgage underwriters are not evil: all they do is check the numbers and try to evaluate the risks. Nothing personal.  

What Do Mortgage Underwriter Look At? 

They check the databases, check the info you provide, and calculate the risk factor. Here’s what they’ll look at: 

  • Your age
    The older you are, the better. It’s no secret that house payments tend to decrease with age due to increased income and decreased home value; 
  • Your income
    When you sign up for a mortgage, generally, the bank asks you to provide proof of income. If you do not have an employment contract, they will ask for a letter from your employer stating that and how long your employment contract is; 
  • Your assets
    This includes your car and any other assets that you own. The bank wants to know how much can you pay each month and whether or not it is enough; 
  • Your debt
    The less debt you have, the better. However, remember that your debt does not necessarily mean that you have a poor credit score. You can still have a good credit score without a high debt level; 
  • Your savings
    You need to show the bank how much cash you have in your bank account. In a perfect situation, your bank account balance should be much more than you would need for a down payment; 
  • The total payment for your current house
    The bank will calculate how long it will take for you to pay off your entire debt (if you have any) and how much is left of it;
  • The total payment for your future house
    Similar to the previous point, but this time – for a future home. In this case, the bank will also factor in the interest rate so they can estimate how much money you will need to pay each month; 
  • Your down payment
    there are rules regarding the minimum down payment, but the bigger your first throw into this loan is — the better chances to get it you have; 
  • Your loan
    Not all loans are equal. If you want to take out $1 million, the bank will assume that the risk is higher, and they will start asking more questions; 
  • Your credit history
    Make sure that your past payments are consistent. Your credit history shows us whether or not you are consistent with making payments. The longer it’s positive, the better! However, your past does not necessarily impact your credit score today; 
  • Your credit score
    The higher your score, the better. Your credit score gives them an idea of how likely it is that you’ll be able to pay for a house. It’s a very important factor as it shows that you have a good track record as far as paying loans, bills, and other stuff goes. 

Those are not even all the aspects, but you get the point. Mortgage underwriting is a very complicated process. 

How Long Does the Underwriting Process Take?

The process can take around two months. If you’re applying for a large loan, it can take even more time. However, if you’re applying for a mortgage of less than $500,000, the underwriting will most likely take around two weeks. 

What is an Automated Underwriting?

Underwriters don’t always calculate all the things manually. Sometimes they use special programs for it. Some automated underwriting programs even rely on artificial intelligence to calculate all the risks. 

Does it mean that some silly robot will decide whether you’ll get the mortgage approval or not? No, our reality is not THAT dystopian. At least by now. 

AI in the automated underwriting process is strictly limited. Basically, it just runs your data through an enormous collection of data from other borrowers, collects similarities, and looks for tendencies. Are people with a financial situation similar to your good borrowers? How many borrowers of your age, with similar savings and credit scores, ended up in a foreclosure process?  It’s all the same stuff that underwriters do manually — just way faster. 

What does Underwriting Mean to Your Mortgage Approval?

Pretty much everything. Underwriting decisions can define your future relationship with the bank and either give you the loan or completely destroy your chances to get it. 

Surprisingly, proper underwriting can just as well save your chances to get the desired loan. Underwriters calculate the risks by a complex formula, so even if you “fail” with one thing — another thing with “good” numbers can outweigh it. 

An oversimplified example looks like this: you have a poor DTI (debt-to-income ratio) but a large savings account. Your chances would be the same of a person with a better DTI but a smaller savings account. Or, maybe, you’re really young, but you have a good savings account, a perfect DTI, and an excellent credit score. All other things would outweigh your “risky” age for the bank, and you’d still get the loan. 

Types of Mortgage Underwriter Decisions

No, they don’t give you a C or an A+ for being a financially stable and reliable person. The underwriter can only give you one of four scores: approval, denial, suspension, or approval with conditions. 

What Underwriting Approval Means

Approval means you get the loan; the underwriter thinks you’re not a risky borrower, and the bank can give you the money you need.

What Underwriting “Denied” Decision Means

Denial means that the underwriter thinks you’re a risky borrower. In other words, they “reject” your application. It’s the worst possible outcome if you really need that loan. However, you can still apply again — when you raise your chances to get approval. 

What “Suspended” Decision in Underwriting Means 

If your score is not high enough for a prime loan, the bank will give you conditional approval under which you have to improve your credit score before receiving final approval. This is where it gets complicated: it doesn’t mean that they’ll immediately approve you right after one of these improvements. You have to raise your financial stats to pass it significantly. 

Sometimes “Suspended” decision is not that bad and just means that the underwriter couldn’t make a final decision because they had no access to one (or many) crucial papers. If you get “Suspended,” — check the full decision; maybe they just need more info about your employment or a different form from your bank with the savings account. 

What is “Approved with Conditions” in Underwriting Process

This means that you’re approved for a loan, but they think you’re not stable enough to take on the mortgage. The most common outcome is — they’ll ask you to get a whole bunch of other documents, like a copy of your insurance agreement, and will probably raise your payment. They might even require or ask for additional criteria, like your debt-to-income ratio, your savings account balance, or the type of job you have. 

How to get Approved after an Underwriting Denial? 

You will need to re-apply for your mortgage with all the paperwork that is required. Sometimes you just need to wait for a couple of weeks after the first denial. While you can’t change your age or double your savings account at this time — you still can make some improvements: 

1. Improve your employment’s weight in the application: get more pay stubs from the previous months, get more business records, etc.); 

2. Improve your income: it doesn’t mean “get a second job”; it simply means that the bank should see ALL your income, including the smallest sources. Did your first application include child support? Dividends? Alimony? Any sort of bonuses? Include everything you can; 

3. Are you sure you don’t have gifts? Maybe a relative decided to help you with the house deal, but you didn’t include it in the application? Include it in the application as well (you’ll need a gift certificate from that person to prove that it’s a gift and not just a “borrowed” sum); 

4. Work on your DTI (debt-to-income ratio): Can you pay off anything? Refinance those loans? Sometimes a good DTI is even more important than your savings account (don’t empty it though, it still should be in your application); 

5. Improve your savings account: Another obvious step — check if there’s anything that’s technically yours, but it somehow didn’t get included n the application the first time? Maybe someone owes you money, maybe you have unregistered cash under your mattress, or you sell something that you wanted to sell anyway? It all matters for your second application; 

6. Make sure the underwriter sees the actual situation: A small mistake in your credit history, some outdated info in your employment papers, literally any mistakes should be eliminated. Double-check things; it’s worth it; 

7. “Pay” for your approval with the down payment: Yeah, in a current housing market, even the minimal down payment may seem enormous. However, if you need that mortgage approved, you should fight for it. Bigger down payment will significantly increase your chances. 

If you’ve passed all the requirements, then you’ll receive an approval letter that will include a clear explanation as to why you got it or not. In that second step, the bank may also want to see how you’ve been acting since your denial and if everything has been going well since then.

Mortgage Underwriter: Conclusion

Underwriting is not an easy process, and it’s complicated even more if you’ve never applied for a mortgage before. But it’s also not as complicated as it seems. If you follow the steps and work on every minor detail, you’ll probably get approved. Make sure everything is documented and showable — the slightest mistake may reject your application. The mortgage underwriter is not necessarily your opponent or your enemy in this process. Just make sure that they see all they have to see, and if you’re a reliable person — it’s their job to slap the “Approved” status on your papers. 

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