What Are Mortgage Underwriters Looking For?
Once you’ve found a house, made an offer, and been pre-approved for a mortgage, you’re not done quite yet. Next, you have to go through the mortgage underwriting process. The mortgage underwriter will ensure your financial profile complies with your lender’s guidelines and loan requirements and will make the final decision to approve or deny your loan.
What is the Role of a Mortgage Underwriter?
Your mortgage underwriter plays a huge role in whether or not you can finalize the last step in the home buying process and move into your home. Therefore, it’s important to set yourself up for success during the underwriting process. A mortgage underwriter is responsible for analyzing your risk to determine if the terms of your loan are acceptable. The underwriter will review your application and other documentation with a fine tooth comb. They are double-checking to make sure everything you listed is truthful and accurate.
What Are Underwriters Looking For?
While assessing risk, underwriters look at three main components:
Capacity
This aspect helps the underwriter determine whether you are able to repay the mortgage by calculating your debt-to-income ratio. The underwriter will analyze your monthly income against your current debts and the future housing expenses to make sure you currently and will continue to be able to manage your mortgage payments.
Credit
Your credit is one of the most important factors in the loan approval process. It allows the underwriter to determine how you’ve managed debt in the past in an attempt to predict your future behavior. The underwriter will review your credit score to see how you have handled past bills such as car loans, student loans, and credit cards. If anything negatively stands out, bankruptcies, unpaid bills, collections, you may be asked to provide a letter of explanation. This letter will ask you to detail the circumstances that led to the discrepancies on your credit report and the actions you have taken to resolve it.
Collateral
This aspect determines the value and type of property being financed. The mortgage underwriter makes sure the loan amount meets the loan-to-value requirements of the product. This is where the underwriter will order a home appraisal by a licensed real estate appraiser. The appraisal will determine how much the home is worth by assessing the condition of the home. He or she will inspect everything from the amenities to where the home is located. A home appraisal protects you as the homebuyer by highlighting any possible issues that impact the safety and livability of the home. It also ensures that you are not paying more for the home than its value.
If you have more questions about the mortgage underwriting process or you’re ready to take the next step to homeownership, contact a loan officer at First Ohio Home Finance today!
