Let’s cover what the overall mortgage process looks like, from application to closing, and see how long each step typically takes and how underwriting fits into that process.
Loan Application And Preapproval: A Few Days
When you first apply for a mortgage, you’ll typically provide a whole bunch of information about your current financial situation. You may be asked to provide documentation showing your income, savings, debts and any other information that may pertain to your finances. You’ll also give the lender permission to look at your credit history and score.
The lender will look at all this information and determine whether, based on the information you provided, you meet their qualifications for getting a loan. This will typically take less than a week to complete.
Get Your Preapproval Letter
At this point, you may get a preapproval letter from the lender stating how much they’re willing to lend you based on your financial profile. This will help you understand your price range when you’re shopping for a home. Going through the preapproval process before you begin your search will help you make offers with confidence, and will help you work out any kinks in your application before you go through the underwriting process, which can help save time once you’ve found your future home.
Find A Home And Make An Offer
Once you’ve found the home you want, you’ll make an offer and negotiate it with the seller. If it all works out, you’ll both sign the purchase agreement and you’ll be under contract to buy that home.
Next, you’ll work with your lender to get full approval and be cleared for closing.
Appraisal And Valuation: A Week Or Less
Whether you’re purchasing or refinancing, you’ll most likely need to get an appraisal.
Your lender will order the appraisal. A licensed, third-party appraiser will create an appraisal report based on a physical examination of the interior and exterior of the subject property as well as the sales prices of recently sold properties that are similar to the property they’re appraising.
This report will include the appraiser’s opinion of the home’s fair market value. This whole process generally takes a week or less.
The appraisal is vital to the underwriting process. Knowing the home’s actual value, compared to the sale price, helps the underwriter calculate the loan-to-value ratio (LTV) and ensure that the borrower has enough money in their savings to cover a sufficient down payment.
Collecting Documentation And Underwriting: A Few Days To A Few Weeks
Once the details of your loan and application have been prepared, an underwriter will look over every aspect of your file and verify that you qualify for the loan and that the lender isn’t taking on too much risk by lending to you.
Underwriters will try to find the answer to these three basic questions.
How Risky Are You As A Borrower?
Have you defaulted on mortgage loans in the past? Do you have a strong history of making on-time debt payments? What is your credit score? These are the types of questions they’ll be looking to answer.
Can You Repay This Loan?
Underwriters want to know that your debt-to-income (DTI) ratio isn’t so high that you’ll have trouble affording your monthly payments. They’ll also ensure that you have some extra money available, known as reserves, that you could use to cover your mortgage payments if you were to suddenly lose your source of income.
Does The Home’s Value Cover The Loan Amount?
Lenders don’t want to lend more than what the home is worth, because the property acts as collateral in case you default on the loan. They’ll look at things like the loan-to-value (LTV), how much equity the borrower has in the home and the size of their down payment.
Conditional Approval And Additional Documentation: A Week Or So
If everything looks good, your lender may approve your loan, or they might give you conditional approval. As long as you can meet the conditions of the conditional approval, you’ll be cleared to close. This might mean that your loan otherwise looks good, but you need to provide additional documentation.
How long this stage lasts depends on how long it takes you to get the necessary information to your lender, and how long it takes them to process it.
Final Underwriting And Clear To Close: At Least 3 Days
Once the underwriter has determined that your loan is fit for approval, you’ll be cleared to close. At this point, you’ll receive a Closing Disclosure. This document goes over the final details of your loan, including the loan amount, your interest rate, estimated monthly payment, closing costs and the total amount of cash you’ll need to bring to closing.
You’ll receive your Closing Disclosure at least 3 days before your closing date. Assuming everything is in order, you’ll have only a final walk-through standing between you and closing day.
Each situation is different, but underwriting can take anywhere from a few days to several weeks. Missing signatures or documents, and issues with the appraisal or title insurance are some of the things that can hold up the process.
Depending on these factors, mortgage underwriting can take a day or two, or it can take weeks. Under normal circ*mstances, initial underwriting approval happens within 72 hours of submitting your full loan file. In extreme scenarios, this process could take as long as a month.
Generally, it can take anywhere from a few days to a few weeks for an underwriter to clear a loan to close. Factors that can expedite the process include thorough documentation, prompt responses to any requests for additional information, and a well-prepared loan file.
A mortgage underwriter typically denies about 1 in 10 mortgage loan applications. A mortgage loan application can be denied for many reasons, including a borrower's low credit score, recent employment change or high debt-to-income ratio.
You may be wondering how often underwriters denies loans? According to the mortgage data firm HSH.com, about 8% of mortgage applications are denied, though denial rates vary by location and loan type. For example, FHA loans have different requirements that may make getting the loan easier than other loan types.
As a loan officer, one of the most important things that will accelerate the underwriting process and increase the chances of successful mortgage loan approval is providing your client's correct and most recent information. The data you provide to the underwriter for examination should be accurate and verifiable.
Your lender is required by law to give you the standardized Closing Disclosure at least 3 business days before closing. This is what is known as the Closing Disclosure 3-day rule. This requirement is thanks to the TILA-RESPA Integrated Disclosures guidelines, which went into effect on October 3, 2015.
How Far Back Do Mortgage Lenders Look at Bank Statements? Lenders typically look for 2 months of bank statements from potential borrowers, which provides enough data to assess your income consistency, spending habits, account balances and other crucial financial information.
Step 5: The underwriter will make an informed decision.
The underwriter has the option to either approve, deny or pend your mortgage loan application. Approved: You may get a “clear to close” right away. If so, it means there's nothing more you need to provide. You and the lender can schedule your closing.
Best practices are linked to the so-called “golden rule”: Do unto others as you would have them do unto you; in other words, if the adjuster had a claim, how would he want his insurer to determine coverage?
The report also shows that the denial rate of Federal Housing Administration (FHA) loan applications differed from the overall average, at 12.4% in 2021.
Bank statements play a crucial role, revealing your financial habits, income, and spending, impacting mortgage approval. Underwriters check the last two months (or up to 12-24 for self-employed) for savings for down payment, affordability of monthly payments, and cash reserves.
The underwriting process for a refinance follows the same steps as the underwriting process for a new loan. It can take anywhere from several days to several weeks to complete underwriting, depending on yours and the lender's circ*mstances.
Underwriting can take as little as a few days or as long as a few weeks. It takes place after you have an accepted contract on a home, but before closing.
Yes. Many lenders use third-party “loan audit” companies to validate your income, debt and assets again before you sign closing papers. If they discover major changes to your credit, income or cash to close, your loan could be denied.
In deciding whether to approve your mortgage, underwriters consider your credit history and score, your financial profile and a home appraisal. There are many steps involved in the underwriting process, which can take a few days or weeks to complete.
The underwriter helps a mortgage lender decide whether to approve your loan and works with you to make sure you've submitted all your paperwork. Ultimately, the underwriter will help ensure you don't close on a mortgage you can't afford. If you don't qualify, the mortgage underwriter can deny the loan.
Once your loan goes through underwriting, you'll either receive final approval and be clear to close, be required to provide more information (this is referred to as “decision pending”), or your loan application may be denied.
Introduction: My name is Arielle Torp, I am a comfortable, kind, zealous, lovely, jolly, colorful, adventurous person who loves writing and wants to share my knowledge and understanding with you.
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