After going through the process of looking at properties, applying for a mortgage loan, putting offers down, and becoming an offer accepted, it can be tempting to sit back and bask in the glory of imminent homeownership. You’ve just done a heroic work load, in the end!
However, when your new home continues to be appraised and also the appraisal has been delivered to your potential lender, you’ll find yourself to the next step of numerous in the homeownership process: the loan moves into a phase called underwriting.
As a borrower, it’s very useful to know the underwriting process, including how long it usually takes and also the different types of documents your lender may request you to produce. There are several proactive steps you can take during this phase to keep your loan moving along through the process, providing you with that much nearer to the day you can actually move into your brand-new home.
If you’re currently waiting to obtain full approval for a financial loan, and have been researching the mortgage application process and wondering “What will it mean when a loan is within underwriting?,” continue reading to learn more.
What is Underwriting?
Underwriting is the process that banks, lending institutions, and other mortgage brokers undergo to assess the danger involved with lending you cash after you’ve submitted financing application.
Lenders need to make sure you’ll be able to repay the money they lend you. So, this process involves looking at your credit and financial background (meaning you’ll have to submit several documents to verify your identity), proving your earnings, and declaring any long-term debts for example car payments and student loans that you’re currently responsible for.
Here are the four steps to the loan approval process:
- Preapproval. The lender will operate a check on your finances, including credit rating, income, and assets, to ascertain if you’re qualified for preapproval for your home loan.
- Appraisal. Once you’ve put a deal on a house, the lending company will want to appraise the property to make sure it’s inside the bounds of what you are able to reasonably afford. This could cost between a few hundred to in excess of a thousand dollars.
- Title search. The lender will contract a title company to research the house’s history to verify that it may be legally transferred.
- Decision. The lending company will issue your final verdict. Your loan may either be approved, denied, suspended (meaning the lending company needs more details), or approved with conditions.
How Long Will the Underwriting Process Take?
The approval of the home loan typically takes between three to six weeks, though this could vary widely from situation to situation. The length of time financing spends in underwriting is affected by numerous factors, including:
- The type of mortgage you’ve applied for
- The kind of lender you’re working with
- The current state of your finances and credit history
For instance, if your credit score is under 700 and you have a lot of outstanding debts, the process may take weeks or longer. However, if you have a higher credit score and income, you might only have to wait a few days.
Automated Underwriting vs. Manual Underwriting
There are two categories within the underwriting process: manual and automatic.
Automated underwriting is really a computerized process that uses algorithms and programs to investigate your data. The computer will parse your documents thoroughly to determine whether you meet the lender’s qualifications for a financial loan. This process is liked by most lenders because it basically eliminates the risk of human error and streamlines the underwriting process.
Manual underwriting is when one or more human experts go over your file manually. This method is generally used only for files that require a closer look or more personalized judgment, for example thin credit histories or high debt-to-income ratios. The manual method is also employed after the underwriting process as a final check before your loan approval is finalized.
Tips for that Underwriting Process
The watch for your mortgage loan to be approved can seem to be interminable. Fortunately, there are some steps you can take before submitting your application and during the underwriting period to keep the procedure moving.
- Build your credit. Before submitting the application, make certain your credit rating is really as high as possible. Based on the Federal Housing Finance Agency, only 1.9% of mortgage approvals in 2023 went to borrowers having a credit rating under 660.
- Maintain your present debt. Once your application is in, avoid opening any new credit lines or taking on any new debt until you’re approved. Doing so can make the underwriting process take considerably longer.
- Keep in touch with your lender. Be sure to monitor your email closely and always be accessible any time your lender reaches out to you. You may want to submit additional documents, and promptness in doing so is going to be rewarded with a shorter underwriting period.
- Be upfront about your finances. There’s no reason in lying for your lender or attempting to misrepresent your earnings, assets, or credit history. Contrary inside your financial background sticks out or looks concerning, be sure to incorporate a detailed note explaining the situation. Being honest and transparent is going to do a great deal to assuage any doubts your lender might have about approving you.
The Bottom Line
Fortifying yourself with ample research and patience is the greatest method to approach the loan underwriting process like a borrower. You’ll feel much less anxious during the often-lengthy process if you know what to expect before getting started.
This guide should cover the essential aspects of underwriting. However, if you’ve read this article and still find yourself asking, “What will it mean when a loan is within underwriting?” it’s time to check in with the professionals.
Contact they at Associates Mortgage loan and hang up an appointment today.