How Long Does It Take for the Underwriter to Make a Decision?
The Underwriting Process During The Mortgage Approval Process is the most important stage of the overall homebuying and mortgage process. The role of the mortgage underwriter is to fully review and analyze the borrower’s credit and asset information and make a determination on whether or not they qualify. The mortgage underwriter is the person that issues a conditional loan approval. The underwriter is the person who will review the conditions of the conditional loan approval and sign off on them and issue the clear to close.
The mortgage underwriter is the decision maker on whether a loan is approved or not. The mortgage underwriter is the person that issues a conditional loan approval or a loan denial. The mortgage underwriter is the person who issues the clear to close.
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The Role Of A Mortgage Underwriter
The mortgage underwriter has a lot of power and discretion. This holds true on manual underwriting. FHA and VA loans are the only two mortgage programs that allow manual underwriting. Mortgage underwriters have a lot of underwriter discretion on manual underwrites. A clear to close is when a mortgage underwriter signs off on the loan and clears the loan for funding.
A clear-to-close, commonly referred to as a CTC, is the final step prior to closing in the mortgage approval process. Once the mortgage underwriter issues a clear to close, the lender can prepare closing docs and make arrangements on a closing date with the title company. There are steps the file needs to go through prior to being assigned to a mortgage underwriter.
The key person in making sure the file is fully prepared prior to be sent to underwriting is the mortgage processor. The mortgage processor is the quarterback in the overall mortgage process. You will be working with the mortgage processor from the time you submit your executed home purchase contract until the day of the closing.
The Start Of Underwriting During The Mortgage Approval Process
The mortgage processor is the person responsible to gather all documents and getting it ready for the mortgage underwriter. Every files needs to go through the underwriting process to get a loan approval. A mortgage underwriter is a person that will review the documents during the underwriting process before they can render a conditional loan approval.
Part of the underwriting writing process is when the underwriter reviews and verifies the borrower’s income, assets, liabilities, and checks if the borrower meets the agency guidelines of the loan program they are applying for. If an underwriter needs additional documents, they will either list it in the conditional loan approval and/or may suspend the file until the documents required is provided to render a decision. If an underwriter is confused or not clear about certain documents, they may ask for letters of explanation.
A good experienced seasoned mortgage processor normally has a file complete and labeled so there is no reason for the underwriter to kick the file back. The mortgage underwriter has a lot of responsibilities. They need to make sure the borrower has the ability to repay the loan. Lenders are dependent on their mortgage underwriters to make sure the borrower does not default on the new loan and the borrower has the ability to repay.
Scope Of Work Of Mortgage Underwriters in Underwriting
The role of a mortgage underwriter is to make sure the borrower meets all agency guidelines. Lenders use their own funds to fund the loan. After they fund the loan, they need to sell the loan on the secondary market. In order for the loan to be saleable, the loan need to meet the minimum agency mortgage guidelines. If the underwriter makes a mistake and missed something that is part of the agency guidelines, the loan is not saleable. If the loan is not saleable, the lender is stuck with the loan and becomes a scratch-and-dent loan.
Scratch and dent loans are liquidated on the secondary mortgage market at a discount. Therefore, the lender will take a loss. This is why mortgage underwriters are very careful when underwriting a loan. Underwriters also have the responsibility to determine whether the borrower has the ability to repay. The underwriter will closely review the borrower’s credit report. Special emphasis will be placed on the borrower’s overall payment history and timely payments in the past 12 months.
Late payments, prior bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, and other derogatory credit tradelines will be thoroughly reviewed and addressed. The home appraisal is the lender’s collateral so it will be carefully reviewed. Comparable sales of similar and like properties will be examined. The borrower’s employment history and the likelihood of being employed for the next three years will be analyzed. Declining income and/or irregular income will be a concern and cause for a mortgage loan denial. Mortgage underwriters will look for compensating factors on borrowers with high debt-to-income ratios.
Mortgage underwriters want to verify and see documentation of where the down payment and closing costs will be coming from. If part and/or all of the down payment will be gifted, the underwriter will want to see documentation of the donor of the gift funds. If the mortgage processor has a well-prepared loan package that is labeled with no missing pages and all pages are legible, a mortgage underwriter can review a file within a couple of hours and render a decision. This is why the role of the mortgage processor is so important. Mortgage processors will not submit a file if the file is not 100% complete.
Documents Mortgage Underwriters Will Ask For Conditional Loan Approval
Conditional loan approval is when the mortgage underwriter has examined and analyzed all the documents of the borrower. The underwriter has examined the income documents such as the W2s, 1099s, bank statements, income tax returns, credit reports, AUS findings, liabilities, and derogatory credit tradelines.
Once the mortgage underwriter has examined all the necessary documents and feels confident the borrower meets all the agency mortgage guidelines, the mortgage underwriter will issue a conditional loan approval. Conditional loan approval is a tentative loan approval and intent to issue a loan commitment to lend if the borrower can provide all the conditions listed on the conditional loan approval.
Common Conditions By Mortgage Underwriters On A Conditional Loan Approval
Conditions on the conditional loan approval can be the following:
- Provide the homeowner’s insurance declaration page
- Letters of explanation on questions the underwriter needs to be addressed such as credit inquiries, irregular deposits, the reason for declining income, the reason for late payments/collections, etc.
- Updated bank statements and/or paycheck stubs
- Updated verification of employment
- Additional documents where it is applicable such as bankruptcy docs, foreclosure docs, deed in lieu of foreclosure docs, short sale docs, etc.
- Written payment agreements and/or canceled checks on judgments and/or tax liens if it is applicable to the borrower
- Home Appraisal
Any documents that need additional supplements can be listed on the conditional loan approval.
The Clear To Close
Once the underwriter issues a conditional loan approval, the file goes back to the mortgage processor. The processor will work with the loan officer in gathering the conditions of the conditional loan approval. Once all the conditions are gathered, the processor will double and triple-check that all conditions have no missing pages, are legible and are properly labeled. Once the mortgage processor feels comfortable that the file is 100% complete, the processor will submit the file for a clear to close.
The file will go for a clear to close and gets assigned to the same mortgage underwriter. The mortgage underwriter will go over the conditions and check them off. If the underwriter feels all conditions from the conditional loan approval have been met, the underwriter will sign off the file and issue a clear to close. A clear to-close means the lender is ready to fund the loan. Once the clear to close has been issued, the file goes back to the mortgage processor.
The processor will then coordinate with the lender’s closing department and work with a closer in preparing closing docs. The closer and the mortgage processor will coordinate the closing with the title company and set a time and date for the closing. The closing docs will be sent to the title company. The lender will wire the funds on the date of the closing. Ownership changes hands, keys are exchanged, and the borrower is now the proud owner of the home.
November 27, 2021 - 5 min read