People Behind Filing for Mortgage - Knowing the Underwriters

People filing for mortgage always see their mortgage broker assisting them with the process. What they don’t know is behind the brokers and lenders are some individuals who are important in the loan application process. Among these individuals are the underwriters. Find out who they are and their roles in loan application.

Definition An underwriter is a person working in the background during loan application. They are the next people who receives your application from brokers. They may not be as popular as brokers, but their involvement in loan processing will actually decide your fate. Involvement in Loan Processing The underwriters are the ones assessing loan applicants and decide whether they are qualified to get a loan or not. In some cases, they may suspend the application. Their importance in loan applications prompt applicants to do their best to get their needed loan. An individual who proved his creditworthiness will be approved of loan. However, the underwriters won’t give them their loan documents yet. Applicants still need to meet a list of conditions provided by underwriters. This process results to experts calling this approval a conditional approval since underwriters may renege their decision in case applicants won’t meet these conditions. If underwriters decided to suspend application, applicants will need to submit other documents or provide additional information for underwriters to assess. Once submitted, the application may then be approved. If application gets denied or declined, an applicant would need to look for another lender to apply for a mortgage and hope that the underwriter will be impressed by his financial profile. The best Mortgage Lenders have underwriters who will do the approval. They are very committed to their work and will use various criteria in assessing applicants to ensure payment in the long run. How Do They Assess Applicants? Underwriters use three criteria in assessing loan applicants: collateral, capacity to pay, and credit reputation. Collateral in mortgage application is the property to be purchased. Should the borrower fails to pay his mortgage fees, lenders will possess the property as its collateral. Since lenders will be stuck with a house, they need to check its overall value. Factors considered under collateral is the loan-to-value ratio, the downpayment, and property use and type. Capacity to pay is self-explanatory. It refers to the borrower’s ability to pay the loan. Applicants’ financial profile will be assessed for salaries, debt-to-income ratio, and others. Credit reputation refers to loan delinquencies experienced in the past. Even if you’re applying for a home loan, underwriters will also check other loan problems you had in the past. Examples are past foreclosures, car loan delinquencies, and unpaid credit balances. Credit delinquencies can be seen instantly on your credit report. A low or tarnished credit report will give underwriters an idea of possible financial delinquencies and check them out. Of course, underwriters don’t only look at these criteria on an independent level. They also consider the possibility of layered risk. They will use all three criteria to know how risky it is to approve an applicant’s loan. For instance, an applicant without steady source of income, tarnished credit report, and limited downpayment has high chances of getting declined of loan. But if a person with lower credit report has been working in the same company for years and is purchasing an easy to sell house, there’s a chance that the underwriter will approve the application. He may also see the reason behind credit delinquencies then assess if it’s due to the applicant’s lack of capacity to pay or other issues. Regardless of how underwriters will use these criteria in assessing risk, approving loans is under their discretion. They simply want to know if you can pay the loan back before giving you a loan. How are Underwriters Paid? Lenders don’t often describe how underwriters are paid. However, if you check your loan origination fees, the breakdown will show an underwriting fee. This is the payment for the process of assessing and approving your loan application. This fee may be a bit higher than other fees included in loan origination fees, but you will need to pay them upon closing. Knowing the people behind loan application can be helpful for you. Learning about loan application should not only focus on the conventional, VA and FHA requirements, but also identifying the people completing the loan application process. Also, this gives you an idea about how experts look at your financial documents and profiles then understand how they came up with the decision.

Max is a native Phoenician who is working at The Eddie Mortgage Team. To learn more, read our new featured article about FHA Loan.