If you’ve purchased a home in the past few years, you’ve probably noticed that the mortgage underwriting process has become more robust and detailed compared to the early 2000’s. Making sure you dot all your i’s and cross all your t’s is an important part of making sure your mortgage application moves through the underwriting and approval process smoothly. So, it’s important to understand what underwriters are really looking at when they review your application. They are trained to spot financial mismanagement, and they are very detailed when it comes to reviewing your finances before approving or denying you for a home loan.
An underwriter’s role is to review all the documents that you have submitted, AND they may request additional paperwork throughout the process to help them make their decision. Their function is to determine the risk associated with giving you a loan. They determine your risk by looking at your credit, assets, payment history, debt to income ratio, and your capacity to pay your debts.
During the mortgage approval process, you’ll be asked to provide documentation of your income. While each application can be very different, the forms requested are usually very similar: employment history, pay stubs, tax returns, W-2’s, bank statements, assets and proof of additional income sources. Make sure you report any payments or receipts of child support or alimony as well. You’ll also need to give permission to access your credit report so the underwriter can look for any issues.
Your tax returns and other financial documents are used to figure out how much of a mortgage you can afford. They aren’t just looking at your current ability though since a mortgage is for 10, 20, or 30 years, underwriters need to know that you are committed to and able to pay your mortgage in the future as well. It’s important to note that any income reported on your mortgage application but not reported or accounted for on your tax returns, can’t be used as verifiable income. It’s also worth mentioning that certain tax deductions may also decrease your income for loan purposes. Taking those deductions are great when it comes to reducing your tax liability, but they can significantly reduce how much lenders can approve you for.
Your bank statements are reviewed for consistency and proof that you have enough money for a down payment, closing costs, and can cover the monthly mortgage amount. BUT they are also reviewed for a few red flags. Overdraft charges can show that you are not great at managing your funds or that you’ll be a good borrower. Large deposits are another questionable item. Unless you have documentation on where the funds came from, an underwriter may assume they came from an unacceptable source and they will not allow these funds to be used to qualify for the loan.
The underwriter also looks at the appraisal of the property. They need to make sure that the loan amount requested doesn’t exceed the value of the property. To keep the process rolling along smoothly, you’ll want to provide any additional information or clarification quickly to the underwriter. Obtaining certain documents may sometimes be tricky but keep on course, many institutions understand how complex the mortgage underwriting process can be and are usually willing to help.
The underwriting process may seem overwhelming but when you use a trusted, dependable, and knowledgeable lender, the process can still move along smoothly. Have questions about the mortgage application process, or ready to start the process? Give us a call or stop into any of our convenient locations.
Vice President, Senior Mortgage Lender
NMLS MLO ID: 532621