You’ve started your homeownership journey and have gotten great news: You’re pre-approved for a loan for your dream home! It’s time to get a check from the bank and buy the house right?
First, your home loan needs to make a stop in underwriting. Underwriting is the bank assessing your financial risk for receiving a loan. Basically, the bank is just double-checking that you will be able to afford the mortgage payments required to purchase the house. That requires them to conduct due diligence on behalf of the bank and for you as well. So what are they looking at? Your CIA: Credit, Income, and Assets.
First up is your credit score. Underwriters will determine if your credit score is high enough for the loan program and review any judgments, bankruptcies, late payments, and other factors that would impact your score.
Second, underwriters will review your income and confirm you, in fact, make enough to pay back your loan. That includes verifying that you are employed and the salary you provided in your loan application is accurate and verifying your tax returns provided for the loan application match up with what’s on file with the Internal Revenue Service (IRS).
Lastly, underwriters will evaluate your assets. That includes your bank accounts, retirement funds, and other sources of income. This all paints a picture of your financial stability and builds a case for your ability to pay back your loan.
In addition to examining your financial status, underwriters also review other items in your housing purchase process. For example, they’ll look at if the appraised value of the home you want to purchase is comparable to the asking price. They’ll also look into the home’s history to determine if there are any liens, back taxes, or judgments dues that would need to be paid as part of the sale.
The underwriting process typically takes between 21 and 45 days from start to finish (the national average is 53 days). There are factors that affect this process, including what type of loan you’re seeking, where you’re at in the buying process, and how quickly you want to close. The initial underwriting phase takes between three to fives days and ends with one of three decisions:
- The underwriter approves your loan. Pat yourself on the back because you’ve done a good job and are free to close on your home. This is a rare outcome, so get ready to gather more documents because the more likely result is…
- The underwriter approves you with conditions. This outcome is very common and means your application is looking good, but the underwriter would like to see more documents (another paystub, a letter of explanation, etc.). Once these documents are received and any remaining issues addressed, you are in the clear to close on your home.
- The underwriter denies your loan. This typically happens if there are issues that the loan officer wasn’t made aware of by the borrower or that were undercovered by the underwriter during their due diligence, such as a foreclosure or bankruptcy.
No one wants their loan denied but there are ways to prevent that outcome. Put yourself in the best position possible by following this list of tips:
- Always be honest with your loan officer. Falsifying information (e.g. how much you make, how long you’ve been at your job) in an attempt to bolster your loan application will only hurt you in the end. An underwriter’s job is to double-check that the information you submit is accurate, so it’s extremely likely they will find out if you lied.
- Get your documents in order. When you find a loan officer, they will ask you to compile a whole host of documents that they and others will use to determine your ability to pay back your loan. Get these documents together and to your loan officer as soon as you can to make sure they can be reviewed and any issues identified right away before your loan application is passed off to underwriting.
- Respond quickly and completely. If your loan is approved with conditions, gather the additional documents your underwriter has requested quickly to ensure the process keeps moving forward.
- Always work with an experienced loan officer. An experienced loan officer will be able to help you gather the right documents and identify any potential issues your loan might face.
Following these tips will give you a leg up when it comes to securing a home loan and finally being able to purchase that house of your dreams.