What Do Mortgage Underwriters Do? Decide If You’re Approved!

Here’s
some
Q&A
with
regard
to
the
home
loan
approval
process:
“What
do
underwriters
do?”

Once
you
actually
apply
for
a
home
loan,
your
mortgage
application
will
be

organized
by
a
loan
processor
and
then
sent
along
to
a
loan
underwriter,
who
will
determine
if
you

qualify
for
a
mortgage.

The
underwriter
can
be
your
best
friend
or
your
worst
enemy,
so
it’s
important
to
put
your
best
foot
forward.

The
expression,
“you’ve
only
got
one
chance
to
make
a
first
impression”
comes
to
mind
here.

Trust
me,
you’ll
want
to
get
it
right
the
first
time
to
avoid
going
down
the
bureaucratic
rabbit
hole.

The
Underwriter
Will
Approve,
Suspend,
or
Decline
Your
Mortgage
Application

• After
  you
  formally
  apply
  for
  a
  home
  loan
  your
  file
  will
  be
  submitted
  to
  the
  underwriting
  department
• A
  human
  underwriter
  will
  then
  review
  your
  loan
  application
  and
  decision
  it
• Their
  job
  is
  to
  approve,
  suspend,
  or
  decline
  your
  application
  based
  on
  its
  contents
• It’s
  paramount
  to
  submit
  a
  clean
  file
  to
  boost
  your
  chances
  of
  loan
  approval

Simply
put,
the
loan
underwriter’s
job
is
to
approve,
suspend,
or
decline
your
mortgage
application.

If
the
loan
is


approved,
you’ll
receive
a
list
of
“conditions”
which
must
be
met
before
you
receive
your
loan
documents. 
So
in
essence,
it’s
really
a
conditional
loan
approval.

If
the
loan
is


suspended,
you’ll
need
to
supply
additional
information
or

loan
documentation
to
move
it
to
approved
conditional
status.

If
the
loan
is


declined,
you’ll
more
than
likely
need
to
apply
elsewhere
with
another
bank
or

mortgage
lender,
or
take
steps
to
fix
whatever
went
wrong.

The
Three
C’s
of
Mortgage
Underwriting

• Credit
  –
  payment
  behavior
  over
  time
  (your
  credit
  report)
• Capacity
  –
  ability
  to
  repay
  the
  home
  loan
  (your
  income
  and
  assets)
• Collateral
  –
  value
  of
  the
  underlying
  asset
  (the
  property)

Now
you
may
be
wondering
how
underwriters
determine
the
outcome
of
your
mortgage
application?

Well,
there
are
the
“three
C’s
of
underwriting,”
otherwise
known
as
credit
reputation,
capacity,
and
collateral.

Credit
reputation
has
to
do
with
your
credit
history,
including
past
foreclosures,
bankruptcies,
judgments,
and
basically
measures
your
willingness
to
pay
your
debts.

[What
credit
score
do
I
need
to
get
a
mortgage?]

If
you’ve
had
previous
mortgage
delinquencies
or
even
non-housing
related
delinquencies,
these
will
need
to
be
taken
into
account.

Typically
these
items
will
be
reflected
in
your
three-digit
credit
score,
which
can
actually
eliminate
you
from
contention
without
any
further
underwriting
necessary
if
you
fall
below
a
certain
threshold.

For
example,
you
need
a
620
FICO
for
a
conforming
loan
and
at
least
a
500
score
for
an
FHA
loan.

Your
history
supporting
significant
amounts
of
debt
is
also
important;
if
the
most
you’ve
ever
financed
has
been
a
plasma
TV,
the
underwriter
may
think
twice
about
approving
your
six-figure
loan
application.

Capacity
deals
with
a
borrower’s
ability
to
repay
a
loan,
using
things
like

debt-to-income
ratio,
employment
history,
salary,
cash
reserves,

loan
program
and
more.

In
short,
the
underwriter
wants
to
know
that
you
can
pay
back
the
mortgage
you’re
applying
for
before
granting
approval.

[How
much
house
can
I
afford?]

Finally,
collateral
involves
the
borrower’s
down
payment,

loan-to-value
ratio,
property
type,
and
property
use,
as
the
lender
will
be
stuck
with
the
home
if
the
borrower
fails
to
make
timely
mortgage
payments.

A

home
appraisal
will
be
ordered
to
determine
the
value
of
the
property
using
an
independent
appraiser.

Mortgage
Underwriters
Consider
Layered
Risk

• They
  don’t
  just
  look
  at
  one
  aspect
  of
  your
  borrower
  profile
  in
  a
  vacuum
• They
  consider
  all
  factors
  together
  to
  make
  a
  sound
  underwriting
  decision
• Those
  with
  risk
  in
  one
  area
  who
  are
  able
  to
  compensate
  for
  it
  may
  be
  approved
• While
  those
  with
  issues
  in
  all
  areas
  might
  be
  denied
  due
  to
  layered
  risk

Now
it’s
important
to
understand
that
the
three
C’s
are
not
independent
of
one
another.

All
three
must
be
considered
simultaneously
to
understand
the
level
of
“layered
risk”
that
could
be
present
in
said
loan
application.

For
example,
if
the
borrower
has
a

less-than-stellar
credit
score,

limited
asset
reserves,
and
a
minimal
down
payment,
the
risk
layering
could
be
deemed
excessive,
leading
to
denial.

Consider
a
home
buyer
with
zero
down
payment,
a
600
FICO
score,
and
only
$1,000
in
the
bank,
who
just
started
a
new
job.

Conversely,
consider
a

home
buyer
putting
down
20%,
with
a
760
FICO
score
and
$50,000
in
cash
reserves,
who
has
worked
the
same
job
for
a
decade.

Obviously
the
second
borrower
sounds
like
a
much
better
candidate
for
a
mortgage.

This
is
the
underwriter’s
discretion,
and
can
certainly
be
subjective
based
on
other
factors
such
as
their
occupation,
how
long
the
borrower
has
been
in
the
line
of
work,
why
the
credit
score
is
less
than
perfect,
and
so
on.

The
underwriter
must
decide,
based
on
all
the
criteria,
if
the
borrower
is
an
acceptable
risk
for
the
mortgage
lender,
and
if
the
end
product
can
be
resold
without
difficulty
to
investors.

Layered
risk
is
a
major
reason
why
the

mortgage
crisis
got
so
out
of
hand.

Countless
borrowers
applied
for
mortgages
with

stated
income
and

zero
down
financing,
which
is
certainly
very
high
risk,
and
were
easily
approved.

Rising
home
prices
covered
up
the
mess
for
a
while,
but
it
didn’t
take
long
for
everything
to
unravel.
This
is
why
sound
mortgage
underwriting
is
so
critical
to
a
healthy
housing
market.

What
Shouldn’t
You
Do
During
Underwriting?

One
last
thing.
When
the
underwriter
is
working
to
decision
your
loan
file,
you
as
the
borrower
should
do
your
part
as
well.

This
means

NOT
applying
for
new
lines
of
credit,
such
as
a
credit
card
or
a
new
auto
loan.
And

not
making
large
purchases.

If
you
do,
they
could
show
up
on
the
credit
report
or
be
reflected
in
your
credit
scores.
The
last
thing
you
want
is
a
lower
credit
score
to
jeopardize
your
loan
application.

The
same
goes
for
moving
assets
around
from
one
bank
account
to
another,
or
switching
jobs.
It
might
sound
crazy,
but
just
about
anything
you
can
think
of
has
happened.

Long
story
short,
you
want
to
remain
in
a
holding
pattern
while
your
loan
goes
through
underwriting
and
ideally
gets
funded.

Once
the
loan
is
funded
and
recorded,
you
can
go
on
about
your
business,
whether
it’s
buying
new
furniture
or
applying
for
a
new
credit
card.

But
until
that
time,
you
can
make
life
easier
for
everyone
(including
yourself)
by
doing
nothing!

Mortgage
Underwriter
FAQ

Do
underwriters
work
for
the
bank/lender?

Yes,
underwriters
are
employees
of
banks,
lenders,
and
mortgage
bankers.
They
work
on
the
operational
side
of
things,
making
loan
decisions
after
the
sales
team
brings
the
loan
in
the
door.
This
means
they
work
in
the
same
building
as
the
sales
team.

How
long
does
underwriting
take?

It
might
only
take
an
underwriter
a
few
hours
to
comb
through
a
loan
file
and
approve,
suspend,
or
deny
it.
However,
mortgage
lenders
only
have
so
many
underwriters
available,
and
surely
the
number
of
loans
in
the
pipeline
will
exceed
the
number
of
staff.
As
such,
much
of
the
time
might
be
waiting
in
the
queue
until
a
pair
of
eyeballs
actually
look
over
your
loan.

So
if
you’re
wondering
how
quickly
can
underwriting
be
done,
it
may
depend
on
how
busy
the
company
is
and
if
there’s
any
backlog.
Once
your
file
does
get
in
front
of
an
underwriter,
the
average
time
for
underwriting
is
pretty
quick,
often
24
hours
or
less.

Why
do
underwriters
take
so
long?

Hmm…I
don’t
know,
because
they’re
approving
a
six-figure
loan
amount,
or
seven,
to
a
complete
stranger.
As
noted,
the
actual
underwriting
might
not
take
that
long,
but
the
amount
of
available
underwriters
(humans)
might
be
low.
So
you
could
just
be
in
the
queue.
A
clean
loan
file
will
get
approved
faster
and
with
fewer
conditions
so
get
it
right
before
the
underwriter
even
sees
it.

Do
underwriters
verify
employment?

While
employment
is
generally
verified
nowadays
when
you
take
out
a
mortgage,
it
might
not
be
the
underwriter
verifying
it.
Instead,
the
loan
processor
may
obtain
the
verification
of
employment
(VOE).
Many
use
the
“The
Work
Number,”
an
independent
third-party
employment
verification
company
now
owned
by
credit
bureau
Equifax.

How
much
do
loan
underwriters
make?

They
can
make
pretty
good
money.
Salaries
may
be
in
the
high
five
figures
to
low
six
figures
if
they’re
seasoned
and
skilled
in
underwriting
all
types
of
loans,
including

FHA,

VA,
and
so
on.
If
you
start
as
a
junior
underwriter
the
salary
could
be
less
than
$50,000.
But
once
you
become
a
senior
loan
underwriter,
the
pay
can
jump
up
tremendously.
It
may
also
be
possible
to
earn
overtime.

Do
underwriters
make
commission?

They
shouldn’t
because
that
would
be
a
conflict
of
interest.
They
should
approve/deny
loans
based
on
the
characteristics
of
the
loan
file,
not
because
they
need
to
hit
a
certain
number.
Compensating
them
for
loan
quality
might
be
a
different
story,
but
again
could
lead
to
discrimination
if
they
cherrypick
only
the
best
loans.

Do
underwriters
work
weekends?

I’ve
heard
of
some
that
have.
I
don’t
know
if
they
do
on
a
regular
basis,
but
if
loan
volume
picks
up
in
a
short
period
of
time
it’s
possible
to
come
in
on
a
Saturday
or
Sunday.
The
mortgage
world
is
all
about
highs
and
lows,
so
sometimes
it
might
be
slow
and
other
times
it’s
impossible
to
keep
up.

Are
underwriters
warm
and
friendly?

They
can
be
if
you
don’t
rub
them
the
wrong
way.
I
look
at
mortgages
kind
of
like
the
DMV.
Show
up
with
the
right
paperwork
and
a
good
attitude
and
you’ll
get
in
and
out
before
you
know
it.
Do
the
opposite
at
your
peril!

(photo:

Joelk75)