What Does a Mortgage Insurer Do?
You are ready to apply for a mortgage. You saved a down payment, paid off the high-interest debt, and checked to make sure your credit report brightened. Up to this point, the success of your application has been in your hands. But the power changes when you find a home. To get the mortgage – and the house key – you need an insurer’s stamp of approval. But what does this mean? Read on to find out.
What is a mortgage underwriting?
Lenders use the mortgage underwriting process to verify that the information provided by a potential borrower in a mortgage loan application is accurate. They also make sure that the application is in line with their requirements.
The underwriter of the mortgage company will review your income, debts and assets. This person will verify that your income is legitimate and that the money in your accounts is yours.
The mortgage lender is going to shell out a large amount of money on your behalf. To make sure it is safe to do so, the underwriter needs to know that you are who you claim to be and that you can reasonably be expected to pay your monthly mortgage.
Is a subscriber a real person?
Most mortgage loan applications go through automated underwriting, manual underwriting, or a combination of both. Manual subscription is just another way of saying that a human is involved.
Mortgage lenders frequently use automated underwriting systems (AUS). This state-of-the-art software can quickly compare the information on your mortgage application with what appears in your credit history and their numerous records. For example, let’s say you listed your income last year at $ 75,000. If the AUS can only verify $ 45,000, the system will report it for human verification. Automation helps speed up the process, but manual underwriting digs into the specs to make sure every detail is correct.
While it is almost certain that your application will be seen by a real human being alive at some point, don’t expect to have any direct contact. You will not speak to the underwriter of the mortgage loan. This is for many reasons.
- The subscriber must follow the guidelines and regulations established without exception. For example, the Consumer Finance Protection Bureau (CFPB) has a strict procedure for verifying your repayment ability.
- The underwriter must have everything in writing. As such, anything you say verbally won’t help your case.
- The loan officer is the go-between and your attorney. It’s part of the job. Your loan officer knows the lender’s rules and is the best person to support any argument on your behalf.
What Does a Mortgage Underwriter Do?
It’s intimidating to imagine someone sifting through your personal information, peeking into your financial drawers, and asking questions that are usually inappropriate in a mixed company. But try to think of mortgage underwriters as the good guys. They don’t just protect the lender; They also try to make sure you don’t notice more debt than you can handle.
There is a caveat here: The bank may say that you are entitled to a larger home loan than you want or need. It’s okay to borrow less than you’re eligible. You put the food on the table and only you know your financial goals. If you want to retire early or save for a vacation, you will need money in your monthly budget to achieve these goals as well.
Once you know your mortgage application has gone to underwriting, here’s what you can expect underwriters (both automated and human) to do:
Examine your credit history: In addition to pulling credit reports from all three major bureaus and checking credit scores, underwriters look for signs of financial distress. They are particularly interested in late payments, bankruptcies and other red flags.
Check employment and income: The underwriter confirms that you work where you say you work and earn as much as you claim to earn.
To calculate debt / income ratio (DTI): DTI compares how much debt you have with how much you earn. It is calculated by dividing the minimum monthly debt payments by gross income. For example, if you earn $ 6,250 per month and your monthly debt payments amount to $ 2,500, the calculation would look like this: $ 2,500 (debt) ÷ $ 6,250 (income) = 0.40 (40%). DTI is important because it tells the mortgage lender what monthly mortgage payment you can afford.
DTI can include:
- Minimum payments on all your credit cards.
- The monthly payment you make on each installment loan, such as a car loan or personal loan.
- The installments of the rent or mortgage.
Different lenders will accept different DTIs, but generally, the lower your DTI, the better. For the best mortgage terms, your DTI should be less than 36%. But you can qualify for a home loan with a DTI of up to 55%.
Order a home evaluation: Your lender will order an appraisal of the property to make sure it is worth the required amount. If you can’t pay the loan, the lender may have to sell your home to help pay off your debt. As such, a lender must ensure that they do not lend you more than the home is worth.
If the appraisal concludes that the house is worth less than the amount you want to borrow, don’t panic. You have options.
- The seller can lower the price of the house.
- You can offer more for a down payment and take out a smaller mortgage.
- You can withdraw from the deal and look at other properties.
Check your resources: An underwriter tries to see if you have enough funds to make the required down payment and pay the closing costs. They can also look into any other assets you own, such as retirement accounts, stocks, and personal property. Most lenders require you to have a certain amount of cash reserves in case you lose your job or face another financial emergency.
How long does the mortgage loan take?
The mortgage process varies depending on the complexity of the application and whether the underwriter encounters any issues that require attention. For example, you may have a very simple application. After uploading your ID, W-2 forms, pay slips, tax returns, and linking your bank and balance sheets, the loan process could be completed within a couple of days.
If a borrower is self-employed, however, the underwriter may need more documentation to verify sources of income. For example, it is common for the mortgage lender to request a letter signed by your accountant. Each piece requested can add days to the process, so for some applicants the loan process takes a few weeks. If you’re self-employed, see our guide to getting a mortgage while self-employed for more information.
How can you help the subscriber
The subscription is part of the purchase of a property. Here are some ways you can simplify the subscription experience.
- To be honest: If you lie about your income or do not disclose an important fact (such as a past foreclosure), the underwriter will find out. The process will slow down until you provide an explanation.
- Reply quickly: Be quick when your subscriber asks for additional documents or information. If too much time passes, you may need to provide a new set of credit reports and bank statements. Same day answers will keep your mortgage process going.
- Don’t change jobs: Underwriters seek job stability, so keep your current employer, at least until the loan closes.
- Don’t put anything on credit: This means not charging for new furniture, buying a car, or otherwise increasing your debt and changing your DTI.
- Avoid opening new accounts: Every time you apply for credit, your credit score is likely to drop slightly. This could affect loan eligibility or mortgage rate.
- Avoid closing credit accounts: Closing a credit account could negatively affect your credit score. This may affect your eligibility or rate.
- Leave your money in the bank: If you have declared that you have $ 5,000 in savings, make sure that $ 5,000 (or more) remains in that account until the loan is closed. Any reduction in resources could affect your eligibility.
It is the underwriter who makes the final mortgage approval decision on behalf of the mortgage lender. Even if you’ve been pre-approved for a mortgage, you don’t have an agreement until the underwriter says you do. Do your part to help the underwriting process go smoothly and you’ll enjoy your new home before you know it.