Underwriting and Loan Approval

How does an underwriter evaluate your qualifications to determine if you are a good credit risk and if the property is appropriate collateral for the loan?  There are five parts to this approval process:

Credit:  Do your credit scores meet the minimum credit requirements for the program you have applied for?  Do you have outstanding collection accounts that must be paid?  Has there been a bankruptcy or foreclosure in your past and if so, have you reestablished good credit and waited the appropriate number of years to qualify again?  Have all of the  minimum payments to other credit accounts been included in your debt-to-income ratio calculation?

Employment/Self-Employment:  Can you show a 2 year history of employment, with the appropriate explanations for any gap in time or job changes?  Has your employment been verified during this loan process?  Are you a recent college graduate working in a field related to your degree? 

If you are self-employed, have you provided 2 years of tax returns?  Does your 2-year average net profit meet the loan guidelines?

Income:  Is your income enough in reference to your new housing payment and other monthly debt that you show?  Does your income show a stable pattern and is it likely to continue?

Assets:  Have you provided documentation of adequate assets to cover the down payment and closing costs?  Once the transaction closes, will you have enough left to meet the minimum reserve requirement for your loan program?

The Property:  Did the appraisal come in at a value that confirms the contract price in a purchase transaction, or is enough for your refinance?  Does the appraisal indicate any problems with the property, such as obvious damage, non-permitted changes, or non-functional electricity or plumbing?  Is the property in a flood zone or other hazard zone that might require additional insurance?

Once the underwriter has reviewed all of the loan and property documentation, including the purchase contract, appraisal and preliminary title report, you will be notified if you have loan approval.

Normally the approval comes with “conditions”. These are items that still have to be satisfied before the lender will draw the documents and fund the loan. Typically, the loan is conditioned upon a satisfactory appraisal (if not already completed) and proof of insurance. It may be conditioned upon receipt of additional documentation or explanations about information on your application. Your loan consultant will go through the conditions and work with you to get the necessary items.