The underwriter looks at all of the facts and documents and determines if there are any inaccuracies. The underwriter will also double check for errors and make sure the application meets all conditions of the loan. The underwriter looks at your application to see if you meet four basic criteria:
1. Your ability to repay the loan based on your total income and expenses.
2. Your payment history and credit score.
3. The source of funds - The underwriter will verify your down payment funds and ensure you have enough money to cover closing costs. They may also check to see if you have at least two times your monthly mortgage payment set aside in savings or investments that could be used for emergencies and unforeseen events.
4. The value of the property.
After the underwriter has reviewed the entire loan package, there can be four outcomes:
- Approval: If the loan is "picture perfect" and the underwriter has no questions, the loan will be approved with no conditions.
- Approved with conditions: There are two types of conditional approvals:
- If the underwriter needs additional documentation before a final credit decision can be made, a "prior- to- document" conditional approval will be rendered. In essence, the loan documents will not be prepared until the condition has been satisfactorily met. An example of a "prior to document" condition could be a pay stub to validate the borrowers income.
- If the loan can be approved, but a condition must be met prior to closing, a "prior to funding" conditional approval will be rendered. In this case, the loan documents will be prepared and sent to the closing agent, but the lender will not fund the loan until the condition has been met. An example of a "prior to closing" conditional approval could be proof of sale of existing home where the equity will be used as the down payment.
- Suspended: Sometimes the underwriter will be unable to make a decision on a loan file because it is either incomplete or there are many unanswered questions. In these cases, the underwriter will ask for additional information from the borrower before an underwriting decision is made. An example of a suspension may be large gaps in the borrower's previous employment history and no tax returns to indicate the place of employment.
- Denial: Underwriters will be unable to approve a loan if the loan file has substantial deficiencies and does not meet the minimum standards of the lender or the lender's secondary market investors. Most lenders require that a second underwriter review the loan package before a final denial is communicated to the borrower. Denial letters with the reason for denial are sent to borrowers within 3 days of the final credit decision. Underwriting criteria can be different among lenders and a borrower may find other acceptable alternatives in the market place.
The underwriting review process can take anywhere from two to four weeks-sometimes more. To avoid delays, confirm with your loan officer what documents you will need to provide with your application, stay in touch with your lender throughout the process, and respond quickly to any requests.