Most people finance a home with a mortgage which will require them to go through the underwriting process. The mortgage underwriting process can be a nerve racking time because it’s so revealing of one’s personal and financial history. Because of this, it’s important to take the time to understand it.
Underwriting assists loan officers in getting a picture of your financial situation through credit reports, bank statements, and overall financial history. However, mortgages are a bit different than other loans and the length of time to make it through this crucial step depends on a few factors.
Below are items to take into consideration when moving through underwriting and also some pointers to help speed up the process.
What is underwriting?
Underwriting is part of the loan process in which a lender verifies your financial picture by looking at your credit history, income, assets, and liabilities before approving your mortgage loan application. The underwriting process will take place after the down payment of the home has been made. It is a way for lenders to analyze the risk of giving you a home loan with more detail.
Underwriters always look at the following:
- W-2s – This verifies that your income is consistent year over year and that you have maintained employment.
- Credit reports – Credit reports will reflect how consistent you are at paying your bills. They show your credit score, payment history, credit length, credit history, and types of credit (credit cards, automobile loans, etc.)
- Bank statements – Underwriters will want to see your checking accounts to verify income in and expenses going out. They’ll also want to get an understanding of how you manage your money.
- Saving accounts – Savings accounts show how much money you have incase of an emergency. The more money you have, the less likely you are to default on your mortgage if times gets tough.
- Debt-to-income ratio – Debt-to-income ratio is a number derived from your total monthly debt divided by total monthly income. Lenders usually won’t lend money to a person with more than a 46% debt-to-income ratio. This includes your new mortgage, any existing real estate that you might own, car payments, credit card payments, and student loan payments.
- Pay stubs – Throughout the mortgage approval process, you’ll be asked to provide pay stubs every few weeks. This helps ensure the underwriters that you are currently employed and can make consistent mortgage payments.
- Tax returns – Tax returns will also help in assessing your financial picture as they are encompassing of most yearly financial information.
How long does underwriting take?
The length of the process can vary from situation to situation. Underwriting can take anywhere from two to three days but could last longer and take multiple days or weeks for the lender to review all of the financial information you provided.
In scenarios where the interest rate environment is low and everyone is trying to refinance their home or make a purchase, the underwriters will be busier processing other loans. This means that it might take more time for them to get to your application leading to a longer underwriting time. Most mortgage lenders or mortgage brokers will be able to tell you the current environment for obtaining a mortgage.
How to speed up the process
The best way to speed up the process is to make sure all of your ducks are in a row by ensuring that paperwork is complete and accurate for the underwriter to look at. Make sure you have your paystubs, W2s, tax returns, bank account statements, etc ready to go and ensure that they are accurate.
Sometimes, the underwriter might request additional information such as a letter explaining a recent large deposit into a bank account or why you were late on a car payment three years ago. Getting those requests over to them as soon as possible will help things progress smoothly.
While the underwriting process can be a stressful and frustrating experience, it means that you are near the finish line. If an underwriter only wants a few more additional documents, that means you should be getting close to being formally approved for the loan!