Question:

What is involved in the mortgage underwriting process?

Answer:

The mortgage underwriting process determines whether or not your mortgage application is approved.

Mortgage underwriting is different from mortgage processing. In the mortgage processing stage, your mortgage application and supporting documents are verified and validated. The property involved is also professionally appraised.

The mortgage underwriting process follows right after mortgage processing. In the mortgage underwriting stage, your mortgage application documents are reviewed and your loan application is either denied or approved.

What factors are considered in the mortgage underwriting process?

In the mortgage underwriting process, your credit rating, your ability to pay monthly mortgage payments, your ability to meet downpayment requirements, and the value of the property are considered.

  • Credit Rating

    To determine your credit-worthiness, the lender orders a credit report from one or all of the credit reporting agencies.  Your credit score and your credit history are assessed.  The better your credit rating is, the bigger your chances of getting your mortgage application approved.

  • Ability to pay monthly amortization payments

    Do you have the means to pay off your mortgage? To determine the answer, the underwriter looks at your monthly income and your monthly expenses.

    Your monthly income is estimated using all your possible sources of income including salaries, benefits, self-employed earnings, etc. Your monthly expenses, on the other hand, are estimated by summing up your monthly credit card and loan dues. Projected amortization payments, insurance premiums, homeowner fees, and other recurring expenses that would arise should the mortgage application be approved are also considered in the calculation of monthly expenses.

    After coming up with monthly income and monthly expenditure estimates, the underwriter then computes the resulting monthly debt-to-income ratio. The lower the ratio is, the better your chances of getting your mortgage application approved.

  • Ability to meet the downpayment requirement and loan processing/closing fees

    Can you meet the downpayment required and can you meet the loan closing costs?  In this instance, the underwriter looks at all your savings accounts, liquid investments and any property you intend to sell to determine whether or not you can meet the costs of the loan.

    You have a better chance of getting your mortgage application approved if you can show that you have enough funds to cover the required downpayment and the out-of-pocket loan processing/loan closing expenses.

  • Property value

    Finally, the underwriter reviews the property appraisal documents to determine whether the loan amount requested is well within the property's appraised value.  Your mortgage application is more likely to be approved if the value of the property is more than sufficient to cover the loan amount (and if this value is not expected to depreciate over time).

    After assessing all of the above factors, the mortgage underwriter makes its decision.  At the end of the mortgage underwriting process, you'll either get a denial or an approval.

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