During the underwriting process, a mortgage lender will evaluate documentation that you submit to see if you meet the institution’s guidelines. The lender wants to figure out if you will be able to repay a loan or if you would be likely to default.
How a Lender Will Evaluate Your Application
Each bank, credit union or online lender has its own criteria related to loan-to-value ratio, debt-to-income ratio and credit score. Those guidelines aren’t necessarily set in stone. If you don’t meet a lender’s guidelines in one area, but the rest of your application is strong, you may still qualify for a mortgage.
The lender will require an appraisal, which is an independent assessment of the value of the house you want to buy. The lender wants to make sure that the amount of money you’re trying to borrow is in line with the value of the property.
Documents You Will Have to Provide
You will be required to submit a series of documents when you apply for a mortgage. Those typically include pay stubs, tax returns and bank records. Depending on your circumstances, you may need to provide additional documents.
How Long Underwriting Will Take
The underwriting process can take several weeks. The exact timeframe will depend on whether you submit all the required documentation right away and whether the lender needs additional information.
Many lenders use automated underwriting, which is done by software, to speed up the process. If your income varies or your situation is unconventional for some other reason, the lender might use manual underwriting. That means a person will review your application. It may take longer, but you may also have a better chance of getting approved.
What to Do If You Get Turned Down
If your loan application is denied, the lender will provide a reason. You may be able to make changes to your application to get approved, or you may decide to put off buying a house to improve your financial situation.
For example, if the lender denied your application because your loan-to-value ratio would be too high, you can make a larger down payment. You may decide to borrow money from family or friends, ask someone to give you money as a gift or sell some of your belongings to bring in extra cash.
If your debt-to-income ratio is above the lender’s guidelines, you can work on paying down your credit card balances. That may mean cutting back on spending for a few months or finding a side gig to bring in extra income.
How to Prepare for Underwriting
Gathering all the necessary documentation before you apply for a mortgage can help the underwriting process go smoothly. You should also review your credit reports before submitting an application. If you find an error, have it corrected before you apply for a loan.
