To gain approval for a home purchase or refinance, you have to pass a screening process known as mortgage underwriting. During this evaluation, the bank's underwriter, who is knowledgeable about program guidelines, reviews your loan application and the supporting paperwork with a fine-toothed comb. Banks have various means of reviewing mortgage eligibility and their guidelines may differ, but the underwriting process generally follows a basic protocol.
Tools of the Trade
Banks may use an automated underwriting module, also known as an AUM, or an individual underwriter who works directly for the bank. When an application undergoes automated underwriting, a software program determines borrower eligibility, but when an individual underwriter reviews the application -- through a "manual" underwrite -- that person makes the judgement call based on the bank's rules. A loan may undergo both an automated and manual underwrite. For example, if a loan application contains unique complexities or challenges and generates an AUM denial, the bank may allow a manual underwrite, which provides a more comprehensive review of the borrower's qualifications. When an AUM approves the loan, an individual underwriter must also verify certain aspects of the application.
The Appraisal Component
The underwriting process includes review of a property evaluation known as an appraisal. The bank orders the appraisal, which typically entails visiting the property, inspecting its interior and exterior components, and researching comparable sales in the area to determine the home's market value. A professional appraiser performs these duties and reports back to the lender with an official appraisal report. The underwriter reviews the appraisal to determine whether the home meets the bank's collateral requirements. An individual underwriter may decide that the home requires repairs to meet bank standards, or may reject the loan outright based on the report.
Figuring Out the Finances
The underwriter, whether an AUM or individual, reviews your monthly debts and earnings to calculates debt-to-income ratios. An individual underwriter calculates your exact income by reviewing income taxes for the past two years and recent earnings statements, such as pay stubs. He might also send a written request to your employer to verify the length of your employment and your earnings, and to determine whether you are likely to remain employed there for the foreseeable future. The underwriter also verifies the amount of money you have available by checking with your banking institution via a written verification of deposit request form. The underwriter can also review recent bank and investment account statements to verify how much money you have.
Typical Time Frames
The mortgage underwriting process typically takes several weeks to complete because it involves research and verification of financial information. You can improve underwriting time frames by submitting all required documents up-front, and any additional documents as soon as the underwriter requests them. You might delay the underwriting process if you fail to provide complete or accurate documents and information. Absent any delays, you can usually expect underwriting approval within two to four weeks of applying.
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.