Applying for a mortgage sets in motion a chain of events, including credit checks, employer references and calls for pay stubs and tax returns. One of the final things that happens is your file goes into underwriting. This basically is a credit risk analysis – if the bank lends you money, what is the likelihood of you paying them back? When the process is complete, the lender will approve or deny your application. With a fair wind, the whole thing should take around a week, although some applications take far longer to resolve
What Is the Underwriting Process Timelines of a Mortgage?
During underwriting, the lender will analyze all the financial information you submitted as part of your loan package, such as:
- Employment history
- Credit score
- Income and debt ratios – how much money you have coming in versus how much money you have going out each month
- Bank statements, pay stubs, tax returns and W-2s
- Savings or the source of money for the down payment
All these documents are manually checked, by a person, not a computer, to verify that everything you said on your loan application about your salary, expenses and savings is true. In addition, the underwriter will run your data through an underwriting system, like a computer system, to makes sure you comply with the underwriting guidelines established by Fannie Mae and Freddie Mac. Most lenders want to generate so-called "conforming loans" – loans that meet Fannie and Freddie's minimum guidelines – since these loans can be sold into the secondary mortgage market.
Federal Housing Administration and Veterans' Affairs loans have their own electronic underwriting systems and criteria.
What's the Result of the Underwriting?
Once the review is complete, the underwriter will issue a written decision. This may be one of the following:
Approved (green light). Everything on file conforms to the lender's guidelines and external guidelines such as Fannie, VA or FHA. The loan is "cleared for closing" which means you've passed the underwriting stage of the loan. This is the ideal outcome from the borrower's perspective.
Conditional approval (yellow light). The underwriter needs additional information before he can approve the loan. For example, the underwriter may request a letter from your bank to explain an unusual bank transaction. If your application is conditionally approved, you're going to have to do some homework in order to resolve the issue. Once you have provided the explanation, the underwriter will clear the loan for closing (green light), give you some more conditions to satisfy (yellow light) or reject your application (red light).
Denied (red light). Something on file does not conform to guidelines. At this point, you're going to have to apply for a loan elsewhere or address the reason for the rejection.
Even if your loan is green-lighted, that's not the end of the story. You still have some conditions to satisfy before you purchase the home. These conditions are known as "prior to closing" conditions and comprise the items the underwriter must review before the lender will close the loan. A good example is the home appraisal. Lenders will not generally put you to the expense of ordering an appraisal until you've passed all the financial aspects associated with the loan.
How Long Does Underwriting Take?
So, what's the average time for a mortgage approval? It varies quite a bit because every application is different. Some borrowers have stellar finances, excellent credit scores and bulletproof paperwork. They tend to sail through the underwriting process in a matter of days. Others will have additional hoops to jump through before a final decision is made. Conditions can add several days or weeks to the process. It depends how quickly the borrower can come up with letters of explanation, additional documents and so on.
As you can see, there are many variables that affect the length of the mortgage underwriting process. The timeline can be anything from two days to several weeks. The more conditions you have, the longer you'll be in underwriting.
The Program You've Chosen Makes a Difference
The type of loan program you're applying for makes a big difference to the underwriting process timeline. A VA Interest Rate Reduction Loan, for example, which is the VA's streamline refinancing, does not require credit underwriting and has reduced underwriting requirements across the board. This type of loan could be underwritten in 3 to 5 days.
At the opposite end of the scale, you have the non-conforming loan. These loans do not comply with Fannie and Freddie loan requirements, usually because the loan amount is too high, the home is a vacation home or investment property, the borrower has an imperfect credit history, or the borrower is self-employed and has no proof of income. These loans are already high risk and typically must pass through a more stringent underwriting process before the loan is approved. In some cases, you may need a home appraisal up front. These loans typically will take a minimum of 10 days to clear underwriting, and much longer in some cases.
How to Speed Up the Underwriting Process
While much of the underwriting process is out of your hands, there are some things you can do to make the whole process a lot less painful. Here are some tips:
Check for errors on your credit report. If the home address on your credit report does not reflect what is on the mortgage application form, which will usually be form 1003, it will raise a red flag in underwriting. It's a good idea to check your credit report with your loan officer and, if necessary, provide a letter of explanation for the variance.
Explain name changes. Other unusual items include alias names and name changes through marriage or divorce. If you have several names reflected in your loan package, be sure to explain them through the proper documentation such as a birth certificate, marriage license or divorce decree. Using a name that you cannot document ranks high among the reasons underwriters reject mortgages.
Explain any credit inquiries. If your credit report shows a large number of inquiries from other mortgage providers or credit providers such as credit cards, department stores or auto dealerships, the underwriter will want to know what's up. Provide a letter explaining why your previous mortgage applications did not go through, and whether you opened new lines of credit.
Unusual items on bank statements. You should check your bank statements to make sure they reflect your monthly income as documented by your pay stubs and tax returns. Large unaccounted withdrawals or deposits are a red flag in underwriting. If your parents transferred $30,000 to your account for you to use as a down payment, for example, be sure to provide a letter explaining why the money is in your account.
Once an underwriter sees undocumented discrepancies in your file, they tend to become very cautious. The bottom line is, if something is off, fix it now. The process will be over much faster if you document things before the file is ever sent to the underwriter.
- Pure Sourcing: How Mortgage Underwriters Analyse Risk
- Qualified Mortgage: Mortgage Underwriting Process: How It Works, and How Long It Takes
- Department of Veterans Affairs: Interest Rate Reduction Refinance Loan
- Appendix B to Part 1003 — Form and Instructions for Data Collection on Ethnicity, Race, and Sex | Consumer Financial Protection Bureau