When you get preapproved for a home loan, its all too easy to assume that the mortgage is a done deal -- but don't start packing just yet. There is a significant difference between a preapproval and a final loan commitment. Before your lender grants you a loan commitment and schedules a final closing date, your loan must make it through the underwriting stage. The length of time it takes for your loan to go through underwriting will vary depending on your specific circumstances.
The Underwriting Process
Your preapproval is based on your completed mortgage application and the information in your credit report. An underwriter is then responsible for verifying the information you provided and ensuring that you qualify for the mortgage. The underwriter will also evaluate the home appraisal and compare it to the loan amount to ensure that the loan does not exceed the property's value. All lenders have their own guidelines regarding how much information an underwriter must gather and which pieces of data he must verify. In general, you can expect the underwriter to dig deeper into your finances and require more documentation if the lender considers your loan “high-risk.”
Many lenders use automated underwriters. An automated underwriter is a computer program that examines your loan package and evaluates your risk level. If you have a simple loan and your documentation is in order, the underwriting program may approve your loan within a few days. Not all mortgage loans follow the standard formula. If the automated system turns down your loan application or if complex problems arise, your lender may send your loan package to a human being who will underwrite the loan manually. Naturally, this can delay your loan's final approval. Under normal circumstances, underwriting takes anywhere from three to five days. If your lender is processing a high volume of loans, underwriting could take as long as two weeks.
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Minimizing Underwriting Delays
It isn't uncommon for underwriters to require additional information from you before approving your loan, such as additional documentation of your income. The faster you get the paperwork to the lender, the faster the underwriter can review your loan. If you don't provide the lender with the requested documents within an acceptable time frame, the lender has the right to suspend your loan. When you finally do provide the documentation the underwriter requests, the underwriting process starts again from the beginning. Thus, it's crucial that you turn in any documentation your underwriter requests as quickly as possible.
Your loan's actual underwriting isn't the only aspect of the mortgage process that could result in delays. Because of this, it's vital that you begin preparations several months in advance. Having disposable savings and high credit scores can make a difference in how quickly the lender processes your application. For example, you should pull your credit reports and check for inaccurate information that could bring your score down and hurt your chances of getting approved. You have the right to dispute any inaccuracies with the credit reporting agencies. Take care to pay your bills on time and keep your credit rating stable. You should also consider using this time to put away some extra money. Underwriters want to see that you have enough savings to pay the down payment and closing costs without difficulty.
- Reed Mortgage Corporation: Pre-Approval vs. Loan Commitment
- Realtor.com: What's Underwriting and How Does It Work?
- Daily Interest: Steps in the Mortgage Process
- Border Group Realty: All About – FHA Manually Underwritten Loans
- Federal Trade Commission: The Fair Credit Reporting Act (Section 611/p.45-50)
- RealtyTimes: Avoiding Closing Derailment
- The RealFX Group: 10 Things to Do Before Applying for a Mortgage
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