Underwriting is a key component of the mortgage origination process and requires in-depth analysis from highly trained professionals. Underwriters use an array of tools to determine whether an applicant will qualify for a loan. Due to the complexity of the process, it is often hard to predict how long a loan file will take to go to closing. However, knowing about several key aspects of the process might help you be more prepared if complications do arise.
Underwriters are tasked with determining how much risk is associated with issuing loans to a particular person. They go about this by compiling as much data as possible that indicates the likelihood a potential borrower will repay a loan. Income and employment is a major aspect of this and a good indicator of how much money the borrower will have available to make payments. Most applicants will be required to submit pay stubs, tax returns and bank statements to help the underwriter understand their financial status and spending patterns. For applicants, having these documents readily available will help underwriters expedite their review and might prevent a delayed closing.
The type of loan a person applies for is another important factor in the time it takes to go through underwriting. Some loan types or programs require a higher level of scrutiny than others. For example, any nonconforming loan needs extra consideration and investigation from underwriting personnel to make a determination of repayment ability and risk. Also, home equity lines of credit and most investment property purchases require additional analysis due to the higher levels of risk they represent for the lender.
An applicant's credit history might be the most influential factor for underwriters. Credit reports provide information about late payments, disputed accounts, accounts in collections, and past credit inquiries. Depending on the findings, more information may be required from the applicant. For instance, if multiple credit inquiries are listed on the report, letters of explanation might be required for each to give the underwriter a better idea of how much future debt the applicant plans to accrue. Fewer irregularities or red flags found on the credit report will result in a quicker final underwriting decision.
Throughout the review of the applicant's financial records, the underwriter can add conditions to the loan file. These conditions, or documents that need to be provided, can be related to a number of things such as appraisal inconsistencies, application errors or program requirements. When processors submit the documents or corrections that are needed, the file goes back to the underwriting department to review and clear the conditions. Loans that are considered clean and require no additional items are more likely to close on time, while resubmitted files are time consuming and often result in delays.