Mortgage underwriters review and approve loans for mortgage lenders. Often mortgage originators fail to submit complete packages. The full loan package includes everything needed to fully approve and close a mortgage loan. Since many of the documents required take time to create, mortgage originators will submit packages for credit approval knowing they will not receive the full approval immediately. Mortgage underwriters review the information provided and create a list of outstanding items still required.
Mortgage underwriting conditions pertaining to the income typically ask for proof of the borrowers’ ability to repay the loan. Hourly and salaried borrowers are asked to provide paystubs and W-2's to prove their income. Borrowers who receive non-employment income, such as Social Security, retirement, child support or alimony, must provide proof of receipt of the income, and continuance of the income for two or three years. The income conditions vary greatly depending on the types of income received.
When assets must be documented, the underwriter sets conditions for bank statements supporting the amount of funds needed. Depending upon the program, the underwriter may request one or two months bank statements. Any unusual deposits or large deposits may require further explanation.
Mortgage lenders rely on the credit report to determine the borrower’s willingness to repay the loan. Conditions relating to the credit report usually are limited to payment history clarification. Often credit reports are incorrect and mortgage lenders will request clarification and proof of correct payment histories. Some loan programs require minimum credit scores, so accurate credit reports are vital to ensuring a homeowner qualifies for the loan program.
The lender's only true security is the home's value. Even though you promise to pay them back, its the lender's ability to sell the home and recover the loan that enables them to lend hundreds of thousands of dollars. Lenders carefully review the appraisal, ensuring the home's value supports the loan amount. The appraisal provides the value based upon what similar homes have recently sold for in the neighborhood. Lenders require the appraiser to provide additional comparable sales when they question the home's value. If the home is not complete or is in disrepair, the underwriter may require the home's repairs or construction be completed before the loan is approved.
- Austin Home Loans: Loan Underwriting
- FHA Home Loans: FHA Loan Underwriting Process
- Federal Housing Administration. "Annual Report to Congress Regarding the Financial Status of the Mutual Mortgage Insurance Fund," Page 52. Accessed April 10, 2020.
- My Fico. "Loan Savings Calculator." Accessed 10, 2020.
- Fannie Mae. "Underwriting Factors and Documentation for a Self-Employed Borrower." Accessed April 10, 2020.
- Internal Revenue Service. "Form 4506-T: Request for Transcript of Tax Return," Page 1 - 2. Accessed April 10, 2020.
- Internal Revenue Service. "Form 8821: Tax Information Authorization," Page 1 Accessed April 10, 2020.
- Internal Revenue Service. "Form 4506: Request for Copy of Tax Return," Page 1 - 2 Accessed April 10, 2020.
David Rouse, currently residing in Raleigh, N.C., has been writing and teaching home owners about the mortgage industry since 1997. Rouse has written training manuals for mortgage professionals and conducted informational first-time home-buyer seminars, providing make-sense answers for a long and confusing process. He studied at Western Kentucky University.