Buying a new home is an exciting experience but it is rife with many challenges. The mortgage application and its approval from a lending company are typically unwieldy and lengthy. The mortgage underwriting processing services means the analysis of the financial information of a borrower by an underwriter to determine whether the person qualifies for the lender’s requirements for the kind of mortgage loan applied for to invest in a property.
Then, what precisely are the underwriter’s activities when he determines whether to approve a mortgage application or not. An underwriter classifies the findings what is called the 3Cs of the underwriting process. Read on to learn more.
Capacity
An underwriter will assess the ability of a borrower to repay the home loan by making a comparison of the borrower’s monthly gross earnings against recurring debts every month. It leads to a numerical figure known as the debt-to-income ratio (DTI). The mortgage underwriter will also look into things such as bank statements, IRA, and 401(k) accounts.
The underwriter’s job is to make sure that you have sufficient funds to repay mortgage payments in the future even if there are existing debts or obligations. The underwriter will also examine whether you have sufficient liquid money so that you can make a down payment without fail. If that is not possible, the borrower will need to pay private mortgage insurance (PMI) per month apart from the principal sum as well as the interest.
Credit report
The underwriters will do a reality check of a customer’s credit report from all the credit-reporting firms including Experian, Equifax, as well as Trans-Union. The underwriter will try to figure how efficient you were repaying loans previously.
An underwriter will determine four aspects of your credit report. These are:
- The loan you have already taken
- The terms of the loan
- Whether your previous credit history has any issues
- How you would repay the loan
After evaluating all these factors, the mortgage underwriter will decide what kind of loan fits your financial situation, assess the rate of interest, and if your mortgage application is disapproved, the reason for the same. That is why you need to have a good credit score and report to ensure that your mortgage application is approved.
Collateral
The mortgage company will ensure they receive repayment in case a borrower fails to pay on time or defaults. That is why a lender will perform the home evaluation; not simply the amount borrowed but also a loan-to-value ratio or LTV.
When it comes to the LTV ratio, it’s computed by dividing the sum by the purchase cost or the assessed value, whichever amount is lower. LTV plays a crucial role when a borrower thinks of refinancing a loan or when you decide to borrow against the equity you are creating for your property. All LTVs aren’t similar. Different mortgage types have different LTV needs.
Wrapping up
Underwriting usually takes three days and even a week for approval. However, an offshore underwriting team will do the job in a couple of hours, thus benefitting customers as well as the mortgage company.
