My Loan is in Underwriting – Should I Worry?
There’s nothing more nerve-racking than hearing your mortgage lender tell you, “Now that we have all your pay stubs, bank statements, and other documentation, we’re sending your loan to underwriting.” Cue the underwriting worry.
There’s No Need for Underwriting Worry
An underwriter’s job is to determine whether you meet the criteria for getting a mortgage. In other words, an underwriter’s job is to determine whether you are worthy of borrowing the money you need to buy the house you love.
That sounds pretty scary, but it doesn’t have to be if you realize that an underwriter is on your side. Lenders make money by lending money, and they can only lend money to people if they approve their loan applications. Lenders don’t make anything if they deny your application, so it’s really in their best interest (not to mention your best interest) if they approve your loan.
So how exactly does an underwriter decide whether to approve your loan or not?
Believe it or not, it’s really quite a simple process. Underwriters make sure that your loan satisfies all of the underwriting guidelines (the underwriting rules) that are in place to ensure that very few loans go into foreclosure.
Fannie Mae and Freddie Mac are the two main companies that buy loans from lenders and sell them to investors as mortgage bonds. Because Fannie Mae and Freddie Mac have rather conservative underwriting guidelines, investors know that if they buy mortgage bonds from Fannie and Freddie, the mortgages that back those bonds will probably not go into foreclosure, and the investors will continue to earn interest on the money they used to buy the bonds.
The process of underwriting works like this:
- A lender gathers information from you and completes your loan application.
- The lender pulls your credit report and enters all of the information from your application into underwriting software.
- If you meet the underwriting guidelines, the software tells the lender that Fannie Mae or Freddie Mac will purchase the mortgage from the lender. (You are pre-approved at this point.)
- The underwriter takes the printout from the software, and compares it to the documentation you have provided (pay stubs, bank statements, credit report, etc.) to make sure the person who entered the information in the software did it correctly.
- If everything matches (income, assets, credit), the underwriter approves your loan.
- The lender orders an appraisal to make sure the house is worth what you are paying for it. If it is worth the price you are paying for it, everything is finished and you close on the loan.
It really comes down to this.
Do you pay your bills on time (your credit report shows this)? Do you earn enough money to pay the mortgage (your pay stubs show this)? Do you have enough money to pay the down payment and the closing costs (your bank statements show this)? Is the house worth what you are paying for it (the appraisal shows this)?
If your lender knows what they are doing, once you have a pre-approval, you can relax. That’s usually done before a real estate agent will even agree to show you houses. The underwriter just checks to make sure the loan officer who took your loan application (the sales person) knew what they were doing.
If you want more details about underwriting, such as how much do I have to earn, what credit score do I need, how much money do I need in the bank, and a whole lot more, attend our free underwriting class at Colorado Free University. The next one is being held on Wednesday, June 13, from 6:30 – 8:30 PM. The class is free, but you must register with Colorado Free University at 303-399-0093. The name of the class is Get Your Home Loan Approved: FAQs and Secrets of Mortgage Underwriting.