No matter who you are the mortgage approval process is the same for everyone. Once you’ve agreed with a seller on a sales contract for a home and all due diligence has been completed, things move to the lender for the underwriting process. This is when a hard look at your finances to determine if you qualify for a loan. Since it happens right before you close on a home the timing for approval can be crucial. Especially if you need to move in by a certain date. Many buyers hold their breath at this moment as the outcome of the sale depends on the outcome of the underwriting process. Like it or not this is an unavoidable part of applying for a loan.
What is the underwriting process?
Most of the mortgage process is relatively transparent but underwriting will take place behind closed doors. It will be handled by someone behind the lender, known as an underwriter, who will send requests for more paperwork or further explanations. Depending on the lender, the underwriter may be part of an in-house writing team or part of a separate processing/underwriting company which your lender outsources to. Their job is to determine whether or not the loan is worth the risk by assessing your documentation and double-checking that everything is factual and accurate. The process is very stringent with the qualifications depending on the loan you’re applying for and the lenders own policies.
What do underwriters look for?
What they’re looking for is any discrepancies in your financial history. To do this they’ll need a list of documents which will be outlined by your loan officer. The specific documents you’ll need vary depending on the loan you’re applying for. For example, FHA loans usually require more documents. At the very least you can expect to be asked for the following:
- Pay stubs from (at a minimum) the last two months of employment to see if you make enough to pay your bills
- W-2 forms or tax returns from the last two years to prove you are consistent with making money
- Banks statements from both checking and savings accounts going back three months to verify your assets and check for any suspicious activity
- Property appraisal to see whether the loan amount is backed by the value of the home
- Title search and insurance to check if there are any liens against the property
Additional information may be requested if the underwriter has a question about something. Underwriters pay the most attention to deposits made within the last two months. If any deposits don’t coincide with your income, they will ask for verification of the deposit’s origination. There can be no room for doubt or a judgment call from the underwriter. They have to check absolutely everything, and have it confirmed in writing. Their own necks are on the line if they make a mistake which is why they’re so careful.
How to speed up underwriting
How fast the underwriting process moves depends a lot on the underwriter. There’s not a lot you can do to influence how fast they work. However, you can help to eliminate extra steps that will slow down the process.
1. Make a full disclosure
If you have any financial skeletons in the closet, now is the time to confess. The underwriting process is incredibly rigorous. No matter how well you think you’ve hidden some credit mishap, they will leave no stone unturned in finding it. Far better to make a full disclosure early on so it can be evaluated by the underwriter. It may not even be a total deal-breaker but simply require extra attention to fix. The last thing you want is for something to come up at the last minute which jeopardizes your closing date.
2. Promptly respond to all request for further information
An underwriter can’t do their job without the necessary paperwork. Your loan officer will have already given you a list of all required documents. They wouldn’t have asked for them if they didn’t need them so have everything in order and good to go. The primary reason that most mortgage approvals bog down is that the borrower doesn’t have all their documents in order. Make some time to compile everything you’ll need or think you’ll need. Simply having all the needed paperwork on hand will save you days in the approval process.
3. Tie up any loose ends once you know about them
It’s very common for a loan to receive the status of “Approved but with conditions.” This is simply a request for further paperwork. Something may have come up for which the underwriter needs an explanation. If you have any non-salary related deposits in your account, then include a paper trail to verify their origination. You’re practically at the finish line now so if asked to provide anything then send it immediately.
The average waiting time in NYC for mortgage approval is 30 days. During high-volume months it can be an average of 45-60 days. A lot of factors go into deciding how long it will take, most of which are out of your control. But at least by taking all necessary precautions you can remove any self-imposed roadblocks. If all goes well, you should soon hear those magic works “clear to close.”