How Does a Bank Underwrite a Mortgage?

Are you familiar with the term underwriting?

Some of you might think of underwriting as a process that involves tons of questions and a mountain of paperwork. But, most of you are probably simply clueless as to what underwriting is all about. Read more to understand How Does a Bank Underwrite a Mortgage?

As far as underwriting is concerned, it is all about risk assessment. It is about the risk that a bank takes when they loan money and it is also the risk that customers take as they promise to pay back the money borrowed. Underwriters strive to ensure that applicants will be qualified for mortgages and guide them in making wiser financial decisions.

Underwriting Explained

Although it may sound too complicated, the process of underwriting simply means that the lender will verify your income, debt, property, and asset details for them to issue your loan’s final approval.

The process of underwriting takes place behind the scenes yet it doesn’t mean that you will not be involved. Your lender may request for additional answers and document like the source of bank deposits or ask you to present proof of your additional assets.

The Process of Underwriting a Mortgage – The Steps Involved

How is underwriting a mortgage done? Below is a quick rundown of the different steps involved in the procedure:

1. Discussion of your needs

The first step is meeting with the local mortgage lender to talk about your budget, loan options, and goals. You will then choose a home loan program with the help of your lender.

2. Preapproval application

A mortgage pre-approval application follows and you provide your mortgage lender with all the necessary paperwork. Preapproval is the first step that will help you know the amount you can afford way before you search for a potential house and prove to buyers that you are serious about buying a land or property.

3. Lender reviews preapproval application

The lender will go through your documentation and application.

1. Approval or preapproval decision

Following the review, your lender will determine if you are qualified for preapproval of mortgage and the amount you can afford. You further talk about your budget and get ready for your quest for a house.

2. House hunting

This is where the fun part comes. After qualifying, keep in touch with the lender throughout the house hunting or building process. If you already had your eyes on the perfect house, you can proceed to the next step.

3. Review of application by underwriting

Upon choosing the property, you will give your lender additional documentation. The bank’s underwriting department will then review your application that includes all of your provided documentation.

4. Loan approval or decision

After carefully going through your documentation, the department for underwriting will determine if you are qualified for the home loan. Your mortgage lender will communicate the decision to you.  You will be ready to sign the papers if you will only refinance your existing mortgage.

The process of underwriting will directly evaluate your past credit decisions and finances. During this process, the underwriter or bank will look at the areas that will give you a better insight about you including your asset, credit, and income information. The appraisal of your home will be considered as well.

We are hoping that you understand all about How Does a Bank Underwrite a Mortgage?