This process is usually performed by an "underwriter" who evaluates the borrowers credit, collateral value, and risk involving the loan. After calculating those factors the underwriter will then make a decision to accept the loan or to deny the loan, if denied sometimes there maybe something that the loan must provide before moving towrads funding.
After your loan is submitted to a lender, the underwriter will evaluate your file, and issue a conditional approval. This can generally be considered an approval, as long as you are able to meet the lender's conditions. However, the conditional approval is NOT a commitment to lend on the part of the lender.
Underwriting is different from lender to lender and program to program. An underwriter is trained to be very detailed and catch items that raise red flags. Due to some of the fraud that has hit the mortgage industry, albeit a very small amount in comparison to the legitimate deals that continue on a daily basis, lenders have lost money. These losses have caused lenders underwriting guidelines to tighten up. One of the many things now looked at with more scrutiny is the appraisal. This is one area where lenders can lose money if they have to take a home back in the case of foreclosure providing the home is not worth the amount the appraiser stated. Lenders now have strict appraisal reviews and in many cases have their own department that handles the review although it can be outsourced. These reasons are why the underwriting process can be lengthy
Underwriting is the main step in truly being approved for a mortgage. This step is where an underwriter compares the information provided by an applicant with the lending guidelines of that particular lender. The underwriter will either approve the loan as submitted, approve the loan when certain conditions are met or deny the loan because it doesn ot meet its guidelines.
As you cannot predict an underwriters decision, a good mortgage broker should be able to get a good feel as to what expect from his/her underwriter.
Underwriters evaluate the risk of a loan submission based on the guidelines established for the loan program. Underwriters are often able to get an exception to certain guidelines, however it is very rare that an underwriter will grant more than one exception on any one single file.
Underwriting is the choice made on whether to give a loan to a potential home buyer, based on a full review of credit, assets, employment, and other factors. After reviewing all these determining factors that determine the overall risk, an appropriate rate and loan amount is decided.
Many mortgage brokers have access to Automated Underwriting Engines in both conventional and subprime lending that will Underwrite a loan instantly and give feedback on the conditions needed to close the loan.
The underwriting process involves the scrutiny of the borrower's credit report, making sure that the borrower has demonstrated a history of responsible credit management. In addition, if the mortgage program applied for is a full-documentation loan, the underwriter also evaluates the borrower's income and assets to ensure the borrower's capability to repay the loan and ample reserves for downpayment and other expenses.
You can help keep the underwriting process flowing smoothly, by supplying any information requested in a timely manner.
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Information listed above is to be used for educational purposes only and is not guaranteed