Budgeting Your Project

What's the Use of an Underwriter at a Mortgage?

The most significant person in the mortgage approval process is that the person you’ll never see or meet. That man or woman is the underwriter. No lender closes or funds onto a loan without the acceptance of an underwriter. Occasionally her job is to just check over the amounts, make sure all paperwork is in order and provide her acceptance. Other times, she needs to look over all the paperwork and make a sound decision based on her expertise and decent judgment.

Loan Approval Requirements

Mortgage loan acceptance rests on a number of things: income, credit history, debt ratios and savings. A buyer has to be able to demonstrate the income needed to afford the obligations within a verifiable and stable job history. He should have a credit record which reveals a record of repaying duties and financial responsibility. His additional monthly debt has to fall within acceptable limits as determined by the loan application guidelines. Finally, he needs to be able to demonstrate that the money used for his downpayment is his rather than borrowed, in addition to the fact he has a few months of mortgage payments stashed away in the event of emergency.

Underwriter’s Role

It’s the job of underwriters to make sure all these factors meet specific loan guidelines. They make sure all the tax, title, insurance and closing documentation is set up. Underwriters also examine the appraisal to make sure that it’s accurate and thorough, so the home is really worth at least the purchase price. The underwriter has final acceptance and closing responsibility for the loan. Oftentimes an underwriter’s refusal can be appealed to the head underwriter or other superior, however, the truth must be set up to support any portion of an underwriter’s decision.

Automated Underwriting

There are automated underwriting systems set up that take data fed into a computer application, assess the risks based on formulation and provide an approval or denial. These programs need strict adherence to instructions and will not entertain any deviations or gray areas. An endorsement on those files requires an underwriter to look over all verifications and documents, along with the appraisal, to make sure that each of the data matches the information inputted into the automatic system that generated the acceptance. If the information does not match, the underwriter sends the file back to the processor with conditions that must be fulfilled prior to final acceptance. This usually involves getting additional information or verifications.

Manual Underwriting

Many times a loan file requires manual underwriting since it falls into a gray area that the automatic system cannot address. Manually underwritten FHA (Federal Housing Administration) files are quite common, since FHA loan guidelines permit for free history and troubled credit buyers, and much more flexible debt rules. The loan officer and loan processor carefully compile manual files to read almost like a narrative, with lots of detail. They provide not just the basic details about income, employment and savings along with a credit report, but they may also incorporate a credit history to get no-credit debtors, added details about charge blips in a purchaser’s previous or explanations for discrepancies in earnings or job history information. This documentation gives the underwriter that the”whys” which allow her to create a more informed decision about the purchaser’s situation in order to truly determine how strong a risk the buyer is.

Underwriter’s Significance

An underwriter who is conducting an investigation, especially a manual , has to take a calculated risk and do his best to ascertain whether a file adheres not to only the letter but the intent of the loan application guidelines. When he is incorrect and the loan defaults, it can lead to a hefty cost to the lender. When he works for a mortgage broker, too many defaults could cost his company its relationship with the lenders who finance their loans.

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