Owning a house is an exciting thing. It signifies maturity, responsibility, and financial responsibility. Most people need to take out a loan to get the home of your dreams. While most people are aware of what is happening on their side, very few, have an idea of what goes on in getting the loan approved and released.
The Mortgage Underwriting Process
It might be a mouthful and might feel like something very serious, but mortgage underwriting is very simple: it is the process of ascertaining the risk of an individual reneging on a loan payment. A mortgage underwriter typically looks into the three C’s – Credit, Capacity, and Collateral, before letting a mortgage lender know that they can release the loaned amount.
Credit history and credit score are just two of the things that a mortgage underwriter takes a look at before approving a loan application. The better your credit score, the more likely your application will be approved. The amount that will be approved may also depend on how healthy your credit score is. In the same line, an underwriter may also reject loan applications or lower the amount approved if they are seeing a record of being unable to make payments on time.
Your capacity to pay also plays a huge role in determining whether your application gets approved or not. Underwriters do not only look at how much you are making. They will also take into consideration any current loans that you have, including credit card usage. This part is very important as Boston is very particular about mortgage lenders and predatory lending – providing a loan amount that the homeowner cannot afford. Prohibition for predatory lending can be seen in the Massachusetts Consumer Protection Act.
Since the mortgage lender or the bank will be providing you with a significant amount, it is only understandable that they would need something that they can use should you renege on your payment. This is where collaterals come in. Now, your collateral’s value needs to be at the level of the amount you are loaning. You cannot expect to get a significant amount if the property you are looking at is in a neighborhood that causes it to have low value.
Once the underwriter has reviewed all of this, you will be given a loan estimate for your review. The estimate will include how much you need to repay on a monthly basis, what the interest rate is, and for how long you need to make the monthly payments. Once everything is in order, your application will either be approved, rejected, or suspended. If it does get approved, conditions will be set by the lender. As this is just an estimate, there can be changes in the figures once you have hit the pre-closing walkthrough.
Timeline for the Underwriting Process
The whole underwriting typically takes anywhere from a few days to more than a few weeks. This timeline does not include yet the actual closing of the sale of the house you are interested in. That said, it might take you more than three months to actually get your hands on the key to your new home.