What Does An Underwriter Do?

Ever buy or refinance a mortgage loan and wonder what the heck the Underwriter does? Since I attended formal underwriting training and underwrote mortgage loans for about 4 years- I can explain:

An underwriter is a disinterested third party who approves or declines loans. Once all the documentation required for the loan has been received and the appraisal is complete, the processor will submit the loan to underwriting. At that time, the underwriter will review all of the documentation in the loan file to make sure it meets the lenders guidelines. There are four basic rules that underwriters follow:

1. Ability to pay the loan: This is your income. Is it enough to cover the new mortgage payment and all your other monthly payments? The underwriter will verify your income by reviewing current paystubs, verbal phone verifications and W-2's. For self-employed borrowers, they will want to see two years tax returns. For retired borrowers, a recent social security benefit statement and/or 1099-s for pension are usually required.
2. Willingness to pay the loan: This is your credit history. How you manage your obligations and monthly payments is one of the most important factors in qualifying for the loan. Your credit score is a "snap-shot" of the whole credit report and it can speak volumes. The underwriter will review the report and if there are questions, they may require supporting documentation.
3. Source of funds: These are your assets. The underwriter will verify the funds for the down payment and closing costs. The typical verification is 1-3 months of recent bank statements and can vary from lender to lender. Any large deposits will need to be verified. Also, underwriters typically want to see 2-3 months reserves, which are funds left over in your accounts after closing. 401-K, retirement and profit sharing accounts can be used as reserves.
4. Collateral: This is the appraisal. The lender will have an appraisal firm substantiate the value of the property you are buying or refinancing. The underwriter will review the appraisal to make sure the property value is supported and that it will provide sufficient security in the event of a default on the loan.

Knowing what an underwriter does helps take the fear and guesswork out of applying for mortgage. Follow the basic rules above: make sure you keep copies of everything and be prepared to support what you stated on the application.

Comments

[Laura]

In terms of looking at past payments - such as a previous mortgages - do underwriters typically just look at your credit report or do they actually require payment history from the lender?

[pittsmason]

does the underwriter pull tax papers from the irs?

[la chinanga]

i never thought that this work has existed
its a new thing for me
too much to leern
im 16 years old and i alredy jnow to much stuff about this job
so exiting

[la chinanga]

hay you now something
i love misael

[bonaficio erection]

I thought it was a skill the dead learned with all that time down there.