Loan Underwriting

After the information on the loan application has been validated, the value of the property has been confirmed and the title search has been completed, the loan is ready to be underwritten.

The Underwriter is a trained professional that reviews all of the information, analyzes the creditworthiness of the borrower and renders a decision on the loan request.

Here are some of the basic items considered in Underwriting:

Monthly Housing Expenses and Total Debt Obligations

Monthly Income

Income to Debt Ratios

Funds to Close

Credit Analysis

Underwriting the Appraisal

Compensating Factors

Loan Conditions

After the underwriter has reviewed the entire loan package, there can be four outcomes:

1. Approval: If the loan is "picture perfect" and the underwriter has no questions, the loan will be approved with no conditions.

2. Approved with conditions ( the most common response):

There are two types of conditional approvals:

(a) If the underwriter needs additional documentation before a final credit decision can be made, a "prior- to- document" conditional approval will be rendered. In essence, the loan documents will not be prepared until the condition has been satisfactorily met. An example of a "prior to document" condition could be a pay stub to validate the borrowers income.

(b) If the loan can be approved, but a condition must be met prior to closing, a "prior to funding" conditional approval will be rendered. In this case, the loan documents will be prepared and sent to the closing agent, but the lender will not fund the loan until the condition has been met. An example of a "prior to closing" conditional approval could be proof of sale of existing home where the equity will be used as the down payment.

3. Suspended: Sometimes the underwriter will be unable to make a decision on a loan file because it is either incomplete or there are many unanswered questions. In these cases, the underwriter will ask for additional information from the borrower before an underwriting decision is made. An example of a suspension may be large gaps in the borrower's previous employment history and no tax returns to indicate the place of employment.

4. Denial: Underwriters will be unable to approve a loan if the loan file has substantial deficiencies and does not meet the minimum standards of the lender or the lender's secondary market investors. Most lenders require that a second underwriter review the loan package before a final denial is communicated to the borrower. Denial letters with the reason for denial are sent to borrowers within 3 days of the final credit decision. Underwriting criteria can be different among lenders and a borrower may find other acceptable alternatives in the market place.

Be sure to respond to any conditions required by your lender in a timely fashion!

Loan Approval

Congratulations! Once your loan is approved, the loan documents will be sent to the title company in preparation for closing.