Not many borrowers who are new to buying a home really understand the importance of a mortgage underwriter and how they hold in their hands the approval of your loan. If you have gone through the mortgage process before you probably never even came into contact with the underwriter or even knew who he/she was. In this article we will look at the Importance Of Mortgage Underwriters and how they directly affect you and your home loan application. If you have gone through the mortgage process or have yet to embark on that journey, you are surely going to be tasked with providing additional documents and Letters of Explanation (LOX) up until you get a CTC or clear to close. Letters of Explanation are letters that you will write to underwriters in order to describe a certain scenario like your access to a bank account, why you have a derogatory item on your credit, your will to go back to work after maternity leave, etc. In the following paragraphs we will go into more detail about this topic and how you can become confident in knowing what to expect and dealing with mortgage underwriters to get your loan closed.
If there is one way you can help yourself in making your closing go as smoothly as possible it is to not to underestimate the Importance Of Mortgage Underwriters and know how to be proactive which will make your experience go that much smoother. If you can look out for the following items, these are some examples of what mortgage underwriters are looking for and how you can avoid problems
– Funds Required For Closing: If there is one way for you to get an immediate denial of your loan and a substantial delay in getting your deal done it is not having the funds that required in order to close on your home. There is truth to the fact that you will not be required to spend all the money needed to close when you factor in add-backs like property tax proration and HOA fees if applicable, but you are still going to need to show this money. In order to satisfy a mortgage underwriter these funds must be in an account, liquid, and seasoned. If you are going to be using funds from your retirement account to satisfy this requirement, you need to make sure those funds are in your bank account prior to closing and you should have the proof of deposit to back this up. If these funds are sitting in the retirement account at the time the mortgage underwriter looks into this, you can ensure that you will not be getting to the closing table.
– Back Taxes Owed to the IRS: This is a situation that may arise and if you have not been on top of your debt owed to the IRS, this could prevent your loan from closing. Now it isn’t a deal killer that you owe money to the IRS, but if there isn’t a payment plan in place to pay this off, you may find it hard to get a clear to close. If there is no payment plan in place you may be required to have these additional funds in your account that show you can satisfy this debt and also the funds needed to close.
– Recent Credit and Purchases for 60 Days: Before you are given the clear to close by your mortgage underwriter, another area you are going to have to be careful with are the purchases and credit inquiries leading up to closing. There is going to be a soft pull of your credit which will allow the mortgage underwriter to make sure that no new credit has been added recently, and if so, this could potentially derail your deal. Let’s say for example you are getting an FHA Loan and have a debt to income ratio of 56.8% which is right underneath the maximum allowed. If that new credit card or line of credit has a minimum payment of $25, it could push your DTI ratio over 56.9% and your deal will be left in jeopardy and will not close on time. You may be forced to write a LOX on this scenario and also pay off the debt before the mortgage underwriter will issue the clear to close.
One of the common misconceptions out there is that Importance Of Mortgage Underwriters is vastly underappreciated and they are trying to sabotage all the deals that come across their desk. Now just because you are put through the ringer and asked to supply a lot of additional documents, there is good cause for this and it is not because they don’t want the deal to close. This belief is far from the contrary and the facts are that mortgage underwriters are there to make sure deals close but what most people don’t understand is that they also need to prepare for deals to be sold on the secondary market. If you have bought a home in the past, you will normally have your mortgage be sold before you even make a payment at all, now why does this happen? With most lenders, it is not in their best interest to keep the loan “in-house” which means they are locking their own money up in funding this deal and servicing it. What most lenders do is sell your mortgage to another servicer or two who will be the ones collecting your payments and issuing statements. The one problem with not ensuring a complete file is that it could put the sale of your loan in jeopardy. Let’s say you are closing on an FHA Loan and if the deal closes and all the FHA requirements aren’t met, the deal will wind up staying with the current lender thus affecting their amount of liquid funds as this loan is now forced to stay with them. Most lenders only have a finite amount of funds to lend against and in order to keep doing deals, they must sell mortgages to keep the flow moving. This is why the Importance Of Mortgage Underwriters is so important to the lender. Lenders can’t afford to hold onto loans and mortgage underwriters will ensure this doesn’t happen by making sure all documents and backup are in place for the loan to sell.
As you can see there is a great Importance Of Mortgage Underwriters and the sooner you can understand, the better off you will be. Now let’s be honest, there are some inexperienced mortgage underwriters out there who may frustrate you and if you run into this and if you have the time you need to find yourself a new lender who can guarantee experienced professionals who will get the job done. This is where Loan Consultants come into play as we only work with the best professionals in the industry so that you, the borrower, can get your deal done as quickly as possible. If you’d like to see what we are all about then you need to reach out today at 888-900-1020 and start your mortgage journey with the best in the business!