Here we go again with the jargon, all the unfamiliar words. Yes, the home buying process is long and sometimes hard to understand, but let’s learn one term at a time. Mortgage underwriting sounds complicated- and it kind of is.
Mortgage underwriting is what follows your mortgage loan application. First, you submit your application then it goes to underwriting.
An underwriting specialist will review your application and see if you can pay back a mortgage loan or not. The specialist is basically looking to find out if loaning you money is risky or not.
How can underwriters tell it might be a risk to loan you money? They’re looking at the three C’s:
Credit, Capacity and Collateral.
First, we gave your credit. When the specialists look at your credit, they won’t be looking at your score, they will be looking at your credit history.
Do you have a lot of debt? Are credit accounts maxed out? Do you pay on time? Do you open a lot of credit accounts? It will be like looking at your dating life, can they trust you with their money?
Keep in mind that if you haven’t always been smart with your credit, it’s not too late. You can start building a good credit history.
Second, the underwriting specialist will look at your capacity. This means they will examine your income, assets, and liabilities.
They will look how much you make and as far as assets- they will expect you to have some money in the bank.
For liabilities, having to pay alimony or child support could affect your application.
After all, the specialists want to see that you will be able to pay for the mortgage even after paying for everything else you are responsible for.
Lastly, it’s collateral and down payment. The underwriting specialist will need to know the value of the home you’re buying, they don’t want to lend you tons of money for a house that it’s a piece of junk.
That’s why the lender will always order an appraisal as part of the closing process. Your down payment will play a big role in the underwriting process.
The more money you put as a down payment, the less risky it is for the lender, it is recommended that you put at least 10% of the home’s value, but if you can do more then that’s even better!
The underwriting process can take from a few days to weeks. If you are in the beginning of the home buying process, make sure to hire someone that’s going to care for your best interests.