As homes are one of the most expensive investments many Americans will ever make, the mortgage loan industry is massive. Most people cannot afford to buy a house worth several hundred thousand dollars outright, and with the median home price well above $400,000, home loans play an essential role in residential real estate.
Not everyone can meet the requirements necessary to afford a home loan. Although many loan products exist, including conventional loans, FHA loans, and VA loans, mortgage lenders have the right to choose who qualifies for a loan.
The home loan process includes a step known as underwriting. The underwriting process verifies financial information, such as your credit report, bank statements, and documentation, to determine if you qualify for a loan. It can also determine a minimum down payment. Potential borrowers must understand the process before starting their home searches.
What is Mortgage Underwriting?
Mortgage underwriting is the process by which the loan officer assesses the risk of lending money to a specific borrower. When lenders lend money to homebuyers, they inherit a certain level of risk because a buyer could default on their monthly payments. Therefore, borrowers are heavily scrutinized to determine whether they are reliable enough to fulfill the loan contract terms.
The mortgage underwriting process delves into the borrower’s creditworthiness and financial background. It begins once a loan application has been submitted. If you apply for a loan pre-approval letter, this may be granted without a significant underwriting process, which is reserved for processing the actual loan.
The Role of the Mortgage Underwriter
A mortgage underwriter is assigned to view the borrower’s application and verify information, such as looking at a credit report, assessing their risk, examining the home appraisal, and determining loan approval. This person works for the mortgage lender and may be called a loan officer.
If additional questions regarding your eligibility or further documentation are needed, the underwriter will contact you for more information. They may ask for your credit history, recent pay stubs, proof of a car loan, verification of savings accounts or personal property, or tax documents if you’re self-employed.
The loan office will also review the property to ensure it is worth the money you plan to borrow. It’s common for them to complete an appraisal and title search before a home purchase. If there are problems with the property, they may provide conditional approval, which means they will approve the loan if the current owner makes repairs.
Factors Affecting Underwriting Time
The mortgage underwriting process can take some time. One reason for seeking pre-approval is that it can expedite the eventual loan application and speed up the underwriting process, allowing the borrower to close the deal sooner. Here are some factors that will affect your mortgage loan approval timeline.
Borrower’s Financial Profile
The borrower’s financial situation directly impacts how long it takes to have their loan approved. Since the mortgage underwriter will look at their credit score, income, debt-to-income ratio, and employment history, a complex background could result in a longer review process.
For example, if you make most of your income from investments or contracts, the lack of a predictable paycheck could slow down the review of your financial history. They’ll need to see more than a week of income to ensure you meet the lender’s guidelines. You may need proof that you have cash reserves to pay closing costs, title search fees, and other expenses.
Loan Type and Complexity
Many types of loans are available for Americans to buy houses. Conventional loans are the most popular products on the market, but millions of buyers also use FHA, VA, USDA, and jumbo loans.
The complexity of the loan type could result in a longer mortgage underwriting process. Jumbo loans are risky for lenders, so they will take longer to review a borrower’s financial information. USDA loans are only available for specific properties and income levels, which could take longer than a conventional mortgage.
Completeness of Documentation
You should provide as much documentation as possible when applying for a loan. All your information should be up-to-date and accurate to reflect your current financial situation. This includes information that may not be in your favor, such as unpaid taxes, pending legal action, or new debt.
If you submit your application with missing information or your forms are not complete, it will significantly slow down the approval process. Potential documents may include recent bank statements, pay stubs, tax returns, government IDs, and profit and loss statements. This is crucial to make the vetting process as quick as possible.
Appraisal and Property Evaluation
Lenders will send a professional appraiser to examine the property being purchased. This person must determine the house’s fair market value to ensure the lender is not loaning more money than necessary. The appraisal can also impact how much title insurance costs.
If the appraisal value is much lower than the agreed purchase price and loan amount, the lender could delay your conditional approval until the price is renegotiated. They may need additional documents, such as a new purchase contract. Depending on the property and the appraiser’s availability, the appraisal could take a long time.
Lender’s Workload and Efficiency
Lenders process many mortgage applications at once. If you are working with a lending partner who is understaffed or struggling with a massive workload, it could affect your timeline. Additionally, the lender could have inefficient internal processes or strict underwriting guidelines that slow its ability to assess applications.
Typical Underwriting Timeframes
Although the length of the underwriting stage can vary significantly from lender to lender, it is still worth noting how long most applications take to process. Here are some considerations for the typical timeline for loan underwriting.
Simple vs. Complex Cases
The complexity of a borrower’s situation will affect the timeline the most. If they have financial stability, a strong credit report, employment verification, and few existing debts, their mortgage application should be pretty straightforward.
However, if you are a borrower with inconsistent income or too much debt, underwriting may take longer because of additional documentation requests. A lender will take time to complete a risk assessment, even if you have a pre-approval letter, to ensure they get their money back.
Average Underwriting Time
In general, you should expect loan underwriting to take several weeks. This timeframe can vary widely for numerous reasons. For example, automated underwriting can speed up the lender’s initial assessment of an individual borrower, resulting in an approval that only takes a few days, whereas manual underwriting takes longer.
Potential Delays in Mortgage Underwriting Process
How long does underwriting take if there are delays with your application? In these cases, you may not reach the final approval for many weeks or even months. Here are some factors that may cause delays.
Incomplete or Inaccurate Documentation
The loan officer cannot approve your application if your information is incorrect or incomplete. They must contact you to request the missing information before they finish reviewing the loan. This is why you should always provide as much information as possible upfront.
Low Appraisal Value
If the assessor determines the property value is significantly lower than the home purchase price, the lender will see this as a significant risk. If the difference between these numbers is small enough, the lender may change the loan terms. If the difference is more extensive, they may require a price renegotiation.
Credit or Income Issues
Issues with your credit history or income will also hold up the underwriting step. For example, if your credit score is right on the edge of the qualification standards for the lender, they may have to step back and reassess your other finances. Further income verification may be necessary if you do not have a stable income or it is too low for the lender’s liking.
Tips for a Smooth Underwriting Process
Although you are at the mercy of the lender’s processes when awaiting your loan’s approval, there are some steps you can take to expedite the underwriting stage. Here are some strategies to ensure the timeline for mortgage approval is as efficient as possible.
Provide Complete and Accurate Information
Start by providing all the necessary documentation to determine how much risk you are upfront. If the loan processor needs to request more information to continue reviewing your application, this could delay it by days or weeks. Before submitting any documents or forms, double-check the information to ensure accuracy.
Respond to Lender Requests Quickly
Respond as quickly as possible when you hear from the lender with a question or request for information. The longer you wait to answer their question, the more likely your application will be pushed to the bottom of the pile.
Work with an Experienced Mortgage Lender
Inexperienced lenders could also negatively affect your underwriting timeline. They may have too many applications to manage, or they do not have efficient operations nailed down. Additionally, smaller companies may have an even greater aversion to risk than a more experienced firm. Choose a reputable lender to minimize potential delays with your application.
Bypassing the Underwriting Process When Selling Your House
If you are a seller, waiting for the underwriting process to finish can be frustrating. If the buyer has a small down payment, low credit score, or substantial monthly debt payments, their financial background could affect your goals for selling the property by a specific date.
Instead of leaving things up to chance, you can sell to a cash buyer like A-List Properties. With cash on hand to purchase your house as-is, no financing delays or underwriting will be involved, allowing us to close the deal within two weeks. You can also save money on repair work, cleaning, and real estate agent commissions by selling directly to use for a fair cash offer.
Call us today at 972-526-7042 or complete the online form to request your no-obligation cash offer.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
