Underwriters: The most important person you’ll never meet
If you are applying for a mortgage for the first time, or even getting your current mortgage refinanced, you may not know exactly who approves your loan or how they decide whether you are a good candidate.
This person is called an underwriter and is likely someone you will never meet or even see. However, whether or not you are approved for a mortgage largely rests on your underwriter’s shoulders. Depending on the state of your finances, he may simply have to ensure that all of your paperwork is in order and double check the figures to approve your loan. However, he may also have to go through all of your paperwork and consider your financial and employment history before giving a stamp of approval on your mortgage.
What does an underwriter do?
When you were preapproved or prequalified for a mortgage, your lender more or less accepted your financial information as being presented truthfully. However, when you submit your official loan application, it is up to the underwriter to confirm that you are truly a qualified candidate for a loan.
Your credit score will be checked with Experian, Equifax and TransUnion, the three major credit bureaus. Keep in mind that if you have imperfect credit, it may not disqualify you from a mortgage completely, though you might have to prove solid employment history or make a larger down payment.
The underwriter also has to ensure that all of the tax, title, insurance and closing documentation is as it should be. In addition, he must check the appraisal of the home in question to make sure the information is accurate and the value given to the home is appropriate.
In all, the underwriter has final approval of the loan, a decision he will take seriously because he will also take responsibility for the loan.
Should you get denied by the underwriter, the decision may be appealed by a head underwriter or another superior of your underwriter, though you will need to have facts that back up your request to overturn his initial decision.
Types of underwriting
Not all mortgages are underwritten by an actual person. Some cases allow for an automated underwriting system. Data is provided to a program, which will use a formula or algorithm to assess the risks of your loan and approve or deny your loan.
Should you be approved by an automated underwriting system, a human underwriter will then review the data used and look for any errors in what was put into the system. Should the information not line up, your file will be sent back to the processor and generally the errors will be corrected or additional information will be provided.
Manual underwriting is often required because automated underwriting systems are not able to consider gray areas. On the other hand, a manual underwriter will allow for more flexible debt rules and will compile files that are more narrative in nature to help explain why credit errors may have occurred in your past, or why you had some gaps in your employment.
The importance of the underwriter
Essentially, it is the underwriter’s duty to ensure that the risk – or perceived risk – of providing you with a large amount of money is worth the reward. He is essentially poring through your credit history in order to establish whether or not you are a good candidate for a loan. If he approves the loan and you default, it can not only cost his company money, but it may also damage the company’s relationship with the lenders who fund its loans.
The underwriter may ask for additional information about your employment or credit history. If he does, the best thing you can do is respond quickly with complete and accurate information.