The mortgage lender will inquire about your earnings and assets when you apply for a mortgage. It will contain pay stubs, bank statements, and W-2 documents. Lenders will review the borrower’s debt-to-income ratio to ensure they have enough money to meet future monthly mortgage payments and other financial obligations. They also examine savings, checking, 401(k) and IRA accounts.
Property
Once the underwriter thoroughly reviews your financial profile, they will focus on the property you are buying. To ensure that the property is worth the money they give you to buy it, the lender will have it professionally appraised. They will also typically order a title search and title insurance coverage. It is because if you default on your mortgage and they have to repossess the home, they want to be able to sell it for enough to recoup their investment.
They will also examine the type of property purchased to ensure it meets any guidelines or requirements for the mortgage program you are applying for. If something changes in your financial situation, like losing or getting a new job that pays more than you currently make, let the mortgage broker Denver know immediately. It will help prevent any delays in the mortgage underwriting process.
Credit
Reviewing a borrower’s credit is one of the most important aspects of mortgage underwriting. It involves examining their credit report and score from one or more major credit bureaus, looking at their debt-to-income ratio and checking for bankruptcies, foreclosures and liens on public records. A borrower’s income will also be reviewed, and the underwriter will look at their employment history and sources of income, including salaries, commissions, investments and Social Security.
Lenders favor borrowers with a reliable income source and sufficient funds to pay their debts, electricity, and other obligations. Finally, the underwriter will review a borrower’s assets and look for adequate reserves to cover their debt payments in an emergency. Lenders often require a borrower to have a minimum of 20% of the home’s value in savings to avoid paying private mortgage insurance, or PMI.
Income
Underwriters look at your debt-to-income ratio and the cash you have in savings, checking and 401(k) accounts. They want to know if you have enough money to close on your mortgage loan and cover expenses like utilities, taxes and insurance. They also review income documentation to ensure that you’ll have consistent employment and earnings. It includes W-2s from the last two years, bank statements and pay stubs.
Additional documentation, including profit and loss statements, balance sheets, K-1s, and personal and business tax returns, may be required if you are self-employed. Be prepared to provide any additional documents requested by underwriters during the mortgage underwriting process. Slow response times can slow down the process and delay your closing date. It’s best to inform the underwriter that you might be contacted for further information and to keep records of all conversations.
Assets
If something happens, lenders look at your assets to make sure you have enough money to afford the mortgage payments. They may ask for proof of large deposits, such as a paycheck or an investment account statement, to verify where the funds originated. They also review your property to ensure it meets the value and type requirements for your chosen loan program.
It includes having a professional appraiser place a valuation on the home and ordering an inspection to ensure it is free of any major issues. If you want to avoid delays, get pre-approval from your lender and respond promptly to requests for additional documentation. It’s a great way to speed up your loan process and move closer to homeownership!
Collateral
Mortgage underwriters evaluate the purchased property to ensure it will serve as ample collateral for the loan in case of default. They review the property’s value based on the size, location and condition of comparable homes in your area. They also examine your assets to determine if you have the cash to cover closing costs and other expenses after moving into the house.
They will check your savings, 401k and investment accounts, and tax returns. Your lender may request additional documentation to support your financial information during this phase. It’s important to respond quickly to requests to ensure timely responses. The underwriter will then approve, suspend or deny your mortgage loan application. If discontinued, the underwriter will note why and provide suggestions to move forward.