Understanding how mortgages are underwritten can be the key to getting a better mortgage rate. The first question to ask is, “What’s involved in the underwriting process?” Although each lending institution has their own guidelines which mean that there is no absolute and clear answer, there are, however, things you can do to ensure that the process goes smoothly and gives you the best opportunity in getting a better mortgage rate.
Most borrowers believe that mortgage underwriting is the same as mortgage processing. These two terms are used together all too frequently. With mortgage processing, your loan application and supporting documents are gathered, reviewed and sent out for verification. During this same time, the property that is being purchased or refinanced is inspected and appraised.
After the loan is processed, it is then sent to underwriting, which is with different people. When in underwriting, all of the loan documents are reviewed for accuracy and verified. It is at that time that the loan is either approved or denied. In the underwriting process, your credit rating, your ability to pay monthly mortgage payments, your ability to meet the down payment and the appraisal of the property are reviewed.
There are 4 major factors that are considered during underwriting?
(1) What is your credit score?
In determining your credit worthiness, the lender will take into consideration your scores from all of the credit reporting agencies. It goes without saying that the better your credit score is, the better your chances are of getting your mortgage approved.
(2) What is your ability to make your monthly payment now and in the future?
Your employment and income history is reviewed. Is your income sufficient to meet your mortgage payment? Is your employment history stable? Longevity can be a key factor during underwriting. The underwriter verifies your salary and then reviews your monthly expenses. Your monthly expenses are estimated by reviewing your credit card and loan statements. Further, the underwriter adds in and projects your new monthly mortgage payment, including your new insurance premiums, homeowner fees, and other expenses that would be associated with the new mortgage. With the new monthly expense estimates, the underwriter can determine the new debt-to-income ratio. The lower the ratio is, the better your chances of getting your mortgage application approved. A great place to get an estimate of your new mortgage payment would be to go to www.iWantaBetterMortgage.Com and use their free mortgage calculator.
(3) Do you have the down payment, and where did it come from?
You must be prepared to disclose where the down payment is coming from. In this instance, the underwriter looks at all your savings accounts, liquid assets and any other property you own to determine whether or not you can meet the costs of the loan.
You’ll have a better chance of getting your mortgage application approved if you can show that you have enough funds to cover the down payment.
(4) What is the appraised property value?
At the end of the day, the loan approval will hinge on the appraisal of the property being mortgaged. If the loan to value does not pencil out, the loan will be declined. Your mortgage application is more likely to be approved if the value of the property is more than sufficient to cover the loan amount.
After assessing all of the above factors, the mortgage underwriter makes its decision. At the end of the mortgage underwriting process, you will either get a denial or an approval.
Mortgage rates continue to be at historic lows. Call a loan expert at iWantaBetterMortgage.Com for current mortgage rates.