The Underwriting Process

In terms of real estate, the underwriter is the representative of a lender who reviews a home buyer’s loan application and associated documentation. It is in the underwriting process that the determination is made whether to approve or deny a request for a loan.

In the underwriting process, the underwriter analyzes and evaluates:

* your ability to pay back the loan - by looking at your current income and obligations;

* your willingness to pay back the loan - by looking your credit;

* the collateral you’re offering for the loan - by looking at the appraised value of the property in question in relationship to the size of the loan requested, or what is known as the Loan-to-Value ratio.

The underwriter examines your loan application to answer relevant questions such as:

* your source of income and its consistency and reliability;

* the adequacy of your income to cover the costs of your new mortgage;

* the overall amount of long-term debt you have already.

As already suggested, a key factor in determining whether or not to approve your loan application is your credit history. It is well worth every loan applicant’s while to review their own credit first, prior to applying for a loan. By checking your own credit before the underwriter ever sees it, you have the opportunity to identify and fix any errors and make reparations on old unpaid debts if at all possible, thereby improving your credit rating and the likelihood of being approved for the loan.

When a borrower doesn’t have an extensive enough credit history for an underwriter to make an informed decision about the borrower’s creditworthiness, underwriters will often accept other payment records for consideration, such as utility bills and rental payment receipts.

Whether an applicant has a provable and adequately lengthy credit history or not, an underwriter may require the applicant also produce a complete paper trail of recent banking account activity (ie. checking and savings). This may include deposit and withdrawal receipts, monthly statements, cancelled checks, etc.

It’s also well within your rights to read your property appraisal (and highly advisable). Neither property appraisers nor underwriters are in total accord with one another. Appraising and underwriting involving forming opinions and making judgments calls. Appraisers and underwriters are only human, after all, and will frequently disagree with one another. Every property appraiser and underwriter alike evaluates the same information with slight differences. This alone is evidence that a denial of a loan application from one lender’s underwriter doesn’t mean you’ll be denied across the board from every lender’s underwriter.