What Is an Underwriter for a Home Loan?
Mortgage lenders use underwriters to determine the risk associated with lending money. They will approve or deny a mortgage application based on the information that appears in the application file.
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Job Duties
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The underwriter reviews the contents of the applicant's file, and weighs them against the guidelines set by the lender. Even though the lender sets the guidelines, the underwriter makes the final decision whether to approve or not, and may even override the lender's guidelines in certain circumstances.
Documentation
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Underwriters make their decisions using information such as the borrower's proof of income, bank statements and tax returns. They also consider the property's title, the property's appraisal and the borrower's credit report.
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Measuring Risk
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Most of the risks that underwriters consider fall under what is known as the three C's of underwriting: credit, capacity and collateral. This will determine the credit worthiness of the borrower, their capacity to repay the loan, and they what they will pledge to the lender in the event of loan default, which is typically either a down payment of 20% or more or private mortgage insurance.
New Technology
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Most underwriters use an automated underwriting process, which has made the process much faster. What used to take weeks to complete can now be completed in a matter of hours.
Conditions to Close
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After an underwriter approves a loan, he or she will send "conditions to close" to the loan agent. These conditions, if there are any, are typically requirements for further documentation, and once they have been satisfied, the underwriter will give the approval to set up the closing or settlement process.
The Settlement
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After the closing or settlement is scheduled, the underwriter may decide to run a new credit report, so borrowers should put off any major purchases, such as a new car, appliances, etc. until after they sign the closing documents. If additional purchases appear on the report, the underwriter may cancel the loan immediately.
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