Purchasing a home is one of the biggest investments you will make in your lifetime, and preparing yourself to acquire a mortgage is of utmost importance. Once you apply for a loan to purchase a home your application will be subjected to mortgage underwriting, and you will be assessed in three key areas. Once you complete your application for a loan the lending institution will process your application through a number of intricate steps to ensure that you meet their creditworthiness criteria. The role of the mortgage underwriter is to ensure that you are a customer who can consistently make mortgage payments, and on time. The three most important questions the underwriter will ask are in the following areas: credit history, collateral, and financial solvency.
The Role of the Underwriter
Mortgage underwriting is the process of determining the level of risk involved in offering you a loan. The mortgage underwriter will always evaluate you against a set of guidelines and loan criteria, and will seek to match your financial profile with their predefined criteria. If you meet the standard required your loan has a good chance of being approved, if you do not meet the criteria your mortgage loan application may be rejected. It is within the mortgage underwriting process that a decision will be made to grant or deny you access to a loan.
What is your credit score? Make sure you have a good credit history before you seek to obtain a mortgage loan from a financial institution. A few factors that influence your credit score include: making payments on time, ignoring your cash advance facility, and staying at least 30% below your credit limit. The lending institution's mortgage underwriting department will scrutinize every aspect of your credit history to ensure that you are a good candidate for a loan. They will look at the number of accounts that you have, the length of time you have had them, your credit cards and payment patterns, and any loans you have and how you have been coping with repayment in general.
What type of property are you purchasing and what is the value? Collateral in a mortgage loan situation refers to the value of the property you are seeking to purchase as well as the type. Mortgage underwriting wants to know about the home you are seeking to purchase and will not allow your loan to exceed the value of the property. Mortgage underwriting ensures that the home is accurately appraised by an appraiser of their choice. Once they obtain the current value of the home the mortgage loan will not be in excess of this amount. Mortgage underwriting reviews the type of home you are seeking to purchase. Is the property an investment property or an owner-occupied home? Historically, lenders have a greater propensity to foreclose on an investment property than on an owner-occupied home. It is therefore considered a more risky application.
Do you have the wherewithal to repay the loan? This is one of the key questions that the mortgage underwriter will ask. Mortgage underwriting includes the determination of your financial solvency. Can your income comfortably cover your monthly installments? What is your debt income ratio; can you meet your monthly financial commitments and still afford your mortgage? What are your savings like; if you are in between jobs will you be able to meet your financial commitments comfortably? Mortgage underwriting ensures that you are solvent enough to acquire a loan.
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