If you’ve ever applied for or received a mortgage, then you’ve probably heard the term “underwriting” more times than you can count. It’s an important part of the process, but very few people are aware of what it means. Here, you can learn more about underwriting and what’s happening for the few weeks that you wait for your approval decision.
What Is Underwriting, Anyway?
Mortgage underwriting is a series of steps that lenders take to measure the risk associated with providing you a loan, and it also ensures that the loan you’ve requested complies with their minimum credit guidelines. Keep in mind that lenders have spent millions of dollars collectively to come up with processes that help them mitigate their risk when lending huge sums of money. Underwriters play an important part in that. Many people joke that underwriters go through your mortgage application with a fine-tooth comb, and while it may seem like an exaggeration, the process is very thorough – and very detailed.
What the Underwriter Does
The underwriter is ultimately responsible for determining whether the risk in lending to you is an acceptable one. To do this, he or she certainly considers your various credit scores, but it goes much deeper than that. Another important consideration is your debt-to-income ratio, which is simply the difference between the amount of money you earn and the amount of money you owe. Underwriters will also pore over your employment history and income documents to verify them, go over your credit history, and more.
The Possible Results
There are three possible underwriting outcomes to consider. A green light means you’ve been approved for a mortgage with no conditions. A yellow light means you’ve been approved, but with certain conditions, such as the need to supply letters of explanation from banks or creditors. A red light means the application has been declined. Yellow light scenarios are more common than ever before; while lenders are very strict since the housing market crash, they still attempt to fund as many people as they can.
How Long Does It Take?
There’s no set-in-stone rule for mortgage underwriting length, but it’s safe to say that the average time an application spends in underwriting is about three weeks. In some cases, it can be completed in days – especially if the information you provide is easily verifiable – but in other cases, it can take five or six weeks as the underwriter works to verify all the information you’ve provided. If you get a conditional approval, for example, underwriting may take much longer than if you receive an unconditional green light.
Underwriting is just part of the process when it comes to getting a mortgage, and while there’s no surefire way to tell how long it will take, you can certainly make the process easier by gathering all the pertinent (and most recent) documents to turn over to your financial advisor or lender. The more information they have, the faster they can process your request.