How do mortgage underwriting software programs work?
When
you apply for a mortgage loan, your application is subject to
underwriter approval. Underwriting is the process through which a
loan application is either approved or denied. Additionally, it is
used to assess a borrower's loan program eligibility. Over the past
decade, the underwriting process has changed considerably.
Historically, loans were passed around a table before a loan
committee, which determined whether or not to accept a borrower's
application. But now, fewer and fewer people do the actual
underwriting; instead, computers perform this function.
This is known as automated underwriting.
As the name implies, a software program (rather than a person)
processes the application and either approves it unconditionally or
accepts it with restrictions. Surprisingly, this has proved to be a
substantial benefit for a large number of borrowers. It turns out
that obtaining human approval was much more difficult than obtaining
machine approval. Generally, the computer has been programmed to be
much more forgiving of credit, income, and debt problems than human
underwriters were. The computer is indifferent about losing its
employment if an overwhelming number of bad loans are authorized.
The underwriter's initial step is to examine the software program's output. He or she will verify that the data was input properly. Monthly income, credit history, credit score, and total cash assets will all be considered in the underwriting decision. Following that, the underwriter will review the house appraisal.
The appraiser is responsible for evaluating the property's worth and deciding if it complies with the loan program's criteria, as well as identifying any property defects. If the appraiser has reservations about a certain element of the home, he or she will seek an in-depth assessment from a specialist.
Credit history and credit score
After an initial evaluation of the loan application and comments
from the software program, the underwriter will carefully analyze
the applicant's credit record. Frequently, an underwriter will seek
an explanation letter for any unfavorable entries. The credit score
of the applicant is critical in the approval process.
Although a credit score of 750 is ideal, most loan programs allow
for a lesser score with a higher interest rate to account for risk.
Monthly Income
Monthly income determination may be challenging for the loan
officer and underwriter. Some employees are paid hourly, some are
compensated twice weekly, while still others are compensated every
other week. Monthly income is critical for calculating the
debt-to-income ratio.
Debt to income is a straightforward computation that compares the
monthly debt payment to the monthly gross income.
Title insurance policy
Prior to settlement, a title insurance agent will submit a title
insurance report to the lender. The underwriter will examine the
title insurance report to see if there are any problems with the
property's chain of title or if there is anything in the report that
may cause a problem for the lender in the event of a foreclosure.
For instance, some houses are situated on a private road, and the
deed may compel all residents to contribute to road upkeep.
The maintenance agreement must be drafted in such a manner that the
lender or investor accepts it.
Questions that are often asked:
Q. Does the underwriter need the appraisal?
A. Assuming that all required documentation is in order, the
underwriter may examine the application and condition approval on an
acceptable appraisal.
Q. Does the underwriter work for the mortgage
company?
A. Yes.
Q. How long does underwriting take for a
mortgage?
A. One hour is a reasonable estimate, assuming all "I's" are dotted
and "ts" are crossed.
Q. Who is the mortgage underwriter?
A. The underwriter is the person who decides whether to accept or
deny a loan application.
Q. What does the mortgage underwriter look for?
A. He or she is analyzing the applicant's credit history and credit
score in order to evaluate if the applicant's credit profile
satisfies the loan program's criteria.