When you’re ready to buy a new home, navigating the home loan process can seem overwhelming. Where do you start? Who’s involved? What’s the timeline? Pre-qualification is the start of the loan process and that starts when you submit your loan application. Then comes underwriting, which (hopefully) results in pre-approval. In this article, we’ll talk about what happens after you submit your application—underwriting, an early step in the home loan process.
What is underwriting?
After you apply for a loan and submit all your information, your loan goes to underwriting. There, an underwriter assigned to your loan application will determine how much risk the lender will assume if they loan you money for your home. They look at your credit, employment history, and savings, among other things. There are certain rules and guidelines that underwriters must be sure your information meets in order to determine your eligibility for a loan.
As the underwriter reviews your loan application and documents, they may ask for clarification and/or missing documents. Be sure to get these documents back to your lender as soon as possible so that they can move forward with your loan application. As soon as they’ve verified that all your information fits the correct guidelines, your loan is considered pre-approved.
So, then what is Upfront Underwriting?
Ideally, you would get pre-qualified before you find your dream house. That way, when you go house hunting, you already know how much home you can afford. (This information also helps your agent guide you in the right direction.) So, it’ll go like this: first you get pre-qualified, find the perfect house, make an offer, and then go back to your lender with the exact price.
But what if you go back to your lender having found your dream home and don’t get approved for as much as you were qualified for? Every once in a while, this happens after the lender looks more closely at your credit, assets, debt-to-income ratio, etc. This may also happen if the property you’re interested in has condo or HOA fees, which skew your debt-to-income ratio. That’s where upfront underwriting comes into play.
Upfront underwriting streamlines the home loan process for borrowers. It allows you to know exactly how much you qualify upfront, so there are no surprises when you find the home of your dreams.
With upfront underwriting, you get a conditional approval from your lender. Then, you take your conditional approval with you (not literally) to search for a home. The conditional approval will have the exact dollar amount you qualify for, so you’ll know exactly how much you can afford when you go home shopping. How is this possible? The underwriter reviews all your documentation to get pre-approved (just like in the traditional loan process), but they do it upfront — hence the name.
This process is much quicker than traditional underwriting, which can sometimes take weeks of back-and-forth between you and your lender. With upfront underwriting, an underwriter can give you conditional approval in as little as a few hours. The conditional approval turns into a full approval once you find a property and some other things happen, like the home appraisal.
What information will the underwriter review?
Your lender will want to verify your income and employment history, your assets (savings, investments, etc.), and your credit history, among a few other things. These things show the lender how much of a risk it is to lend you a home loan.
Start getting your documents and information together using our mortgage application checklist below.
Besides having an underwriter tell you, you can roughly calculate how much you can afford before talking to a lender. How much are your housing payments now? Are you comfortable with how much you’re currently spending? Decide ahead of time and remember that you don’t have to borrow the full amount you qualify for. In addition, your lender and agent should be able to answer any home buying or home loan questions you may have along the way. For more home buying tips and tricks, head over to the Atlantic Bay blog.