Help! This Underwriting Thing is Killing Us!
Question: My husband and I are in the process of buying a home. Our lender told us we are approved and now tells us we have a problem with underwriting and we might not get our home at all. Help?
Underwriting can be a very frightening experience. Let’s start at the beginning. Once a mortgage application is taken, the loan process known as underwriting begins. Underwriting is the detailed analysis preceding the granting or declining of a loan, based on information furnished by the borrower, including employment history, current salary, credit history, debts, property appraisal, bank statements and so on.
The underwriter carefully reviews all the information and decides whether the buyers would be a good lending risk based on criteria established by the lender and government entities like FannieMae, FHA or VA that guarantee the loan. This entire decision process can take hours or even weeks to complete. The first approval is “Conditional”, meaning the loan is approved subject to providing certain other pieces of documentation and clarifying any questions the Underwriter has. On non-government loans with less than 20% down, the process may also include a separate underwriting approval for Private Mortgage Insurance (PMI). This insurance protects the lender for the borrower’s default, and is approved based on the insurance companies guidelines.
Problems may occur during the loan process. Sometimes the borrowers change their financial picture while their loan is being processed and they may not even realize it. Until your loan funds and you close escrow on your new home, do not to change jobs, give notice to terminate employment, or purchase any items of large value, or increase any of your credit lines. The idea is basically to keep your financial situation the same as the day you first filled out your loan application. Lenders now re-run the borrowers credit just prior to closing; if there have been changes, this could cause a problem with your approval. Remember the Underwriter has the power and the guidelines to adhere to.
If you find yourself in this situation make sure you can logically explain what has occurred. You might find yourselves having to return whatever you purchased or add more to your down payment.
The best way to help increase your chances of getting your loan approved is to disclose everything about yourself and your financials to your lender. For example, if your former spouse or a parent had owned a home that went through foreclosure or a short sale recently and your name was still on the mortgage, you may be denied from buying a current home owner. However, if you told the lender up front, this would not be a surprise and you would have a better chance (within new guidelines) of continuing with a new home purchase. Your lender is on your side and wants to help you reach your final goal.