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The mortgage process is dependent on underwriters. Mortgage underwriting is what dictates whether you will get approved for your mortgage.
However, many people do not know what the mortgage underwriting process entails, as it happens behind the scenes. So, let us take a look at what underwriters do in order to determine whether you will be approved for your mortgage.
Meanwhile, if you are applying for a mortgage, click the link below to book a free strategy call to discuss getting fully underwritten pre-approvals and mortgages from a team that understands the full mortgage underwriting process.
What is Mortgage Underwriting
Mortgage underwriting is the process lenders use to verify a potential borrower’s assets, income, debt, and property details before issuing a final approval on a loan application. Typically, this process happens with minimal involvement from the applicant, aside from providing and explaining key documents.
Underwriters do this to help you avoid closing on mortgages that you cannot afford to pay. If they conclude you do not qualify, the underwriter has the power do deny your loan.
What Does an Underwriter Do?
While the underwriter is determining how much of a risk it will be to provide you with a loan, there are a few things they can do to help them come to a conclusion.
An underwriter will:
Order an Appraisal
An underwriter will usually order an appraisal to make sure the value of the home matches up with the amount being offered for the mortgage.
An appraiser will inspect the condition of the property you are looking to buy and compare it to similar properties that have recently sold in the area. If an appraiser determines the property is worth notably less than the mortgage amount, your application may be suspended. At this point you have the option to try to negotiate for a lower price from the seller, contest the appraisal, or give up on that property.
Confirm Your Income and Employment
An underwriter will ask for any documents needed to confirm your income and employment status to ensure you can afford to buy the home.
This is typically done by looking over your last two years of income, recent bank statements and your latest pay stubs. This is to confirm your reported income matches your actual income.
At the same time, the underwriter will confirm your employment status with your employer.
Verify Savings and Down Payment
They will look at your individual savings to ensure you can afford to make your down payment as well as determine if your savings are substantial enough to supplement your income to help you make payments in the event of sudden financial stress. They may also confirm any assets you possess that can potentially be sold to avoid missing any payments in a worst-case scenario.
Discover How To Apply For An Investment Property Mortgages With This Step By Step Guide
Investigate Your Credit History
They will pull your credit report and check your credit score to search for any previous late payments, bankruptcies, or overuse of credit. Your credit score reflects your ability to pay debt back on time. A better score will help you to qualify for a better interest rate.
Depending on the type of loan you are looking to obtain, the minimum credit score you are expected to have may vary. For example, an insured mortgage in Canada requires a score of 680 or higher on average.
Assess Your Debt-to-Income Ratio (DTI)
Your DTI is the percentage that shows how much you spend compared to your income. An underwriter looks at this to make sure you have enough money after your current expenses to cover your insurance, taxes, and mortgage payments.
Your DTI is calculated by taking your total monthly expenses and dividing it by your gross monthly income. In Canada, lenders are typically looking for a DTI below 42 per cent, but ideally you should aim to keep your DTI to 36 per cent or lower.
For example: Let us say you make $4500 per month. At this time, you spend $1100 on rent, $200 on car payments and $200 on student loans. You would then divide the $1500 you spend monthly by your income of $4500. This would result in a DTI of approximately 33.3 per cent.
How Long Does Mortgage Underwriting Take?
Everyone’s finances are unique, so the amount of time mortgage underwriting takes varies greatly. However, in order to make the process go as quickly as possible for you, it is recommended you try to submit all requested documents together as soon as you can.
Tips and Tricks for The Mortgage Underwriting Process
While the mortgage underwriting process is primarily hands-off, there are still a few things you can keep in mind to help the process move along smoothly.
Do Not Open Any New Lines of Credit
Major purchases or new lines of credit can greatly impact the mortgage underwriting process. It can cause serious delays or impact your overall eligibility for the loan by depleting your savings and assets. If possible, hold off on opening any new credit until after your underwriter has made their decision.
Be Honest About Your Money
Your underwriter is going to look at everything, so any lies regarding your income, assets or credit history are going to be figured out. Instead of trying to hide anything, try to provide explanations for anything that may be called into question. For example, if you missed a loan repayment due to a sudden medical expense or your income was impacted by a sudden closure at work, your underwriter may be more lenient with you.
Respond as Quickly as Possible
During the process, your underwriter may need additional documents or information to proceed. The faster you can respond to these requests, the sooner they can keep the process going.
Mortgage underwriting is simply the process of your lender verifying your income, assets, debt, and property details before giving a final approval for your loan. This process is meant to assess any risk associated with your loan for the benefit of both you and your lender.
Before seeking approval from an underwriter, it is important to get a pre-approval from an experienced lender. Not only can it help you secure the best interest rates available, but it can help the final underwriting process go smoothly. To get started with your pre-approval, visit LendCity.ca Alternatively, click the link below to book a free strategy call today.