the underwriting process involves all of these except for This is a topic that many people are looking for. star-trek-voyager.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, star-trek-voyager.net would like to introduce to you What Does Underwriting Mean When Buying A House?. Following along are instructions in the video below:
“And welcome back to another episode of the mortgage musketeer. Where today. I m gonna gonna be talking about underwriting. What does underwriting mean when it comes to buying a okay when it comes to buying a house.
What underwriting is the process where all of your application and all of your loan documents are sent to the lender who has an underwriter who will then use all of the documentation and compare everything in your loan against underwriting guidelines. Now that s a big simplification what does that really mean okay so the first step was taken the loan application. The second step to be pre approved was getting the loan documents that supported your bank statements. Your pay stubs your w.
2s copy of your driver s license all those things getting that to your loan officer. So the loan officer has taken an application and gotten all of this documentation and all of your your information. And it s generated your debt to income ratio. They ve determined which income is they ve done all this upfront now it is sent to the lender.
Where an underwriter is going to review all that based off of the lending guidelines and that is where it gets a little bit more complicated because you think okay we put it all together here you go and they sign off on it an underwriter. There is somebody who under rights alone and where that comes from is the idea of assuming risk. So originally an underwriter wouldn t sign their name underneath alone. And it s under the loan.
Whereas. The underwriter they have assumed the risk of this loan. And that s something that you have to keep in mind. When you are applying for a loan you re a risk right.
Even if you have the best income and the debt to income ratio. And the best credit score in the world you re still risk you might be less risky than other people. But an underwriter is going to determined at the level of risk based upon your loan documents your debt to income ratio how much income you make and all that stuff goes into it. But there s more so there s more to just turning in your documents.
Because in order to complete a loan you also have that home loan insurance so ultimately after you choose your homeowner insurance that policy is going to go to the under art and the underwriter is going to look at it and ensure that that policy protects their investment because let s say that you re only putting down. 5 or even if you put down 20 in either scenario. You own 5 or you own 20 of the home. But the lender is technically responsible for the other 95 or 80 of that loan.
So they re assuming the vast majority of the risk and they need to ensure that they re housed at their investment is properly insured so they re gonna underwrite. They re gonna take a look at that policy and ensure that it meets acceptable acceptable risk levels that they re willing to assume to protect their investment. There is also an appraisal. An underwriter is going to be looking at the appraisal as well so we order the appraisal.
The appraiser goes out there appraises the property they go through take a look at it and if it s a government loan. Fha. Va usda there s a little inspection component to it all that is assuming or showing an acceptable level of risk. If for instance.
There s no handrails on a government loan. It ll come back subject to completion that appraisal will and you ll have to get the handles up again risk all right. So that s a safety piece to it. So once the appraisal is complete the appraisers are going to write it up and they re going to turn it in to you typically an appraisal management company.
The appraisal management company is then going to review. It do a quality control and if there s any admin errors they re gonna kick it back for appraiser to correct appraisers going to practice and it back to the present management company once he present mention with companies. Okay we re good they ll forward it off to whoever ordered it and then it s up to them to get it to the lender. Once it gets to the lender.
The lender is going to review the entire appraisal in that appraisal. There s all kinds of stuff that they re looking at and where there s sufficient comes does it make sense was the appraiser just making stuff up their appraisers have a database and depending on how many errors. And how many issues historically lenders have found it s like a report card. So there are risk levels.
Within an appraisal as well. So if it assumes too much risk. An underwriter might say hey we need a second opinion or we need a desk review. And then desk side reviews.
Where they have an independent appraiser normally within their company who s gonna review the documents and make sure that it actually makes sense okay so there s multiple levels of quality control that they re gonna look at without appraisal and if there s any issues in that appraisal they re gonna kick it back to the appraiser to it address or if it comes in low then that s an issue because basically the property isn t being evaluated for what the sales price is so there s a lot of pieces that go into that all that an underwriters going to look at all right then on top of all of that you also have title and title is a big piece to this so the title company has to go through their search. Make sure. There s no liens. They re going to do a check on the property to see what the tax assessment was they re gonna do all kinds of stuff that that from the legal side to ensure that this property.
This legal entity has or is cleared to be sold with out or minimal risk to the investor and to the buyer. Okay so all that is being done and once title is complete. It is submitted to under any and underwriting is going to review. It and make sure everything is good so there s multiple pieces in addition to just the borrower that are involved.
And what underwriter is looking for and this goes into the loan process right so when the loan process begins title is order. Appraisals ordered and you should be looking for your home insurance. Now i tend to get a quote for my clients. I try to because i know good insurance companies.
But by no means are they bound to whatever i got as my effecting in the state. Where i operate mostly in kentucky. There are several documents that state that a buyer can choose wherever they want for home ownership. Absolutely okay.
But the key is to that you need to get it quickly because it has to get to underwriting. So all these documents are going through this loan process now once you submit the initial loan. Documents and all that other stuff is ordered it s going to go through it s an initial round of underwriting meaning that the underwriter is going to receive your file based on everything that you have in there and they re going to evaluate the income that s based off of the pay stubs and the w. 2s and anything else.
That is provided maybe a verification of employment. Now. This is why it is so important for you to think about everything that you turn into your loan officer has your lending resume because if the underwriter can t read it they re gonna kick it back why would an underwriter want to struggle through something that is faded and cut off or or is not professional. This is your loan application.
This is like applying for this in the interview okay these are your supporting loan documents that you need to put your best foot forward to say look i m a qualified buyer assume risk with my low because i m good for it that s what you need to be thinking about so when your loan officer is asking for documentation you need to get them in the best possible manner. Crisp and clean and legible so that they can see everything that s on there because if there s any doubt ultimately what s gonna happen is an underwriter assuming that risk they re underwriting that loan they re signing off on it yeah. They don t think that this loan is worth than putting their name on it in other words. They think.
It s too risky they can say no and that happens from time to time so a loan officer. We do the best that we can to kind of pre underwrite alone as best as we can to kind of look at it and see what is gonna get caught. And what won t but occasionally we ll do all of our due diligence and submit it to an underwriter an underwriter because it s somewhat subjective they can still say no i don t think that this person is worthy of assuming a risk that doesn t happen as often with conventional loans because conventional loans are pretty straightforward and buyers that are buying a conventional loan are pretty much straightforward but when you re dealing with government loans. There s some overlays and there s some additional guidelines in there particularly fha.
They have a different level of risk that they assume because if a let s say. An fha underwriter signs off on it and then later on once this loan is then reviewed in quality control. Afterwards or maybe. It s being sent to be purchased it has to be accepted by fhs to meet their standards.
So if they review this thing this loan and they say underwriter. You didn t do good this this doesn t work they actually have to buy that loan back and service. It at pennies on the dollar. So it is expensive and it s a ding against the underwriter.
So some underwriters aren t willing to assume much risk at all they re very by the book straightforward dot. Every guy across every tea because they re nervous about their their license. Some underwriters having experienced a lot more loans. And know what s going on will assume a little bit more risk because they understand the parameters better about what they re dealing with now.
This is where s handy having a broker instead of just a bank because if it goes into underwriting and the underwriter takes a look everything goes mmm just not gonna accept the risk well with a bank. You re done. The files dead with a broker. An underwriter tells me that and i know hey i ve done my due diligence this person should be approved.
I have multiple lenders that i can send it to and i could say okay so i ll pull it from that lender and send it to a different lender and normally there s kind of a hierarchy. Because when we send a loan to a lender. We re trying to get the best fit. But if we re at a point.
Where that lender saying hey we may not accept the risk. Then it becomes a let s get this loan closed at which point. I ll send it to where i think it will be accepted and i ll grease the skids and i will call lenders and say hey this is my scenario. What do you think about this and they ll say yeah we ll do that and we ll submit it and we ll get the loan closed.
We get the deal done. Which is in my opinion. Why brokers are better than banks. Because we have a myriad of loan products that banks may not have and we have a lot of flexibility because it all comes down to who s willing to accept that risk all right so all of this goes into the underwriting process.
It s an overarching view. And there s a lot more details within that process. But understanding what they do is important because once. It s submitted.
They re going to say okay hey this loan is approved with these conditions. And what that means is i ve looked at everything and i approve the loan. But i want some additional documentation. Now that documentation is then conditions so we ll receive that and then we ll send it to the buyer.
And say okay hey. These are the documents that i need and this will go a couple rounds. But you have to understand that whatever we re asking for is what the underwriter is asking for in order to final approve your loan. So the longer you take to get that to us the longer your loan process is going to take and that s why people ask well how long does underwriting take how long will it take your client or how long we ll take the buyer to get me the requisite loan documents to clear their loan everybody s different so there s no cookie cutter there here s exactly what you need we know the base loan loan documents but after that it s all about your specific file on what you were underwriter is asking for to accept risk and approve your loan.
So think of it like the hot potato on the talked about this before when they tell us we need these documents. We re gonna get them to you you as the buyer need to get them back to us as soon as possible hot potato. I don t want to give to you you don t want to give back to me i don t want it give you to underwriting that makes your loan process go a lot faster okay all right so once all that is accepted and they say yes. I ve looked at everything you gave me i approve i ve looked at praise allah.
I ve approved. I ve looked at home owners insurance. I ve approved it i ve looked at title and i ve approved it everything looks good you are clear to close that s when you have final approval and then you can go to the title company and sign all the final loan documents. But until that point you re approved with conditions get those conditions back as soon as possible all right hope.
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