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Underwriting Process

Nov 9, 2021


What is Underwriting? What Homebuyers Should Know


For people going through it for the first time, the home buying process comes with a lot of new, sometimes confusing, terminology. Since purchasing a home is often one of the largest investments you'll make, it is helpful to understand what these terms mean.

One you will hear mentioned as you apply for a mortgage and seek to purchase a home is "underwriting." So, what exactly is underwriting and what should you, as a homebuyer, understand about it?

What Underwriting Means

According to Bankrate.com, underwriting is the process of verifying your income, assets, debts, and the details of the property you wish to buy so that the final approval for a loan, or mortgage, can be approved. During this verification process, the underwriter gathers the information they need to assess the level of risk you pose as a borrower. In other words, how likely are you to default on your mortgage?

Steps in the Underwriting Process

There are typically 5 steps in the underwriting process.

1.      Verifying Your Income and Assets

In this step, you will provide the lender with documents that help verify your financial information. These documents often include W-2s or paystubs to verify income, bank statements that help verify the value of savings or other investments you have than you might have, and identification such as a driver's license, so the lender can run a credit report.

In this step, you may be preapproved or prequalified for a loan. If preapproved, it means the lender will approve a loan up to a certain amount. If prequalified, it means you will likely be approved.

2.      Appraisal

After you've identified the house that you wish to purchase and have had your offer accepted, you will need to get an appraisal. This step involves having a professional assessment of the home's sale price in comparison to the condition of the home and the prices at which similar homes in the area have sold.

3.      Title search and title insurance

Next, you will have to have a title search completed and arrange for title insurance. Your real estate agent can assist with you this process by identifying title companies in your area. These companies specialize in conducting the research necessary to verify that a property can be transferred to another owner. They will confirm that there are no liens, unpaid taxes, or other issues that could allow someone else to claim the property.

4.      Yes or No-Underwriting Decisions

Once your income and assets are verified, the appraisal has been submitted to the lender, and the title has been cleared, the lender will approve-or not-your mortgage application.

If your application is denied, it could be due to one of several reasons. Your credit report could have mistakes on it, the lender could determine your debt-to-income ratio is too low or the current debt you have is too high. Or the appraised value didn't align with the selling price and amount of loan you're seeking.

In some cases, key information about your finances might be missing from your file, or the lender couldn't verify your employment status. In these cases, it is often possible to reactive your application and gain approval by providing the outstanding information.

Working with an experienced real estate agent, though, can help increase your chances of a successful underwriting process. A licensed professional real estate agent can often help you identify any issues in your situation or in the home you're looking to buy that could prevent you from being approved for a loan and completing the purchase.

If you're looking for your dream home, the real estate professionals at Orizon Real Estate will be happy to discuss the home buying process with you. Call 260-248-8961 to connect with an agent today.