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Underwriting and the World of Home Loans
By Dan Lewis
In the world of home loans, nothing is more dour sounding than underwriting. Cutting to the chase, this is where you get approved or denied for your borrowing request.
Underwriting and the World of Home Loans
Regardless of the type of home loan you need and apply for, the process works in a fairly uniform manner. First, you access your needs. Next, you apply for the loan. The loan is then submitted to underwriting. If you are approved, the loan is processed and off you go to closing for you new home. While this may all sound fairly straightforward, just what happens during the underwriting process? Here is the answer to the grand mystery.
Underwriters are employees with a lender that are charged with making the big decision. In short, this is where the buck stops on approval and rejection of loan applications. They are typically stressed out, overworked individuals. They also tend to be very hit and miss when it comes to speaking with borrowers, to wit, they don't call back all that often if you have leave a message with questions such as closing is in two days and I need an answer!
In evaluating your loan application, underwriters look at a number of things. The first is collateral, to wit, is the home free and clear of liens and is it actually appraised at a number appropriate for the loan amount being requested. The second issue is whether you, the borrower, have the ability to pay back the loan on a monthly basis and over the term of the repayment period. The third issue is loosely known as your credit score and combines issues such as your FICO score, debt to income rations, patterns of repayments on other debts and so on. If you can meet the lender guidelines for these three areas, you are usually in fairly good shape when it comes to being approved. That being said, there are other areas that are also used in the evaluation that can sink you.
While the above three issues are dominant factors in the loan evaluation process, underwriters will look at other issues as well. Remember, the underwriter is evaluating how big of a risk you are given the fact a lot of money is being loaned. One thing an underwriter will always focus on is your front ratio. A front ratio is simply a calculation of your total monthly housing expenses divided by your gross income. Housing expenses include the mortgage payment, real estate taxes, insurance and so on. An underwriter is typically looking for a ration of thirty-three percent or less. If you are above this percentage, the underwriter will probably reject the loan application.
At the end of the day, underwriting is the nitty gritty of any loan application. If you meet the criteria of the underwriter and lender, you are good as gold to get the loan. If you do not, it is time to look for a cheaper home and clean up your credit.
About the Author
Dan Lewis is with http://www.gwhomeloans.com - mortgage brokers providing refinance and lending solutions.
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