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The 3 Items Underwriters Check When Reviewing Your File

Mar 14, 2021

One of the most essential parts of the mortgage process is underwriting, but what exactly is an underwriter, and why are they so important?    

An underwriter's job is to analyze your loan application and supporting documents. They ensure your loan meets the lender's standard for risk. While this may sound scary, the underwriter is on your side. They want to approve your loan while keeping the lender safe.  

 

The 3 C's

Underwriters look at what is known as “The 3 C's.” to evaluate your eligibility and approve your loan file:  

 

Collateral

Collateral refers to the home or property against which the loan is being pledged. Collateral helps the lender offset the risk of offering a mortgage. If you were to default on the loan and stop paying your mortgage, the lender would sell the home to fulfill the debt left behind by the loan.  

The underwriter will consider the LTV (loan-to-value) ratio to determine if it is within the guidelines of the loan program.  

 

Credit

The underwriter will use a merged credit report from the three national credit reporting agencies, Transunion, Equifax, and Experian, to determine your eligibility for a mortgage. While you may have had your credit pulled in the past, this will be much more detailed and uncover any:  

  • Late payments
  • Maxed-out credit cards
  • Delinquent accounts
  • Closed accounts
  • Collection demands

 

It is much better to be upfront with your lender about what they can expect on your credit report. Often you may need a brief letter of explanation which can prevent your loan from being delayed.  

 

Capacity

Finally, the underwriter will determine your ability to make the monthly payment. They will compare your total monthly income and your total monthly debt. They will assign you a DTI (debt-to-income) ratio and use this to determine your maximum loan amount. After determining this ratio, it is critical to keep credit card balances low and maintain steady employment. Before you make any decisions, consult your DRMC loan officer.  

Conditions

If the underwriter is unsure of your eligibility based on what has been submitted, they may ask for something known as "conditions" and issue you an initial approval. When an underwriter asks for conditions on your loan, it merely means they want to verify your file before giving the go-ahead.  

Once these conditions have been received and reviewed by the underwriter, they will give final approval. These conditions can include but are not limited to:  

  • Letters of explanation
  • Gift letters
  • Updated bank statements
  • Verifications of employment  
  • Updated pay stubs
  • Earnest money proof

 

If you are curious about the underwriting process, click here. Our mortgage specialists can help answer any questions you may have and get you started towards your homeownership path.