What is The Mortgage Approval Process – post updated 7-22-23
If you wonder why there are so many processes for getting a mortgage loan to the approved status, let’s talk about it. One simple answer is the mortgage loan is a very large investment for you, and for the lender.
It is most likely the largest investment most individuals make in their lifetime. The lender’s professionals have to make a final decision that supports sound lending practices for the lender. That is why the mortgage underwriter’s final review of a loan is so important.
The Underwriting Process Has Progressed Through The Years
With technology, the underwriting process is not as intense as it used to be. The number one asset for this is that both Fannie Mae and Freddie Mac (the GSEs) have an automated underwriting system.
This means usually, the loan is run through one of these systems, Desktop Underwriter (Fannie), or Loan Prospector (Freddie), for a preliminary status. These systems will spit out the needed documentation per what was submitted on the initial application’s application (1003 form).
*Note: There are mortgage companies that still do manual underwriting. Meaning their loans do not go through the automated underwriting systems or for one reason or another-due to inconsistencies, the loan may need to be manually underwritten.
When a broker originates a loan, they do the preliminary workup of the loan and an initial underwriting process. However, the lender who funds the mortgage loan may and usually does have a final review of the loan documentation file. Unless the originating office has obtained underwriting approval/authority. The servicing lender may also perform an underwriting process.
Application Process
A preliminary review is the first step. The Loan Officer or the processor (the assistant to the LO and/or the underwriter) who gathers the required documentation may submit the application to the automated underwriting system.
Normally, this first step occurs so that the credit report is obtained to see the credit status of the applicant(s).
This gives the initial loan office or processor the leading information/documentation needed. Manual underwriting requires full documentation.
*Note- This is why when an applicant gives their information (completes application), the correctness of that information is important. Having their documentation ready upfront will help an applicant give the correct information.
The Completed Application Needs to be Accurate
It is important that the entire information that is requested on the application is conclusive. Each set of questions to include but not limited to:
If the application is via phone, email, fax, or what the lender will accept; giving accurate, solid, and sound answers to the application questions allows the process to move faster.
What Are The Steps in The Application Process
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- Loan Office takes the application in person, by phone, by email, by fax, etc.
- He, she, or the processor may get the credit through automated underwriting.
- When the credit report and the preliminary underwriting through an automated underwriting system are pulled, they are given the exact documentation that is needed for the information submitted on the application (1003).
- If the credit is acceptable and meets the guidelines for minimum credit scores, and the product being requested by the applicant, the full process of the loan then begins.
- The processor he/she will then request any documentation that has not been submitted to coordinate with the underwriting findings.
- Once the documentation is obtained, the information is reviewed, and if there are any discrepancies in the stated information in 1003, it is corrected. If it is something that required more documentation, they will then go back to the applicant. They may need to request additional documentation and clarification.
- The normal documentation is:
• income/employment- W-2, 1040 Tax Returns or Corporation-depending upon the type of self-employment
• asset documentation- bank statement, investment statement, and all funds being used for downpayment and closing
• any documentation regarding the underwriting findings
If 1003 discloses a divorce, separation, or child support payments or income, that documentation is needed.
After all of the needed documentation is obtained, normally the loan will be submitted to the underwriting system again. This is to make sure all aspects of the updated 1003 matched the final DU/LP findings.
The Appraisal and Final Underwriting Approval
The lender may not on occasion always order the appraisal until they know the loan credit file is approved subject to the property appraisal.
1. Appraisal – When the property appraisal is ordered often depends upon the lender. If they have full confidence in the final approval, they may go ahead and order the appraisal.
If there are some issues that may need to be approved by the underwriter-the appraisal may not be ordered until after the underwriter gives the preliminary approval subject to a satisfactory appraisal.
2. Once, the appraisal is obtained the loan is then sent to the underwriter for final approval.
The underwriter will review the entire file in coordination with 1003. The credit report’s findings, liabilities/credit obligations, asset documentation, income/employment, any borrower explanations that are needed, and the appraisal of the subject property.
There are times, the underwriter may require additional documentation, something that is not fully explained, or documented correctly.
That is why she/he is there, to put the final touches to the loan. If there is an appraisal issue, the underwriter will go back to the appraiser for clarification or updating of the appraisal.
*The underwriter is trained to underwrite the property’s appraisal report. This is another subject as well.
3. When the underwriter is fully satisfied with the entire documented file and it meets the lender’s and investor’s guidelines, she/he will give their final sign-off on the loan.
Summary
All mortgage applicant(s) application is different. Their financial status, their employment status, and the entire information are unique. Not any two applications are the same. Therefore, the process can vary from applicant to applicant.
Some applicants may have less documentation, regarding their credit history, their income, their assets, and the product they are requesting. This could also include, but is not limited to, debt to income ratio, down payment/loan to value ratio, etc.
Mortgage lending is detailed, and rightfully so, due to the investment of the lender. However, if an applicant is ready for the process, and has studied how to make it happen in a timely manner, it can be a great process.
The lender wants to make your loan. Their goal is to meet, their own guidelines, the investor guidelines, and a mortgage portfolio that performs positively for the duration of the loan.
