Mortgage Daily

Published On: December 15, 2022

What Happens During the Underwriting Process?

You have most likely heard the term “underwriting” when refinancing or purchasing a home. Mortgage underwriting is a process where your lender will verify your eligibility to obtain a home loan. They will also ensure that the property meets their loan’s requirements. 

The final person in the way of your loan being processed or not is the underwriter. Underwriters have a very strict protocol they must follow and it does not allow them to be lenient. At different stages in the process delays can still happen. 

Here are all the things you can expect during the underwriting process and what to do if your loan approval takes longer than you were told. 

Does Underwriting Take Long?

Every lender is different with their “turn times’-  the amount of time it takes between submitting your loan and the underwriter reviewing for the final decision. Between the underwriting to closing, it can take anywhere from 30 to 45 days. The amount of time it takes can be dependent on numerous factors, like:

  • Loan application volume, a high number of loans being processed at once can cause some delay 
  • Internal staffing policies
  • The complexity of your loan, like if you have issues with your credit, can take longer to approve than someone with perfect credit 

These factors will all go into play for the amount of time your underwriting can take. Underwriting can take as little as a day, or as long as weeks. For average circumstances, within 3 days of submitting your full loan profile, the initial underwriting approval will happen. 

Though not common, this process can take as long as a month. The only reason it would likely take this long is if you have a very complicated loan file that needs to be reviewed. 

It’s a good idea to ask lenders, while you are mortgage shopping, how long it is taking them to close on a home. This process length will also depend on whether you are buying or refinancing a home and it also depends on your loan type.

The final factors you consider when picking a lender are interest rates, closing costs, and turn times. 

What Goes Into the Underwriting Process?

The underwriting process is pretty close for both buying and refinancing. 

Credit Approval

Your financial situation is very important to underwriters. The underwriter will verify the information you provided on your mortgage application and compare it to your documentation.

The most important things your underwriter will look at are:

  • Credit- Your credit history and scores are an indication of your ability to pay your mortgage, so this is a very important factor. 
  • Employment and income- Lenders want to see at least 2 years of consistent employment and income. If you have any gaps in your employment, they will want to know why. You will have to provide W2s, tax returns, and pay stubs. 
  • Appraisal– This isan important factor of underwriting because the appraisal determines your prospective home’s fair market value. Lenders want to know that the home they are financing is worth as much as the loan. If the appraisal comes back low, you may need to put down more money or re-negotiate the purchase price. 
  • Mortgage program Your underwriter will double-check that you are eligible for the type of loan you are applying for. There are different requirements for different mortgage programs, so they will need to verify that you qualify.
  • Debt ratios– The lender will determine your debt-to-income ratio (DTI) by reviewing your monthly debts compared to your income. This will tell the lender if you can afford your new monthly payment. All mortgage programs have different DTI ratios that they allow. 

If all of these factors come back good, you will move on to the next step: conditional approval. 

Conditional Approval

When the underwriter looks at your file and doesn’t find an issue, they will usually issue a conditional approval. Conditional approval is a good thing because that means the underwriter is expecting your loan to close. You may still need to do a few more things before this happens. 

This is usually the point in the process when you may need to give more documents and information. It’s pretty common for many underwriting conditions to be easy. The underwriter may ask for a letter of explanation for any derogatory marks on your credit. This letter is usually required for judgments, late debt payments, and past bankruptcies. 

A letter of explanation or two may be all that is needed for the underwriter to issue final approval. On certain occasions, mortgage conditions can be more in-depth. 

For instance, final approval may be delayed if you are asked for:

  • A year-to-date profit and loss statement for self-employed borrowers
  • Documents that support any large amounts of cash deposits in your bank account
  • Bank statements, often going back a year, to show proof you were making a particular payment
  • More details from the appraiser to support the value of your home 
  • You may also need to pay off certain debts on your credit report to qualify 

In the cases above, the underwriting timeline is dependent on the issue and how long it takes to rectify it.

Final Approval

If you are “clear to close” this means the terms of your conditional approval have been met and the underwriter will issue final approval. If you were denied, make sure to ask why and what you can do to possibly get their decision overturned. 

A mortgage can be denied if your finances have changed since you were pre-approved or the terms of conditional approval were not met. Let’s say your credit score fell after you got pre-approved, you may not qualify now for the loan terms or mortgage rate you were offered before. 

If this happens, you may have to re-apply for a different loan type or you may have to back out and fix your finances before applying again. 

Is There Any Good News?

It may be concerning to not hear the words “clear to close” as quickly as you hoped. No news can also be good news. Depending on how busy your lender is, it simply might take a while longer, it doesn’t necessarily mean something bad. The best thing to do is reach out and touch base with your loan officer. 

Ask your loan officer how often you should expect to receive updates and how they will send them. You should know whether they expect to send updates via email or text. Some loan officers even have their own online portal or app you can check to monitor your loan’s progress. 

The takeaway is that constant communication is the best. Lenders are pretty good at immediately reaching out if they find any issues during the underwriting process. If you are ever worried about the time it’s taking, reach out and find out what the issue is. 

Does the Underwriting Process Take Longer When Refinancing?

Right now, lenders are taking a bit longer to process refinance applications than they are for home purchase loans. Home buyers have harder deadlines, so they tend to focus on those more. For home purchases, the average time from underwriting to closing is around 30 days. Refinances tend to take around 45 days. 

Closing times vary by lender. If an underwriter’s team has a lot of bandwidth, the process could move a lot faster. If they are too busy with tons of loan applications, the process time can be longer. 

Make sure when you are applying for loans that you ask potential lenders what their current closing times are. This will help you narrow down which ones will get your home loan approved more quickly. 

Can You Speed up the Underwriting Time?

Underwriters are the gatekeepers in the world of mortgages. They are the last thing standing between you and your loan. Because underwriters are so important during the mortgage approval process, it’s important to be ready to quickly supply any requested documentation. 

The faster you can respond to an underwriter’s request, the quicker this process can speed up. Something as little as a missed signature can  cause a delay. Make sure you are taking your time and double-checking all of your paperwork. 

Keep a clear line of communication open at all times. If the underwriting is taking longer than you hoped for, reach out and see if there is anything wrong or if you can do anything further.

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