Welcome to the second installment in our Understanding Underwriting series! In our last piece, we laid out the basics of what an underwriter is and does. We know our customers frequently have questions about the volume of documentation requested in the lending process, so we hope this piece directly from our Underwriting Manager addresses some of your concerns.
Underwriting is the culmination of a documentation-heavy process required to secure your loan, so our department understands why our customers sometimes have concerns about our requests after having complied with many others. I think I speak for Apex as a whole when I say that it’s important to remember that all customers are treated equally when it comes to document requests, and all mortgage lenders ask for equivalent documents to approve a loan. Fundamentally, the reason we request so much documentation is simple: lenders must prove a borrower’s ability to repay their loan before approving it, and we want to make sure your application is as strong as possible.
An Underwriter ‘narrates’ your financial story
As you know, financial inquiries are standard protocol for all mortgage transactions, and as a lender processes a loan, it is likely that you will receive requests from not only your Mortgage Banker, but also from document-preparation professionals (i.e. mortgage planners, processing, and quality control) and, ultimately, underwriting (that’s me!). At the end of this process, an underwriter has to be able to “tell a story” about your profile as a borrower. While a number of documents have likely already been collected to get started in this process, part of an underwriter’s job is to ensure that all of the pieces are current, complete, and that there are no gaps in your financial narrative. There may be certain documents, for example, that are required to fully satisfy Government-Sponsored Enterprises guidelines (i.e. Fannie Mae and Freddie Mac), and others that must be included to “fill in the blanks” of your financial journey.
Underwriters must verify the source of your funds
Yet another reason why an Underwriter may request additional documents from a borrower is to verify the source of specific funds. Have you ever wondered why underwriters care about large deposits? The reason is this: an underwriter must show that all funds for a purchase transaction come from an acceptable source. Basically, this means that none of the funds used in the purchase can be borrowed from a friend or from an unsecured loan, i.e. a credit card advance or personal line of credit.
In a similar fashion, this is also why underwriters need the URL (web address) on the printed web documents showing your transaction history if they are proof of assets. The URL is used to identify the financial institution holding your assets as required by regulatory agencies. This document request is an important one: If you cannot provide a transaction history showing a valid URL, lenders cannot accept it as satisfaction for the requested documentation.
Other common Underwriting requests
Depending on your situation, an Underwriter may also request items such as a Borrower Letter of Explanation (LOX), Gift Letter, or Evidence of Earnest Money. In each of these scenarios (and most others), an Underwriter is simply identifying any weak points in your loan application in order to strengthen it on your behalf and ensure GSE and investor approval, not to mention the financing for your dream home!
Looking to learn more about the mortgage process?
Our Homebuyer’s Guide contains a complete glossary of mortgage terms, explanations of the merits of different loan types, and details about first-time buyer programs that could save you money.
Topics: mortgage process, Home Loans, Buying a Home, Underwriting, Why Lenders Require So Many Documents, why underwriters request documents
FAQs
But what, exactly, do underwriters look for when reviewing a borrower's loan application and financial documents? Simply put, they want to know the person can repay the loan. So, they find a borrower with the lowest possible defaulting risk.
Is it normal for an underwriter to ask for more documents? ›
The bottom line is there's nothing unusual about being asked to provide more documents after you submit your application. It's absolutely normal. The key is to be prepared to provide them as quickly as possible, so your loan can close on time.
Why do underwriters ask so many questions? ›
The more proof the lender has for the buyer's reliability and good financial standing, the more protection they have. That's where all that intrusive questioning and document-digging comes into play.
Why do underwriters need so much information? ›
Fundamentally, the reason we request so much documentation is simple: lenders must prove a borrower's ability to repay their loan before approving it, and we want to make sure your application is as strong as possible.
What is the top reason applications get denied through underwriting? ›
Insufficient credit
It is one of the most common reasons that potential homeowners face denial during the underwriting process. A low credit score doesn't provide lenders with enough confidence in your ability to repay the loan promptly.
How long does it take an underwriter to decide? ›
Each situation is different, but underwriting can take anywhere from a few days to several weeks. Missing signatures or documents, and issues with the appraisal or title insurance are some of the things that can hold up the process.
How often do loans get denied in underwriting? ›
Share: How often does an underwriter deny a loan? A mortgage underwriter typically denies about 1 in 10 mortgage loan applications. A mortgage loan application can be denied for many reasons, including a borrower's low credit score, recent employment change or high debt-to-income ratio.
What should you not do during underwriting? ›
Tip #1: Don't Apply For Any New Credit Lines During Underwriting. Any major financial changes and spending can cause problems during the underwriting process. New lines of credit or loans can interrupt this process. Also, avoid making any purchases that may decrease your assets.
Can anything go wrong in underwriting? ›
Missing Information. Imagine what a displeasing situation it will be when you pump in resources in an underwriter, but the underwriter finds crucial information missing from the borrower's application. Such a situation will slow down the underwriting process and will waste time and resources.
Why can't you talk to an underwriter? ›
Underwriters Cannot Directly Ask You Anything
It is important to note that underwriters should not be in actual contact with you. All questions and discussions should be handled through your lender or loan officer. An underwriter talking to you directly, or even knowing you personally, is a conflict of interest.
Underwriting delays can stem from issues like unexplained gaps in your employment history, unverifiable funds or a low home appraisal. To prevent these issues, be prepared with all necessary documents, respond quickly to lender inquiries and ensure your financial documents are comprehensive.
Can underwriters see all your bank accounts? ›
Your lender may also want to see that you have at least a few months' worth of mortgage payments in reserve funds. That's so they can be sure you'll be able to make your payments if you suffer a financial setback, like a job loss. They'll likely check all of your bank accounts during this process.
Can a lender ask for more documents after closing? ›
No, your loan cannot be denied after closing. You have signed all the papers necessary and have reached an agreement. Your lender is bound by law to stick to your contract. After closing, your lender cannot go back on the arrangement they have made with you.
Can a loan fall through during underwriting? ›
If your loan is denied in underwriting, you can double-check your paperwork, talk to your loan officer or other lenders, look into different loan programs, or find a cosigner. Your loan can be denied if you have incomplete or missing information on your loan application or don't meet minimum mortgage requirements.
Do underwriters pull credit again? ›
I am often asked if we pull credit more than once. The answer is yes. Keep in mind that within a 45-day window, multiple credit checks from mortgage lenders only affects your credit rating as if it were a single pull. This is regulated by the Consumer Financial Protection Bureau – Read more here.
What do underwriters look for? ›
Credit. The underwriter reviews your credit history as well as your credit score (FICO). When examining your credit history, the underwriter reviews that payments have been made timely. Your credit score is driven by factors including payment history, credit usage and any derogatory events such as bankruptcies.
What additional documents do underwriters ask for? ›
Before the borrower becomes responsible for the loan, they must submit the following documents: Recent bank statements, pay stubs, business tax returns, and other income and asset verification documents. Copy of signed purchase agreement. Documented explanation of unusual changes in their financial situation.
How many times will underwriter ask for bank statements? ›
How Many Bank Statements Will You Need To Provide? You'll usually need to provide at least 2 months' worth of bank statements. Lenders ask for more than one monthly statement because they want to be sure you haven't taken out a loan or borrowed money from someone to be able to qualify for your home loan.
