What Does the Underwriter Look for in a File?

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Loan underwriting is one of the essential steps during the mortgage loan process. This is carried out by underwriters who evaluate the potential risks associated with lending a loan to the borrower from the lender or bank's end. They have the final say on whether to approve the mortgage for the borrowers. Through mortgage underwriting, one can analyze whether a borrower will be successful in paying back the loan or not. Therefore, mortgage underwriting process assesses the borrower's creditworthiness. 




The following steps happen during the mortgage underwriting process:

Evaluating Borrower's Personal Information

All the relevant documents of the borrower such as their financial investments, residential histories, debts, credit reports, pay checks etc. are analyzed during mortgage underwriting followed by a final decision on the risks involved.

Understanding Financial Stability

During the analysis stage the financial stability of the borrower is analyzed by cross checking their credit reports, payment histories etc. This is done manually or using electronic systems. This gives an idea of stable the borrower is financially and how likely is he to remain stable in the years ahead.

Evaluating Borrower's Ability to Repay

This is important to ensure that the borrower is in a position to completely pays their loan. If the borrower does not have enough assets or savings to buffer the times when they are unemployed or unable to pay due to such circumstances, then the banks or lenders will be at loss. Thus, the loan approval is provided only after the borrower's assets, credit histories and other collaterals are verified and confirmed to be in a healthy condition. 

Reviewing Title Report

After the confirmation of the borrower's document authenticity, loan approval is generated. Then, title search is ordered to make sure that the property transferred to the new owner does not have any negative legal histories. The lenders have a responsibility to ensure that the property being sold does not have any unpaid taxes, pending legal actions, unpaid HOA dues, judgements and such in its entire history. This is to avoid pushing the borrower in trouble after they have secured the property in their name. Therefore, reviewing the title search report is also an integral part of the underwriting process. 

Reviewing Appraisal Report

The banks take the responsibility to order for appraisal of the property. This is to ensure that the property is not sold for a higher rate than its worth by the financial institutions. This also helps the lender know the property's value in the market and its loan-to-income ratio. Once the appraisal report is submitted, underwriters review it for correctness.

Therefore, in the process of mortgage underwriting,underwriters evaluate all the documents closely to conclude whether a borrower is a risky investment. It helps the lender safeguard themselves from potential losses in future.