The Mortgage Underwriting Process: Steps to Know When Buying a Home
Knowing the mortgage underwriting process as a homebuyer can help you understand the entire process as a whole when purchasing your next or first home. We’ll start with a quick background information.
What is an underwriter? An underwriter is an entity, usually a company, that is responsible for analyzing and assuming any associated risk of another entity.
When does this take place? This is a behind the scenes process that the homebuyer typically does not see this process.
What are the steps? Includes these key steps in the process: verification, appraisal, title search and insurance, flood certification and surveying.
After the housing market crash during the mid-2000s, to protect consumers, the Consumer Financial Protection Bureau (CFPB) put into place rules and regulations to protect mortgage loan borrowers. This set of rules stated that lenders have to be sure that the borrower of the loan is indeed qualified for the amount of loan being borrowed. This is based on the information that you put on your applications that have to be verified.
During the verification process, the lender’s team of underwriters verify your information that you put on your mortgage application and other supporting documents. The verification is done through contacting your employer(s), for example. The total amount of verification that takes place completely depends on how much of a risk your lender perceives you to be.
During the appraisal portion of the process, the lender that you’ve applied for a mortgage through goes about checking the price of the home and assessing it based on how comparable it is to the values of other similar properties. This process is a crucial process that could determine whether or not the appraisal could affect the rate and terms of the mortgage loan. An independent appraisal of the property is completed prior to the closing of the property. Home appraisals cost between $300 and $500.
Title Search and Insurance
Next, once the appraisal is complete, a title company looks at the house’s legal history. This is done to ensure that your home does not have claims on it. Lenders will not want to lend money if the home has claims against it. Title searches include searching for the history of the property, claims, liens, easement rights, zoning ordinances, pending legal actions, unpaid taxes, restrictive covenants and mortgages.
Next, a title insurer issues a policy that guarantees the accuracy of the work that has been completed during this process. The title insurance is required to protect the lender as well. In some cases, two policies are issues to protect the two parties separately.
Flood insurance is only required for your home if the home is located in a flood zone. If this is the case, the lender will want to know about this and flood insurance becomes part of a standard homeowners insurance policy required by the lender. To know whether your home is in a flood zone, the lender will hire a specialist to analyze your property and determine this.
The last part of the mortgage underwriting process is a survey. During this final step, the lender will require that a home’s property boundaries be verified by a professional survey. These are some helpful steps in the process that you can assist in:
- Provide complete documentation with your application.
- Respond promptly to your lender’s request for more information.
- Call your lender and real estate agent to check on your loan application status.
- Help contact employers and others who may need to provide documentation.
- Keep records of your conversations with your lender.
*Original article here.