Behind the Scenes in a Mortgage Approval…
What’s the holdup? You’ve found that house you want and the seller was ready for you to move in — yesterday. But your final approval still isn’t here. Could the mortgage fall through?
These are the things that run through the buyer’s mind in the days leading up to closing.
The underwriting process can feel like forever. Through it, the lender vets your financial profile and the property’s condition. You don’t get direct communication from the underwriter. What is happening behind the scenes?
Let’s look over the lender’s shoulder and see what’s going on throughout the timeline.
Week One
As you complete your application, your mortgage specialist tells you the lender will take a month to finish the underwriting. Your mortgage consultant—or the loan officer if you’re working with a bank — keeps you posted on the underwriter’s questions. The underwriter, by law, is unable to talk to you directly or have personal contact of any kind. This is to ensure the neutrality of the process. But for the customer, the inability to pick up the phone and explain something straight to the person who’s asking for the information can feel like a torment at times.
By the end of the first week of your work with the mortgage consultant, a lot of paperwork will be gathered. There are the disclosure forms you’ve signed and given to your mortgage consultant, your tax forms, proof of income, account statements, and credit documentation.
By the week’s end, your consultant should be ready to put in an order for the home appraisal, and submit your file to the loan underwriter.
Weeks Two and Three
The second and third week of the process are critical. You send in your earnest money. The lender waits for your payment to clear.
It takes a couple of weeks to get the appraisal report. This report is major — it tells the lender what your future home (that’s the lender’s collateral) is really worth.
As you await the appraisal, expect to answer the underwriter’s requests, conveyed through your mortgage consultant, for missing documentation.
Your assets will come under scrutiny. How much do you have in reserve — as backup funding to pay the mortgage in the months ahead? The underwriter might ask, and ask again, for your recent bank account statements.
☛ Learn more about: Mortgage Reserves: What Assets Does a Home Buyer Need?
The underwriter will reject whatever is not submitted in the acceptable format. Web screenshots, for example, may be a problem. The underwriter may point out that it’s easy for websites to be faked. You might need to find ways, then, to duplicate the information you’ve sent in.
By the end of the second week, if everything is going absolutely hitch-free, the first phase of the underwriting is done. You wind up with a list of conditions — hoops you’ll need to clear before the loan approval can be made final.
Week Four
By now, the appraisal report should be on the underwriter’s desk, and your earnest money safely in escrow. The lender will have to confirm your income and employment information with your employer’s main office. And it will need to have your future home’s title searched and insured. You should receive a date for closing. Will the date hold?
Something could come up during the title search. There could be a legal action pending against a homeowner’s association or some similar surprise. At this point, you’re ready to be done with the process. But an appraisal or title search surprise is not uncommon. People’s credit scores can change. People also make mistakes, by making a big purchase or applying for a new credit card deal without thinking through the underwriting consequences.
The underwriter is still asking for recent pay stubs, your mortgage consultant tells you. Again?
It’s easy to become frustrated, but it’s important to roll with the questions.
☛ Ready to plan in advance for a smooth application process? Here are some tips on How to Work With a Lender and Win.
The underwriter is determining whether your past financial habits and patterns will likely persist years into the future. The sooner enough persuasive information has reached the underwriter, the sooner that final approval will happen.
Why It Could Go Longer
Some loans take a few extra weeks to get approved. What could stretch out the process?
The appraiser’s report can be slow to come in. It could value the home at less than what you bid on it. When this happens, the parties might have to renegotiate the home’s price to keep the deal from falling apart.
Or the title report could be the holdup. There could be a cloud that the seller needs to clear.
Perhaps your company has just pared your work schedule or moved you into a new post. Maybe the underwriter is asking where unexpected account deposits came from. (If you plan to deposit funds that someone has given to you during the home purchase, there is a formal procedure you need to go through.)
You might be negotiating with the seller’s agent for concessions or delays. You might be deciding how issues with the inspection will be resolved. The lender could back out because an unforeseen risk comes to light. The loan might need to change. Switching from a conventional mortgage loan to a government-backed loan (such as an FHA or a VA loan) might have to happen.
Moreover, underwriters — like professionals in most corporate offices — can get overloaded. Some buyers have W-2s, straighforward tax returns, and years of history at the same job. The underwriter might fly through those applications. But how many are that simple? Borrowers have unique needs, goals, credit profiles, and work situations. And these could have changed during the pandemic. Some buyers have changed jobs or started their own businesses.
☛For the Self-Employed Home Buyer, Is Getting a Loan About “Who You Know”?
Any nonstandard aspect of an application takes time for a busy underwriter to try to resolve. Then that person’s file gets moved aside while attention is turned to someone else submitting their documents.
Self-Help
By law, your lender is not allowed to let buyers bite off more debt than they can chew. Take the initiative by offering written explanations for financial issues or disruptions. If you’ve had some credit issues, but can show past setbacks won’t likely happen again, there could be no problem. If you’ve changed jobs but can prove a continuous link to the same type of work all along, things might be just fine. Advocate for yourself and your ability to repay the loan you need.
According to USBank: “Each situation is different, but underwriting can take anywhere from a few days to several weeks.” For underwriting to take “a few days” is certainly not the norm. Underwriting takes time for the lender, and patience for the applicant. But by the time it’s done, many homeowners have gained substantial respect for the professionals who made it happen.
Supporting References
Hanna Keilar for RocketMortgage.com: What Is Underwriting? Understanding the Underwriting Process (Jun. 3, 2022).
USBank.com: Your Guide to the Mortgage Underwriting Process.
And as linked. Photo credits: Jéshoots and KoolShooters, via Pexels.