What Exactly is Underwriting?
What is the mortgage underwriting process? How does underwriting differ from preapproval? How long does underwriting take, and is there a way to minimize this time? Kelly Hesaltine, Senior Mortgage Consultant with Prosperity Home Mortgage joins us in Episode 12 to answer these questions and more about underwriting.
Welcome to episode 12. Let's try this again. Welcome to Keep... Let's try it again. Welcome to Keepin' It Real Episode 12. I'm your host, Adam Tabaka. Today, we're joined once again by Kelly Hesaltine, senior mortgage consultant with Prosperity Home Mortgage. Today we're discussing what you need to know about the mortgage underwriting process. Kelly, thanks so much for joining us again.
Absolutely. Thanks for having me. Always fun being a part of this. This is a great topic and I think one that's just really important right now too, is we get things kind of ramped up for spring and people getting ready to go.
Exactly. If you're looking to find something in the spring, great time to start getting your ducks in a row here. Before we delve into the underwriting process, let's talk a little bit about prequalification and preapproval and what those are.
A little bit of a difference between those two and people probably use that verbiage, those two words, pretty interchangeably. But generally speaking, your prequalification is going to be kind of just a general conversation with a lender, you've probably chatted rather quickly ran some quick numbers on credit. What your scores might be, what your income is, but a lender at this point, hasn't pulled credit, verified the assets, the income, and had that kind of actual preapproval ready to go. A prequal is kind of a loose conversation just to give you a good idea of things that preapproval is going to be when a lender's actually ready to send over that letter with any offer that you may be ready to submit that says we verified credit, assets, income, and we're more than ready to go for the purchase of 123 Main St, whatever it may be.
Perfect. When we talk about the underwriting process, it's a little bit later in the process. What are the criteria area that an underwriter will be looking at when evaluating the application?
There's a handful of guidelines, of course, based on loan program, down payments, et cetera, that start to shimmy kind of each loan program and each loan and how we need to look at that and how an underwriter is going to review it. But generally speaking, let's start and keep it easy. Say with your conventional loan, they're going to be reviewing the bank statements, making sure that everything that is being held against them on the credit report is actually legitimate on their bank statements too. Maybe there's child support that they didn't tell us about, but we see those funds going out.
They're really taking an accurate snapshot to make sure that we have a good big picture of again, the debt to income ratios. What's coming in the door versus what's going out each month and that's really going to be where those guidelines come in to play. But the underwriter has a much more detailed eye than say the loan officer and what they're looking at. Of course, we're looking at that big picture, but they're really getting into nitty gritty to make sure that what we did of course is accurate. And there's some additional reports and things that underwriting has access to, to just kind of ensure that everything that we do see in the file is the correct big picture on that borrower.
That makes sense. For the process of underwriting, how long does that typically take and what are the factors that can influence the timeline?
Generally speaking, I would say underwriting is seven to 10 days, probably more on the seven day, seven side of things. Things have been pretty busy, I know. So it was taking a little bit longer just simply because of volume to get through, but that underwriting process safely in that seven to 10 day timeframe. Again, that is the underwriter getting ahold of the file, reviewing credit, assets, income, making sure that everything is squeaky clean and set up accurately as we need to within that file.
Understood. At what point in the home purchase process does the underwriter typically get involved?
Great question. Generally speaking, it's going to be once a buyer has a contract. You get that ratified contract, we work on our loan disclosures, we start getting everything set up, maybe updating assets that we verified a couple months ago. We want to get things up to date and we submit that file to underwriting. So generally speaking, it is going to be, once you have found that property, we've collected everything, now we're sending them an accurate kind of snapshot of what we need to do and when we need to close based on the terms of that contract.
All right. Now I know that your buyer advantage program includes at least some partial underwriting at the point of pre-approval. Is that right?
It is. I'm actually glad you bring that up. That buyer's advantage program is a great one and kind of sets prosperity out, outside of it kind of makes us stand out a little bit and get my words out here with you, especially when it comes to turn time and also making a buyer really stand out in the sense of maybe you've got a couple other contracts that you're competing with on an offer. What this buyer's advantage does is checks off that initial underwriting piece upfront. Even though the buyer doesn't have a contract yet, we don't have our exact financing of how we're going to move word, but we're maybe going to set up a scenario, maybe maxing them out a little bit as to where they want to be and going ahead and pushing that loan through underwriting without having that contract.
We collect everything, initial loan disclosures, bank statements, just as we would if they had a property. But now what we've done is we've issued a commitment letter and that commitment letter is what satisfies any financing contingencies, anything that you're going to build into a contract, just as we talked about that seven to 10 days to get through underwriting. Now we're doing that upfront. And any commitment letter, any underwriter's initial review is always going to be contingent on a couple other items. We're going to need an appraisal for this specific property, that buyer's going to need to finalize their homeowner's insurance. There's always some trailing pieces going on, but to have that initial seven to 10 days checked off the to-do list, kind of in this idle time, anyways, not only just gives the borrower some peace of mind to know that, that's done, but again, really helping strengthen any offer that they made submit out there and help us turn things around even faster if we need to.
I love that program. It's a no brainer for sure.
Absolutely. Now, in some cases during the underwriting process, the underwriter might actually request additional information that maybe wasn't initially requested. What might some of those pieces of information be that you see most frequently requested?
I think what would probably come up would maybe be, if we were needing a written verification of employment, maybe we've got some income that's hourly or part-time, and we're trying to get some additional information on that to see if we can use that income, that might be something. I had one the other day, there's a report that every borrower agent, anybody associated with the transaction goes through, it's called loan safe, I think. It's basically a fraud report to make sure that anybody associated with it doesn't have anything within their record that would keep them from being able to be part of purchasing a new home or being part of that transaction. This actually showed up that this buyer might have had a potential short sale a few years ago. And the credit report doesn't show a short sale.
I spoke to him, we went through all of this and he sold that home, et cetera. But what happened is because of the market and the timeframe of when he bought this property, the values were much higher than when he sold it. He didn't have to bring money to the table, but this detailed report kind of flagged that as something that an underwriter might want to look into because of the difference of that value. I reached out to him, he gave me his closing disclosure, we're all set, we're cleared, we're moving on. But sometimes there are little additional pieces like that, that might come up that just aren't on the credit report or aren't something that we might see with our eye initially, but otherwise it's usually pretty standard, insurance, earnest money, deposits, appraisal, things of that nature for the home.
All right, good stuff. Now, what can buyers do ahead of time to set themselves up for success when it comes to the underwriting process in particular as part of the whole mortgage application process?
It seems very basic, but it's pretty much what it all comes down to is paying those bills on time. Your credit score is going to drive everything. What loan programs you can go with, what is that mortgage insurance possibly going to be on a loan? How high can we qualify? That credit score really, really, really is a huge driver of most things. So, keep paying your bills on time. If you're looking to purchase within the next few months, don't take out any new debt, just try to keep things really, really clean. Again, paying those bills on time is one thing. Another thing that underwriters are always going to look at is money movement. Let's say we see deposits into account that's coming from a different savings, a different checking, maybe a spouse and you guys have a joint account that you're running money in and out of, et cetera.
Underwriters are looking at what's going in and out of accounts. And when you get to the timeframe where you have an actual property, we're going to collect the most recent 60 days. Anything we see in that 60 day timeframe, we're going to have to deal with. Again, if there's bank statements, you don't want us... That's going to be too much. I don't want to get into this and that, or what comes out of it. Stop moving money in and out of it. Keep it clean because we are going to document everything. I know that's probably the most frustrating part of it all as somebody sends a new statement and now we see deposit that's in there and that's going to trigger another account. Just keep it easy on yourselves and keep those items clean, payroll transfers. I mean, they are what they are. We all live. Those accounts are going to be revolving and adjusting. But anyways, I think that can be one of the frustrating parts is if there is a lot of money movement going on in an underwriter's got to kind of piecemeal all of that together.
We're talking like a 60 day period here. If you know you're six months, eight months, a year out, maybe, and you've got the ability to move funds around in advance. Would that maybe be something that might make your life a little easier?
Absolutely. And that's a conversation, our job isn't to get around anything, it's just to make it easy too, on you guys, on the buyers, as we go through this process. It's already big enough and a big investment and a lot going on. Anything we can do to kind of streamline that underwriting process is absolutely what we want to do. Sometimes parents may be gifting funds, and we know that they're going to be looking to purchase within the next few months, why don't we go ahead and put the 20,000 in the checking account, or in the savings account, let it sit there for those couple months and when they're ready to go, if it's not something I see, it always looks like it's been those borrow funds. And now we're just not bugging mom and dad for gift letters, et cetera. Again, anything we can do to kind of chat through how to simplify and just structure a nice clean loan, that's always going to make the process easy on us all.
I love it. That's a great question.
Well, Kelly, I sincerely appreciate you coming back again. Always a pleasure to have you on the show. Folks, if you guys have any questions about mortgages, about buying a home, reach out to Kelly. She's fantastic. She knows everything. Appreciate it, Kelly. We'll have you back again. Thanks folks for watching. Take care.
Thanks Adam. Thanks guys.