Home Loan Underwriting
When your loan is submitted for home loan underwriting, it goes directly into the hands of an underwriter whose job is to determine your “credit worthiness” or your ability to repay the loan. The underwriter must take all of the following into consideration when making the decision to approve or disapprove your loan.
Your Employment History
A stable history of employment in the same line of work is considered ideal. Job hopping is not looked upon favorably because it may lead to unstable income. However, if you have switched jobs within the same line of work for advancement in that field, there should be no problem.
The underwriter looks carefully at your capacity to repay the loan. Your job stability and gross income (in relation to your expenses) are critical in this regard. Most income must be verified as having been received for at least two years to be used for qualifying purposes.
Your Credit History
Your credit history is an indication of your character or willingness to repay the loan. The underwriter looks closely at your past payment record (your credit report) in determining this. Any consistent patterns of late payments, collections, etc. are not looked at favorably. Bankruptcies generally must be discharged for at least two years with reestablished credit and the reason for the bankruptcy must be fully explained. Good explanations for all derogatory credit will need to be provided. All outstanding collections, liens, and judgments will have to be paid off through escrow (consult your loan officer about any credit questions you may have).
Money you have available for a down-payment, closing costs, cash reserves (money left over after close of escrow to cover 2-3 months mortgage payments) and other liquid assets is your net worth. The underwriter wants to see your ability to save money for the down-payment and where your closing costs are coming from. It must be verified that you have had the money (or assets) for a two to three month period.
The underwriter will be concerned with the amount of debt you have because it affects your qualification and your ability to repay the loan. Excessive use of credit may not be looked upon favorably.
Because the property is the lender’s collateral for the loan, the value, marketability, and condition of the property are extremely important. The underwriter looks at the appraisal for this information.