Here’s another
anecdotal story of why selling a house can be fun. Let’s assume a buyer comes forward with an offer to buy a
home. Pretty soon the negotiating is
completed and a contract is signed, sealed and delivered--and everybody begins
to think the house is sold.
While the
buyer is “moving forward” with inspections, picking out paint colors and
planning where the furniture will be placed, there is more happening behind the
scenes. In a word, the agents say the
loan has gone to underwriting. Underwriting
is the “heart” of the mortgage loan process. The underwriter is the individual
employed by the lender to review all of the accumulated documents that the
buyer has provided during the loan process.
Sometimes the underwriter will request that
additional documents be provided during this step in order to verify whether
the buyer will be a good risk for the investors. Once the underwriter reviews
all the documents, he or she will decide whether to approve the loan.
If the loan officer has done a professional job up
front and explained properly what documents needed to get your loan approved,
the process should go very smoothly. And yet, if there have been any “fibs” or
creative answers given to questions on the application, the underwriter will
probably unearth these issues and slow down or stop the sale.
The underwriter will look at all sources of income, including, in most
cases, a 2-year employment history, current pay stubs, W-2 statements, two
years of tax returns, bank account statements, other assets and holdings, and
additional sources of income. This is certainly one area where additional
(unreported) income often surfaces. Buyers who get paid under the table will
soon discover they are not able to claim illegal or unreported income.
Errors on a credit report will also rear their
ugly heads during this process. Loans which were paid off (satisfied) but were
never recorded (closed) will appear as a current loan, still due. Bankruptcies will be obvious within the
credit documentation; a personal bankruptcy will clear most debts—but it won’t
clear IRS debt or student loans. Just because a person may have never paid
anything toward your student loans doesn’t mean they don’t still owe the money.
Bills that people tend to “forget” are old medical bills, which were written
off by the doctor or hospital--but not the collection guys. These are the
reasons to keep an eye on your own credit report.
If there are any vague or contradictory areas in
the documents that were provided, the process will definitely stretch out as
the underwriter does his or her research into the situation. Additionally, if
the buyer is receiving or paying alimony or child support, documentation will
be required to substantiate the payments or the income. Expect also to provide
a copy of the purchase and sales contract and a copy of any checks you have
already written as earnest money to the seller.
In order to assess your credit risk and current
debt, the underwriter will carefully review the buyer’s credit report with
current FICO scores and review the report for any issues. The underwriter also
looks at the appraisal for the property to make certain the amount of
the loan is commensurate with the property value.
Once the underwriter has all the documentation
required they now go through the process of assuring that the total loan
package will be accepted by an investor. Each investor has different guidelines
that need to be considered when the underwriter begins this process. After
this, the underwriter will be able to tell whether or not this loan fits the
guidelines and whether it is approved.
If the underwriter needs clarification of income,
debt, or additional information about the property in question, the buyer
should be ready to track down any necessary documents quickly and hand them
over for review. Depending on how many documents are needed to get the final
approval, the underwriting process should not take more than a few days to
complete. Buyers who are prepared to provide whatever is requested will make
the underwriting process go more smoothly.
Dane Hahn is a real estate professional with
Sarasota Realty Associates in Venice. Contact him at 941-681-0312 or by email
at dane.hahn@gmail.com
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