Welcome to the second installment in our Understanding Underwriting series! In our last piece, we laid out the basics of what an underwriter is and does. We know our customers frequently have questions about the volume of documentation requested in the lending process, so we hope this piece directly from our Underwriting Manager addresses some of your concerns.
Underwriting is the culmination of a documentation-heavy process required to secure your loan, so our department understands why our customers sometimes have concerns about our requests after having complied with many others. I think I speak for Apex as a whole when I say that it’s important to remember that all customers are treated equally when it comes to document requests, and all mortgage lenders ask for equivalent documents to approve a loan. Fundamentally, the reason we request so much documentation is simple: lenders must prove a borrower’s ability to repay their loan before approving it, and we want to make sure your application is as strong as possible.
An Underwriter ‘narrates’ your financial story
As you know, financial inquiries are standard protocol for all mortgage transactions, and as a lender processes a loan, it is likely that you will receive requests from not only your Mortgage Banker, but also from document-preparation professionals (i.e. mortgage planners, processing, and quality control) and, ultimately, underwriting (that’s me!). At the end of this process, an underwriter has to be able to “tell a story” about your profile as a borrower. While a number of documents have likely already been collected to get started in this process, part of an underwriter’s job is to ensure that all of the pieces are current, complete, and that there are no gaps in your financial narrative. There may be certain documents, for example, that are required to fully satisfy Government-Sponsored Enterprises guidelines (i.e. Fannie Mae and Freddie Mac), and others that must be included to “fill in the blanks” of your financial journey.
Underwriters must verify the source of your funds
Yet another reason why an Underwriter may request additional documents from a borrower is to verify the source of specific funds. Have you ever wondered why underwriters care about large deposits? The reason is this: an underwriter must show that all funds for a purchase transaction come from an acceptable source. Basically, this means that none of the funds used in the purchase can be borrowed from a friend or from an unsecured loan, i.e. a credit card advance or personal line of credit.
In a similar fashion, this is also why underwriters need the URL (web address) on the printed web documents showing your transaction history if they are proof of assets. The URL is used to identify the financial institution holding your assets as required by regulatory agencies. This document request is an important one: If you cannot provide a transaction history showing a valid URL, lenders cannot accept it as satisfaction for the requested documentation.
Other common Underwriting requests
Depending on your situation, an Underwriter may also request items such as a Borrower Letter of Explanation (LOX), Gift Letter, or Evidence of Earnest Money. In each of these scenarios (and most others), an Underwriter is simply identifying any weak points in your loan application in order to strengthen it on your behalf and ensure GSE and investor approval, not to mention the financing for your dream home!
Looking to learn more about the mortgage process?
Our Homebuyer’s Guide contains a complete glossary of mortgage terms, explanations of the merits of different loan types, and details about first-time buyer programs that could save you money.
Topics: mortgage process, Home Loans, Buying a Home, Underwriting, Why Lenders Require So Many Documents, why underwriters request documents
FAQs
A thorough review requires the borrower to submit as many documents as necessary for their application. This is useful so the underwriter can verify their identity, check their credit history, and assess their financial status, ensuring that all the information provided is accurate.
Is it normal for underwriters to ask for more documents? ›
In the event that you earn income from other sources, such as rental property, or Social Security income, the lender will ask you to document that, too. The bottom line is there's nothing unusual about being asked to provide more documents after you submit your application. It's absolutely normal.
Why do underwriters need so much information? ›
Simply put, they want to know the person can repay the loan. So, they find a borrower with the lowest possible defaulting risk. A low-risk borrower has a higher chance of getting their loan approved with better terms like higher loan limit or lower interest rates.
Why do underwriters ask so many questions? ›
The more proof the lender has for the buyer's reliability and good financial standing, the more protection they have. That's where all that intrusive questioning and document-digging comes into play.
Can a lender ask for more documents after closing? ›
No, your loan cannot be denied after closing. You have signed all the papers necessary and have reached an agreement. Your lender is bound by law to stick to your contract. After closing, your lender cannot go back on the arrangement they have made with you.
Should I worry during underwriting? ›
There's no reason for a borrower to worry or stress during the underwriting process if they get prequalified. They should keep in contact with their lender and try not to make any major changes that could have a negative impact on this critical process. That includes taking out new debt or making a big purchase.
Do underwriters look at your spending? ›
The underwriter must also determine your debt-to-income ratio, the total amount of money you spend on bills and expenses each month divided by your gross monthly income (pretax income).
What not to do during underwriting? ›
While your loan is processing, avoid taking on new debt or making other financial changes like closing credit cards or other accounts. Anything that affects your debt-to-income ratio may impact your mortgage approval.
How common is it to get denied during underwriting? ›
You may be wondering how often underwriters denies loans? According to the mortgage data firm HSH.com, about 8% of mortgage applications are denied, though denial rates vary by location and loan type. For example, FHA loans have different requirements that may make getting the loan easier than other loan types.
How long is closing after underwriting? ›
Working through each step is part of the reason why it can take 30 – 45 days on average to move from underwriting to closing.
To begin with, yes. Many lenders hire external companies to double-check income, debts, and assets before signing closing documents. If you have significant changes in your credit, income, or funds needed for closing, you may be denied the loan.
Which document is the most important at closing? ›
While each closing document serves a specific purpose, one of the most important documents at closing is the deed. The deed is a legal document that transfers ownership of the property from the seller to the buyer. It is essential because it establishes the buyer's legal right to the property.
Can you lose your loan after closing? ›
In some cases, issues related to the condition of the property can lead to a loan denial after closing. For example, if the property appraisal comes in significantly lower than the purchase price, it could affect the loan-to-value ratio and the lender's willingness to fund the loan.
What additional information do underwriters ask for? ›
When trying to determine whether you have the means to pay off the loan, the underwriter will review your employment, income, debt and assets. They'll look at your savings, checking, 401k and IRA accounts, tax returns and other records of income, as well as your debt-to-income ratio.
How many times will underwriter ask for bank statements? ›
How Many Bank Statements Will You Need To Provide? You'll usually need to provide at least 2 months' worth of bank statements. Lenders ask for more than one monthly statement because they want to be sure you haven't taken out a loan or borrowed money from someone to be able to qualify for your home loan.
