FHA Loan Underwriting Process
The loan origination process is a process where a borrower applies for a new home loan and the lender processes the mortgage application. Loan origination is a multi step process that makes the wheels turn for all borrower applications that hope to qualify for any mortgages or home loan and other types of personal loans. As things pertain to the FHA loan underwriting process, this is where a professional underwriter works to ensure that everything you have submitted in your financial profile matches the specific lender’s requirements and guidelines for basic loan qualification. It is not until a home buyer submits their file to an underwriter that an assessment of risk may be determined for a final decision as to approve or deny your request. As things go with most loans, an underwriter will almost always consider the “three C’s” which are: credit, capacity, and collateral.
How Does An Underwriter Determine My Credit, Capacity, and Collateral?
Generally speaking, this part of the process may take anywhere from 2 days to a full business week assuming you have provided all necessary and completed paperwork to your loan officer. In respect of FHA and conventional mortgages, a buyer should expect an underwriter to give special attention to information that will determine a borrower’s capacity to actual repay their loan each month. Information within your loan application that helps an underwriter make this determination include:
- Debt-to-Income Ratio and Income Analysis
- Employment Verification, History, and Potential to Earn
- Credit Scores and Reports (be sure to check this for accuracy)
- Full Bank Statements (checking, savings, and your down payment source)
- Property Appraisal and Market Study
What Are The Basic Responses To a Mortgage Application?
There are typically only three responses that you may expect following a review of the loan application file. This decision will be issued in writing and should be:
- Approved – Great news! This means that your file satisfies all requirements by meeting the basic FHA guidelines.
- Suspended – This means you are in a holding pattern. This is neither a “yes” nor is it a “no.” Expect to provide more information about your situation in order to be approved.
- Denied – Unfortunately your application was not acceptable. This happens. As your loan officer what you can do to improve your chances next time.
What If You’re Approved With Conditions?
Everything in this business is done in writing. As such, as a buyer you should expect to get a document that communicates your loan approval. In some cases, your approval may require that you satisfy certain “conditions” to allow the lender to honor your loan application. Typically, any conditions that come alongside a loan approval will exist as one or the other of the following:
- Prior to Loan Documents Conditions – This is a situation where the borrower must provide paperwork or additional documents for review by the underwriter before your actual “approved” documents may be provided.
- Prior to Closing Conditions – This one gets you a little farther in the process. This condition requires that you satisfy a specific request before the mortgage is able to move through closing.
The underwriters are typically speedy in what they do. As someone that is hoping to move forward with a real estate transaction, it is often the case that an underwriter can either provide loan documents or even fund the loan within a day of satisfying necessary conditions.
To make the process even faster and eliminate room for human error, there is a process called “automated underwriting.”
The automated process is getting better with time as machine learning and artificial intelligence process the data in your loan application in real-time.
Your information is inserted into a scientific algorithm that determines your financial health before issuing a response that may include recommendations on what sort of paperwork will be required to validate a borrower’s ability to make their mortgage payment. In many cases, the automated process provides applicants with a decision in as little as several minutes.
FHA Loan Approval Process
In some cases, the home loan underwriters may ask for additional information to clear up any questions and verify that they are making a decision that is best for their business. You have to remember, a lender is a bank… and a bank is a business that does not stay in business by giving out “free” money. If your application gets denied or requires additional information, there may be some compensating factors that offset potentially negative items in your risk profile. Though many tools offer automated, fast ways of processing applications underwriters will almost always be open to reviewing your application holistically. It isn’t until a full review, inclusive of your unique context as borrower, that a lender will fully understand what sort of risk you may or may not pose.
He is an experienced presenter on affordable housing topics including FHA, VA, and conventional home loan programs.
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