Menu
Home
Log in / Register
 
Home arrow Business & Finance arrow The mortgage kit 6th edition
< Prev   CONTENTS   Next >

Underwriting

The approval process is known as underwriting (see Figure 1.7). In some instances, as many as three different entities must approve your loan: the lender's underwriter, a mortgage insurance company (for loans with an LTV ratio greater than 80 percent), and the lender's investor (for large loans requiring preapproval).

The underwriting procedure can yield one of four possible outcomes:

1. Approval

2. Approval with conditions (e.g., approval subject to the sale of the applicant's old home)

3. Application returned for additional documentation and resubmission

4. Denial of credit

When your loan is approved or approved with conditions, the lender issues a commitment letter and begins preparations for settlement (also known as closing).

FIGURE 1.7 Step 5: Underwriting

Step 5: Underwriting

If the underwriter needs additional information before approving your loan, the entire package is returned to the loan processor. The processor gathers the additional documents and resubmits the package to underwriting.

If you are turned down and denied credit, the lender must issue a letter stating the reason for denial. If you were denied credit because of adverse information in a credit report, you have the right to inspect a summary of the report issued by the credit reporting agency, challenge inaccuracies, and request that the credit agencies make corrections.

Usually, your loan application is approved (or disapproved) by someone who has never met or even talked with you; the decision is based on the documents in your file. To some people, this depersonalization of the credit approval process is offensive and even emotionally upsetting. Some lenders, especially smaller banks and savings-and-loan associations, offer more personalized service. If personalized service is very important to you, ask lenders about their approval process when shopping around for a loan.

Important Note: The industry is in the process of combining the application-verification-underwriting steps of getting a mortgage by using huge computer systems developed by Fannie Mae, Freddie Mac, and some of the nation's very large mortgage lenders. They are called automated underwriting systems. Over 95 percent of loans processed today use automated underwriting systems. Because of their growing use, Chapter 2 contains a section describing them in detail.

 
Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
 
Subjects
Accounting
Business & Finance
Communication
Computer Science
Economics
Education
Engineering
Environment
Geography
Health
History
Language & Literature
Law
Management
Marketing
Philosophy
Political science
Psychology
Religion
Sociology
Travel