Some Loan Information for You.

I did a little digging tonight. Here are some good articles I found with information on loans/undwriting. I hope they can answer some of your questions, as they have answered some of mine.

Please though, I encourage you to do your own research. These are just a few of the things I found online this evening. This is not the "end all be all" as far as mortgages go. But it's a good place to start. Please feel free to run this information by your Loan Officers. Get feed back! And feel free to share your feed back here. The web is full of information. This is only one small part.

Mortgage Underwriting Guidelines
I'm here to help you understand the mortgage underwriting guidelines that will determine what your mortgage loan options are to purchase or refinance a home. You will understand mortgage loan qualification, mortgage approval, and mortgage loan pre approval based on the four major factors a mortgage lender considers; your credit history, income vs. debt, down payment or equity, and compensating factors.

Mortgage underwriting guidelines determine your options when you purchase or refinance a home. You should prepare for your purchase months in advance especialy if it is your first home. If you want to refinance your home it is a good idea to make sure your credit is in order so you can qualify for the best rates available.

Do you understand the terms: mortgage approval, mortgage pre approval, loan qualification, and pre qualification? Many people are confused and miss led by these terms.

Mortgage pre approval, loan pre qualification are just what they indicate. It is a pre approval or pre qulification based on information submitted before verification of all documentation. After documentation verification the file goes to a mortgage underwriter who again verifies the information. The underwriter can also request any other documentation they feel is justified to strengthen the file.

When the underwriter is satisfied, you will receive an APPROVAL and CLEAR TO CLOSE. Then the actual closing is scheduled. But, don't go out and buy that new car yet. The lender will pull your credit the day you are to close to make sure you have not incured any new debt that could effect your loan qualification. If you have, they can cancel the loan as you are sitting to sign the documents. No Joke!

This site will also explain FHA mortgage qualification, VA mortgage qualification, home equity loan qualification, and bad credit mortgage approval. There are also several mortgage qualification calculators that you can play around with.

We have just put together two web sites that are focused just on FHA mortgage guidelines. If your interest is just FHA Loans you should visit these web sites. FHA Guidelines is focused at underwriters and mortgage professionals, while FHA Underwriting Guidelines is more focused toward the consumer or homebuyer. Of course if you have any questions we will be happy to answer them.

In today's market it is difficult to locate 100% Financing. I have found a 100% LTV product for you that has flexible credit guidelines. Not every person or every home will qualify but it is a government guaranteed mortgage. Learn the benefits and the quidelines on this site: zero down mortgage.

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Loan Underwriting

After the information on the loan application has been validated, the value of the property has been confirmed and the title search has been completed, the loan is ready to be underwritten. Usually, a trained professional reviews all of the information, analyzes the creditworthiness of the borrower and renders a decision on the loan request. Increasingly, much of the analytical tasks of underwriting is performed by technology through artificial intelligence and use of databases. There are general secondary market underwriting guidelines, but many variables are considered in the analysis. The following outlines some of the basic areas and items considered in the process:

Monthly Housing Expenses and Total Debt Obligations
One of the first things an underwriter determines is the borrower's proposed monthly housing expenses and total monthly debt obligations.

Housing expenses: These include the monthly principal and interest payments that are stipulated on the mortgage note. In addition, the monthly housing expenses include a monthly amount for the property taxes and hazard insurance (1/12 of the annual taxes and insurance). There may be other expenses, such as condominium fees, homeowners fees, special assessments, etc., that are included.
Monthly debt obligations: These include monthly credit obligations, such as installment payments, revolving charge cards or other borrower obligations that will continue longer than 10 months. Usually, 5% of the current balance of a revolving charge account is used for the monthly payment.
Total monthly debt obligations: This combines the monthly housing expenses and monthly debt obligations.

Monthly Income
One of the most important components of the loan underwriting process is determining the borrower's monthly income. The income of all borrowers and co-borrowers is included in the calculation. The income can be derived from several sources, but it must be supported by historical documentation and have a high likelihood of continuation. The following outlines the types of income that are used and the means to support them:

Salary: Income derived from any kind of salary, whether monthly, weekly or hourly is acceptable. Two year employment history is usually required.
Commission and bonus: Commissions and bonuses can be used for income. The underwriter will average the last two years of income shown on federal income tax returns and the year-to-date earnings from the written verification of employment or paystubs.
Self-employment income: Generally, the underwriter will average the income derived through self-employment for the last two years from the applicant's federal tax returns and the year-to-date earnings from a profit and loss statement on the business. Usually, underwriters will take into consideration the income trends in the business, as well.
Other income: Other income can be used for loan qualification. Income derived from rental properties, interest, dividends, pensions and social security can be used.

Income to Debt Ratios
After determining the monthly income of the borrower and any co-borrowers, the monthly housing expenses and the total monthly debt obligations, the underwriter calculates two ratios that are helpful in the loan underwriting process.

Primary Housing Expense(PHE)/Income Ratio(I): This ratio is the result of dividing the housing expenses for the proposed loan by the monthly income of the borrower(s). For example, if the primary housing expenses are $1,000 and the total monthly income is $4,000, the ratio will be 25% ($1,000/$4,000 = 25%).
Total Obligations(TO)/Income Ratio(I): This ratio is the result of dividing the housing expenses for the proposed loan plus the borrower(s) other monthly credit obligations by the monthly income of the borrower(s). For example, if the total obligations of the borrower is $1,400 ($1,000 for housing expenses and $400 for other credit obligations), the ratio would be 35% ($1,400/$4,000 = 35%).

Qualifying ratios are only one component of the underwriting process and many other variables are considered in the final decision.

Funds to Close
When the proposed loan is being used to finance the purchase of a home, underwriters will determine the source of funds for the down payment and closing costs. The following are acceptable sources of funds for closing:

Cash: Cash in any depository institution or investment company is acceptable.
Stocks, bonds, mutual funds, etc.: Cash equivalent investments are acceptable forms of funds. They can be validated through statements from investment companies for the last two months.
Sale of existing property: Many times the source of funds for the down payment on a home comes from the equity in a property that will be sold. The sales price of the property being sold is indicated on the loan application and any existing loan is verified on the credit report or through a verification of previous mortgage
Gift from family members: Gifts from family members for the downpayment and/or closing costs are acceptable so long as there is no requirement for repayment. Some loan programs limit the amount of gift funds allowed.

Credit Analysis
Another part of the underwriting process is determining the creditworthiness of the borrower. Loan underwriters review the borrower's credit report to find evidence of debt repayment behavior. Some of the important areas that are reviewed are:

Past and existing mortgage debt: The past repayment history on mortgage debt can be a good indication of a borrowers attitude toward mortgage obligations. A good payment history on mortgage debt is very important in the credit analysis. Generally, payments received 30 days past the due date are reflected in the credit report as late. Lenders vary in strictness and some may not allow any late mortgage payments, while others will allow 1 or 2 in the last two years if there is a good explanation.
Installment and revolving credit: Other items on the credit report can also indicate a borrower's attitude toward credit obligations. Credit reports indicate the outstanding balance, current balance and terms of payment on the borrower's revolving and installment debt. Underwriters review these credit obligations to determine the borrower's patterns of credit use and repayment behavior. Revolving credit encompasses department store and bank credit cards. Installment credit encompasses longer term credit with structured payment plans, such as car loans. Generally, underwriters are not concerned over isolated and minor slow payments indicated on the credit report.
Collections, repossession, foreclosures and bankruptcies: Credit reports also indicate public records such as collections, repossessions, foreclosures and bankruptcies. Though these items may indicate past credit problems, they sometimes have valid explanations. Underwriters may require a letter of explanation on items noted in the public records. Many times consumers have re-established credit and have an excellent payment history on their current obligations.

Underwriting the Appraisal
Generally, underwriters are not professional appraisers and do not re-appraise the property. They will review the appraisal to assure that it meets the requirements of the investor and sometimes request additional information to substantiate the value. They may request that a second appraisal or review appraisal be performed. A review appraisal can be completed from a site inspection or review of the written appraisal. In both cases, another professional appraiser will perform the review.

Compensating Factors
The underwriters consider many variables in their analysis. No two borrowers have the same credit and income profiles andunderwriters use all of the information in the loan file to render a decision. Many times, borrowers fall outside the guidelines, but have strong compensating factors that reflect low credit risk. Some compensating factors are history of savings, long-term job stability, history of making monthly credit payments that equal or exceed the proposed payments, a substantial down payment or a large cash reserve after the close of escrow.

Final Credit Decision
After the underwriter has reviewed the entire loan package, there can be four outcomes:

Approval: If the loan is "picture perfect" and the underwriter has no questions, the loan will be approved with no conditions.
Approved with conditions ( the most common response): There are two types of conditional approvals: (a) If the underwriter needs additional documentation before a final credit decision can be made, a "prior- to- document" conditional approval will be rendered. In essence, the loan documents will not be prepared until the condition has been satisfactorily met. An example of a "prior to document" condition could be a pay stub to validate the borrowers income. (b) If the loan can be approved, but a condition must be met prior to closing, a "prior to funding" conditional approval will be rendered. In this case, the loan documents will be prepared and sent to the closing agent, but the lender will not fund the loan until the condition has been met. An example of a "prior to closing" conditional approval could be proof of sale of existing home where the equity will be used as the down payment.
Suspended: Sometimes the underwriter will be unable to make a decision on a loan file because it is either incomplete or there are many unanswered questions. In these cases, the underwriter will ask for additional information from the borrower before an underwriting decision is made. An example of a suspension may be large gaps in the borrower's previous employment history and no tax returns to indicate the place of employment.
Denial: Underwriters will be unable to approve a loan if the loan file has substantial deficiencies and does not meet the minimum standards of the lender or the lender's secondary market investors. Most lenders require that a second underwriter review the loan package before a final denial is communicated to the borrower. Denial letters with the reason for denial are sent to borrowers within 3 days of the final credit decision. Underwriting criteria can be different among lenders and a borrower may find other acceptable alternatives in the market place.
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and the best thing I found yet:

John and Mary are frightened and more than a little upset. They need to ask for an extension on the closing of their new home purchase because the financing is not ready. They made an offer on their new home 26 days ago and had no idea their Loan Approval Letter was not worth the paper it was written on! Now their Earnest Money is at risk and the money they already spent on a moving company is in question. In addition, they have already paid for the appraisal.

When is a loan approval not a loan approval?

This is not a frequent occurrence. It does happen often enough that savvy Realtors® and experienced sellers are somewhat wary of Mortgage Pre-Approval Letters from loan officers they don’t know through previous transactions. The reason they are wary is simple. Experienced Realtors® know that Pre-Approval Letters are written by loan officers, and loan officers can’t approve loans!

The who’s who of a mortgage transaction.

A Loan Originator is the real name for a person like me who is more commonly called a Loan Officer. A loan originator does exactly what the title implies. He or she creates (or originates) mortgage business. A loan originator’s primary job is to supply a never-ending flow of new loan clients. The title of Loan Officer is rather misleading. A good loan originator does not have to work very hard to maintain a flow of business. Previous happy clients and satisfied Realtors® will keep him or her pretty busy without the need to spend much time marketing.

After they find a client to work with, loan originators are responsible for making certain everything that must be done to close the loan, is indeed accomplished. This includes coordinating a Title Company, an Appraisal Company, a mortgage processor, two Realtors® (one for the buyer and one for the seller) and of course, the borrower. But, a loan officer does not approve loans.

The Loan Underwriter is an employee of the bank. The underwriter’s job is to make sure the borrower (represented by the Loan Originator) fits the Lenders Guidelines for Approval. The underwriter is the person who actually approves the mortgage loan. Very few borrowers ever speak with a Loan Underwriter. Many underwriters prefer it that way. They are busy people who want to be able to move quickly from one loan to the next. There jobs are dependent on speed and accuracy. Getting bogged down with client phone calls does not help with either speed or accuracy.

Whether you, as a borrower, are working with a Bank or a Mortgage Broker, your primary contact is probably a Loan Originator, not an underwriter.

How do you make sure your Pre-Approval Letter is worth something?

A Loan Commitment Letter is the document an underwriter sends to the loan officer once a loan is approved. This is the real thing! A commitment letter will detail every aspect of the mortgage. It will include the terms and interest rate. It will itemize the “Conditions” (the items that must be provided or explained for final approval). The commitment letter will be dated and it will have an expiration date. It may be signed by the underwriter. The Loan Commitment Letter is a formal, legally binding document.

So, if you want to be sure your pre-approval is really an approval, request to see the Commitment Letter! If you are unfamiliar with anything in the letter, have your loan officer explain the unfamiliar portions. It is after all, your loan commitment letter and there is no reason you shouldn’t see it!

In Washington State and many others, the seller has the right to request this proof from the Buyer’s Agent. If the seller has a savvy Agent, the Agent will verify the validity of the Pre-Approval Letter by requesting a Loan Commitment Letter.

In John and Mary’s case, had they simply known to ask for a copy of their Loan Commitment Letter, they would have found out that the loan was not yet approved when the Pre-Approval Letter was written. It shouldn’t have happened the way it did, but this happens often enough that as an educated borrower, you must verify that your pre-approval is a genuine approval.

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And finally I cannot tell you how much this one meant to me. A reader asked this question:
My husband and I are purchasing a new construction. As a part of the contract, we were required to submit a pre-approval letter at the time we signed the contract. We also were required to submit a loan commitment letter within 30 days of the contract date, which we fulfilled.My mortgage broker said the commitment process is like going to close. We plan to close in about 30 days or so. Is it possible for our loan to be denied at the last minute even though we have a commitment letter? This is our first mortgage and we appreciate any information or help that could relieve our worries. Thanks!

Read the answers they got here:


  1. Wow, that is a lot of information : )

    If anyone has specific questions about their loan that they would like a second opinion, let me know. I am a Loan Processor (those people you either love or hate) and have been a Loan Officer.

  2. ME!! I have questions!!

    Our loan is currently in Processing. What does that mean exactly? We were told it is in processing and then from there goes to underwriting. What does all this mean/entail?

  3. The Loan Officer is your sales guy, then it goes to me, the processor.

    The processor is more documents/detail oriented. Have a question about your rate (ask your LO), have a question about an underwriting condition (ask your processor if you are allowed to talk to them.)

    The processor job description can vary but generally they do things like:
    - make sure documents meet requirements (paystub has employer name, your name or ssn, YTD info, recent date, etc)
    - make sure docs are legible if faxed
    - anticipate and request docs they know the underwriter will request
    - complete searches/research/paperwork required depending on the loan program
    - make sure everyone is doing their job and when they are supposed to do it

    Basically if something is missing, the processor handles it.
    If your loan is behind schedule, they get it caught up.
    If stuff hits the fan, the processor is usually responsible.
    If the processor is really good they will know the guidelines almost as well as the underwriter and argue with underwriting about conditions when necessary (I argue with underwriters a lot!)

    - Keep the borrower (or LO) informed of updates

    I could go on and on....

  4. Our loan has been in processing for week now. I hope that's not a bad sign.

    See, I thought everything you named was what underwriting did. Now I have no clue what they do! lol

  5. The processing is more time consuming than underwriting. For example, if your insurance document is missing information, the processor requests it and has to wait for your agent to send it in.
    The caveat to that is if the underwriting department is behind on file reviews. (Currently my company is 2-3 day turn time in underwriting but has been as much as 3 weeks.)

    A really good processor makes the underwriters job easy.

    The underwriter is the one completing calculations and responsible for ins and outs of guidelines. They are the ones "signing off on it." So, the processor gets all of the documents together for the underwriter to sign off on.

  6. Does anyone know if the First Time Homebuyers program that some banks are currently offering would be workable with building a Ryan Home? I would assume Ryan Homes do not require you to go through NVR for your mortgage, but I want to make the loan process as smooth as possible. If I get pre-approved at my bank, can I take that pre-approval to Ryan? Thanks!

  7. If you bring a pre-approval to them, should not be a problem. Several bloggers have gotten their own financing. =) GL!

  8. no problems with credit been on job over ten years, husband and i have been separted over a year, no children. I need a place to call home (my own house). do you think i can get a mortgage loan approved? I'm looking for a USDA Rural Housing program. Will this be up to the underwriter's approvel?