Time is of the essence when buying a new home, so sticking to timeframes can mean the difference between closing or the deal falling through. Underwriting, the process by which a mortgage lender analyzes your home loan application for final loan approval, has a lot of bearing on whether your loan closes on time. Other variables include the lender, the loan type, the complexity of your financial circumstances and how quickly you respond to the lender's requests for information. Lenders can generally underwrite a complete loan package in a matter of days.
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Complete Loan Packages Move Faster
Different loan types require different information and supporting documents. Individual lenders and underwriters may also have their own standards and protocol that call for varying amounts of paperwork and review, which affects the underwriting time. Loan packages that include all lender-required documentation generally move through the underwriting process faster than incomplete files or files with inaccurate information. A complete loan file consists of a minimum of:
- the home loan application
- property title report
- escrow holder documents
- borrower's proof of income
- proof of assets
- credit report
- home appraisal report
Underwriting Type Matters
The lender may manually or automatically underwrite a loan. Many lenders use automated underwriting systems, or AUS, that generate quick approvals based on uploaded credit reports and financial details that your lender inputs. Inaccurate or insufficient information may generate a loan denial or referral to manual underwriting, in which case, one of the lender's underwriters reviews the file with a fine-toothed comb before making a final decision. If the AUS generates an approval, however, the file is forwarded to an underwriter to simply verify the coherency of the documents in the loan file. Automated underwriting systems can provide a response in a matter of hours. However, the process of AUS and manual underwriting together can take several days.
Federal Housing Administration and Veterans Affairs Underwriting
The FHA and VA are government programs that back loans made by private lenders. An FHA loan offers a low down payment of 3.5 percent and the VA requires no down payment. These loan types also have lenient underwriting standards when it comes to credit challenges and income. However, borrowers must provide the same information conventional loan files require, such as credit, income and asset documents. Additionally, the home must pass a stringent appraisal inspection. Many factors affect the time frame for FHA and VA underwriting. Thus, goverment-insured financing can take about as long as conventional financing to underwrite. FHA loans can stay in underwriting anywhere from two weeks to six weeks, depending on the number of issues that arise with a file, according to the FHA Handbook website.
Reducing Underwriting Time
Underwriting can only work as quickly as its slowest moving part. Lenders require information from thrid parties, such as escrow, title and insurance companies, your employer, banks and real estate professionals. A delay caused by any of the parties involved prolongs the process. You can help make the process smoother by obtaining a list of all needed documents and collecting them as soon as possible. Scanning, faxing and emailing are acceptable ways to transmit documents and make for faster delivery to the lender.