Underwriter's Role in Purchase of a Home

Every loan has a story, and it’s the underwriter’s job to verify that story for the money source. The underwriter is a silent participator in the loan process who must give her final approval for the buyer to qualify for a home loan. 

The underwriter, however, is by no means really silent. Most buyers never speak to the underwriter working on their loan, but the underwriter is indeed one of the most significant players in the overall journey of acquiring a home mortgage. 

When eager homeowners first set out to qualify for a home loan, they speak to a mortgage lender, or loan officer, who reviews important information about them, such as their income, assets, debt, and overall credit picture. If the loan officer feels that the buyers are indeed strong candidates for a particular type of mortgage, he or she will issue what’s called a pre-qualification for a home loan. This is often referred to as a “pre-qual.” A pre-qual is just what it sounds like—a preliminary qualification.  

This preliminary qualification is subject to many variables. Variables such as the approved value of a home in contract, the borrower’s ability to maintain her status quo in terms of credit, income, and debt, all come into play in the underwriter's final approval decision. Once the loan officer is able to put all the moving parts of a loan together, including all paperwork about the borrower and pertinent information about the home being mortgaged, he or she sends the entire file to the underwriter for review. 

Fact Checkers

It is ultimately the underwriter’s job to scrutinize all facts surrounding the loan to verify that all are true to the best of his or her knowledge. She is certifying that it seems realistic to “bet” on the fact that the borrower will be able to continue to pay the mortgage for the life of the loan. Through this process, the underwriter must verify the borrower’s income, the borrower’s credit and debt standing, including all monies owed. She must also fact-check the borrower’s job stability, where the borrower lives and where the borrower will live, and a host of other circumstances that can affect the borrower’s ability to repay the loan. 

In some cases, buyers may be trying to purchase a home too far from their place of employment. It's the underwriter’s job to question the plausibility of the purchase. Since the buyer may be trying to purchase an investment home, not a primary home, the buyer must declare the purchase as an investment home. Investment homes are considered riskier loans for lenders, and so the loans come with higher price tags.  Investment homes typically require more money down from the buyer, stricter credit requirements, and lower debt-to-income ratios. 

Underwriters are essentially licensed fact-checkers. Investors, the actual money source for a borrower’s mortgage, put full-faith trust in the underwriter to investigate each potential loan to the fullest extent possible. They are stringent investigators, and it is their job to question. They must verify that the “story” surrounding a loan makes sense. 

Example Scenario 

To better illustrate the underwriter’s job, let’s look at a realistic scenario: Jack and Jill are relocating from Seattle to Las Vegas because Jill was just promoted and transferred by her employer, Amazon. Jill makes “X” amount of money, and Jack, who is a teacher, makes “X” amount of money per month. Since Jack has been teaching for 7 years in the public school system and was just hired by Clark County School District to teach 4th grade, it’s safe to say that Jack will continue to remain employed as a schoolteacher. 

Jill receives a monthly stipend from Amazon that appears to be a bonus, and so the underwriter may question this bonus, and if he decides that it is not a regular, guaranteed payment, he may not be able to include it in Jill’s overall income. If Jill and Jack require the income from that monthly bonus to fall within the investor’s guidelines for debt-to-income ratios, this could present a problem, but is often overcome with the elimination of some debt. 

Jack and Jill have two car payments, student loans, fertility debt, and they also have a bit of credit card debt that all adds up to “Y.” That’s perfectly fine as long as their total debt obligations with their potential mortgage payment still fall within the investors’ tolerated guidelines. (Debt-to-income ratio=monthly debt obligations divided by monthly income, or Y/X.) If that’s the case, then the investor may like to loan Jack and Jill money to buy their new home in Henderson. So the lender, or loan officer, secures the money for Jack and Jill from the investor. 

To Sum Up...

If an underwriter approves a loan, she is giving it her full seal of approval to the investor. Different investors have different requirements, and it’s an underwriter’s job to match those requirements with the circumstances surrounding the borrower. Underwriters are highly regulated and monitored, particularly by the investors who have the most to lose if a borrower defaults on a loan. So be patient with the underwriting process as it is crucial for both the loan at hand as well as the overall health of our housing market and consequently, our economy.