The Mortgage Underwriting Approval Process

What to Expect and How Long It Takes

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On the fun scale, the mortgage underwriting approval process often feels like an exceptionally long dental appointment. You've dutifully gathered the mountain of documentation required to obtain a mortgage... or so you thought. 

You'll either hand them over to your loan officer or you’ll give them to an assistant or a processor. Either way, your documents will be reviewed for thoroughness, completeness, and accuracy, and almost everyone messes something up. They forget something or miss a signature. Your missing documents or signatures will be requested along with clarification on anything that's not crystal clear about your docs.

And so it begins. 

Getting Started

You’ll probably be quizzed right off the bat about any large deposits in your checking or saving accounts or how your 401k is vested, at least if you're planning on making a down payment of less than 20 percent. This is standard so roll with it, but hustle with your answers and any additional documentation. It's absolutely needed for the next step: underwriting.

Your Choice of a Lender 

The next step in the much-ballyhooed “underwriting process” can vary a great deal depending on your loan officer and your choice of a lender. The mortgage lender and loan officer you choose, the type of loan you need, and the general level of detail you've put into gathering your documents will play a large part in determining your personal level of “underwriting discomfort".

Your file will be passed on to a corporate mortgage processor in a centralized location that is typically nowhere near you, at least if you went with a big bank. These processors are typically overworked and underpaid so you can expect a more lengthy approval process. They try to maximize a number of loan files that everyone has to process/underwrite—it's a quantity-over-quality approach.

Smaller lenders and independent mortgage brokers usually staff cohesive in-house teams. This results in more efficient operations and everyone is under one roof. 

There are many good reasons to use a big bank and some of them are valid. They can generally afford to take more chances than the little guy, and that's great if you find yourself in a gray zone for approval. They also typically offer a wider variety of niche mortgage products for things like renovation and construction financing. But you'll have to give up a little something in the way of efficiency in exchange for these advantages. 

The Effect of "Turn Time"

All mortgage lenders have a “turn time", the time from submission to underwriter review and the lender's decision. The turn time can be affected by a number of factors big and small. Internal policy on how many loans operations the staff carries at one time is often the biggest factor, but things as simple as weather conditions—think Rochester, NY in the winter—can throw lender turn times off quickly.

Ask your loan officer what she expects your turn time will be and consider that factor in your ultimate choice of a lender. Keep in mind that purchase turn times should always be less than refinance turn times. Homebuyers have hard deadlines they must meet so they get underwriting dibs.

Your purchase application should be underwritten within 72 hours of underwriting submission under normal circumstances and within one week after you provide your fully completed documentation to your loan officer. 

Approved, Denied, or Suspended 

The underwriter will typically issue one of three dispositions to your application: approved, denied, or suspended.

If it's approved, underwriting will typically assign conditions you'll have to meet for full approval. This might be clarification regarding a late payment, a large deposit, or a past life transgression. It could simply be a missed signature here or there. 

If it's suspended—which is not completely unusual—the issue of underwriting becomes more confused and needs clarification. These delays are typically employment- or income-related, but occasionally an asset verification question can also lead to a suspension. In this case, you’ll get two conditions: one to clear the suspense and the standard conditions needed for full approval.

Finally, you'll want to find out exactly why if you're denied. Not all loans that start as denials end up that way. Many times a denial just requires you to rethink your loan product or your down payment. You might have to clear up a mistake in your application or on your credit report.

Approved With Conditions

The status of the vast majority of loan applications is "approved with conditions". This is referred to as "conditional approval". The underwriter simply wants clarification and additional docs, mostly to protect himself and his employer. He wants the closed loan to be as sound and risk-free as possible.

Quite frequently, the additional items aren't requested to convince the underwriter but rather to make sure the mortgage meets all the standards required by potential secondary investors who might end up buying the closed loan when everything is said and done. 

Your Role in All This 

Your primary job during the time your loan is in underwriting is to move quickly on document requests, questions, and anything else that's asked of you. No matter how ridiculous you think the doc request might be, set that hoop aflame and jump through it as quickly as possible.

Do not take the inquisition personally. This is just underwriting does. Just handle the last few items and submit them so that you can hear the three best words in real estate—"clear to close"!

That's it. You're done. There will be only a few more routine hoops to jump through. Cut your down payment check, sign on the dotted line, and get ready to move.