 | Janie Carr
is a Plains Capital McAfee Mortgage home mortgage consultant, with offices at the corner of 13th and Ridge Road (7200 W. 13th, Suite 4). She has 21 years experience in the mortgage industry and is ranked among the top mortgage consultants in the Wichita area. Janie is an active member of the Wichita Area Association of Realtors and the Wichita Builders' Association. Janie is a member of the United Methodist Church. She and her family reside in Clearwater, where her children attend school. You may contact Janie at (316) 773-9500, or by e-mail at jcarr@mcafeemtg.com |
Banking & Finance
2004-03-01 15:26:00
What is an ‘underwriter’ on loans?
Janie Carr
Question: What does an underwriter look for in the home loan process?
ANSWER: An underwriter works for the lender and must decide whether to approve your loan or not. Underwriters evaluate loan applications and documentation to see if the criteria meets the minimum guidelines for the specific loan program being requested.Usually they look at three general areas:• Income and EmploymentUnderwriters will naturally ask, "How will this borrower repay this loan? What is the source of income?" For those employed by someone else, the old way of doing this was to mail a "Verification of Employment" to your employer. When your employer had verified all the pertinent information, such as how long you have worked there, what you currently earn as a base income, how much you make typically in bonuses or commissions, and how likely it is that you will continue to be employed there. Today, we may still do that but we have alternatives too. We can provide your last two years' W2 statements and tax returns, and your most recent pay stubs covering a minimum of 30 days showing you are still employed. This is called "alternative documentation" and is much faster than waiting for snail mail and your employer who may or may not be cooperative.What they are looking for: Sufficient income to cover your proposed total debt load. Do you make enough money to actually pay for all this debt you're taking on after paying for taxes and living expenses, and going out for dinner and a movie once in a while?• AssetsIn the case of a purchase, you obviously must have sufficient cash to actually close the deal. Cash means money in bank accounts, of course, but also any other liquid assets such as stocks, bonds, mutual funds, etc. In addition to enough for the proposed down payment and closing costs, you must also have some reserves. This will vary by lender, but as a conservative rule-of-thumb you should have at least three months gross income in reserves when the deal is closed. They will also want to document less liquid assets, such as life insurance policies, retirement plans, real estate, businesses owned, automobiles, and personal assets. You are not obligated to disclose or document everything, only those assets you want considered to induce the lender to make the loan.What they are looking for: Sufficient assets to cover contingencies. If you lost your job tomorrow, would you default on all your debt the next day, or can you carry yourself for a while?• Credit HistoryThe lender wants to know about your current obligations and the payments you must make each month. They also run your credit report to see how well you have handled your debt in the past. Lenders are coming to realize that how well you have paid your obligations in the past is a better indicator of their safety than any other criterion they may consider.What they are looking for: Is the amount of proposed total debt reasonable for your income and lifestyle? Have you somehow found a way to pay all your obligations in the past no matter what? These are some of the ways that an underwriter for your home loan will arrive at the decision.
