What to expect from the underwriting process
If you’re applying for a home purchase or refinance loan, you’ve probably heard the term ‘underwriting.’
Mortgage underwriting is the process through which your lender verifies your eligibility for a home loan. The underwriter also ensures your property meets the loan’s standards.
Underwriters are the final decision-makers as to whether or not your loan is approved. They follow a fairly strict protocol with little wiggle room. But delays can still happen at different stages in the process.
Here’s what to expect during mortgage underwriting, and what to do if your loan approval is taking longer than expected.
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How long does underwriting take?
Mortgage lenders have different ‘turn times’ — the time it takes from your loan being submitted for underwriting review to the final decision.
The full mortgage loan process often takes between 30 and 45 days from underwriting to closing. But turn times can be impacted by a number of different factors, like:
- Internal staffing policies
- Loan application volume (how many mortgages a lender is processing at once)
- The complexity of your loan profile (for example, someone with issues in their credit history might take longer to approve than someone with an ultra-clean credit report)
Depending on these factors, mortgage underwriting can take a day or two, or it can take weeks.
Under normal circumstances, initial underwriting approval happens within 72 hours of submitting your full loan file.
In extreme scenarios, this process could take as long as a month. However, it’s unlikely to take so long unless you have an exceptionally complicated loan file.
When you’re shopping for a mortgage, ask lenders how long it’s currently taking them to close on a home purchase or refinance (depending on your loan type).
In addition to shopping interest rates and closing costs, turn times should be one of the final factors in your ultimate choice of a lender.
What’s involved in the mortgage underwriting process?
Regardless of whether you’re buying or refinancing, the underwriting process is very similar.
1. Credit approval
Underwriters look closely at your financial situation. They need to verify the information you gave on your mortgage application by checking it against your documentation.
Most importantly, underwriters will look at your:
- Credit — Your credit scores and credit history are indicative of your likelihood to repay your mortgage loan
- Income and employment — Typically, lenders will look at your last 24 months of employment. Employment gaps may require a letter of explanation. You’ll also need to provide documentation such as pay stubs, W2s, and tax returns, depending on how you get paid
- Debt ratios — The lender will look at your monthly debts compared to your income to determine your debt-to-income ratio (DTI). This helps verify you can afford your future monthly mortgage payments. Different loan programs have different allowances for debt ratios
- Appraisal — The appraisal will determine your new home’s fair market value. This a vital part of the underwriting process. Lenders need to see that the home is worth at least as much as the contracted sales price; if not, you might need to re-negotiate the purchase price, down payment, or the entire loan
- Mortgage program — The underwriter will verify your eligibility for the type of loan you want (e.g. a conventional loan or FHA loan). Different mortgage programs have different requirements
Provided your finances check out and the home appraises at or above the purchase price, you’ll move on to the next step, which is often a ‘conditional approval.’
2. Conditional approval
After the underwriter reviews your file, they will typically issue a conditional approval.
Being conditionally approved is usually a good sign. It means the underwriter expects your loan will close. However, you may need to help satisfy at least one or more conditions before that can happen.
This typically involves providing additional information and documents.
Some underwriting conditions can be fairly straightforward and easy.
For example, the underwriter may require a letter of explanation for derogatory information on your credit report. Past bankruptcies, judgments, or even late debt payments can warrant letters of explanation.
Sometimes, just a letter of explanation or two is all that’s needed to issue final approval. These types of issues can be solved quickly.
Other times, mortgage conditions may be more involved and take more time.
For example, final approval could be delayed if your lender asks for:
- Documentation to support large cash deposits in your bank account
- Additional details from the appraiser to support the value of the home
- Certain debts on your credit report may need to be paid off in order to qualify
- Bank statements, sometimes covering 12 months, may be needed to show proof of making a particular payment
- If you’re self-employed, a year-to-date profit and loss statement may be necessary
In these cases, the underwriting timeline depends on the complexity of the issue and how long it takes you and/or your financial institutions to provide these additional documents.
3. Final approval
Ideally, once the terms of your conditional approval have been met, the underwriter will issue final approval. This means you’re ‘clear to close.’
If you’re denied, ask your lender why, and what you can do to have the decision overturned.
A mortgage can be denied if the terms of the conditional approval aren’t met, or if your financial information has changed since you were pre-approved.
For instance, if your credit score falls between your pre-approval and final underwriting, you may no longer qualify for the loan terms or mortgage rate you were initially offered.
In these situations, the borrower might have to re-apply for a different type of loan or back out and wait until their circumstances improve before applying again.
Is no news good news?
Oftentimes, not hearing the words “Clear to Close” within the time frame you anticipated can be concerning.
However, no news can just as easily mean your lender is experiencing an unusually high volume of loan applications.
The best way to ease your concerns is to stay in touch with your loan officer.
Ask how often you should expect to receive updates, and in what form. For instance, should you be checking your email? Will your lender communicate via text? Or is there an online portal or app you can check to follow your loan’s progress?
Consistent communication is key. Ideally, your lender will reach out right away if there are any issues in the underwriting process. But if you’ve been waiting longer than expected, take it upon yourself to reach out and find out what might be causing the delay.
Does underwriting take longer for refinance loans?
Currently, most lenders are taking longer to process refinance applications than home purchase loans.
Home buyers have hard deadlines they must meet, so they typically get first priority in the underwriting queue.
The average turn time for purchases, from underwriting to closing, is approximately 30 days. Refinances are averaging 45 days.
But keep in mind, closing times vary by lender. The underwriting process could move much faster if a lender’s underwriting team has lots of bandwidth, or slow to a crawl if they’re swamped with loan applications.
When you’re applying for loans, you can ask lenders about their current closing times to help evaluate which ones will be able to approve your home loan more quickly.
How to speed up the underwriting process
In the mortgage world, underwriters are the gatekeepers between you and your home loan.
Because they are an essential aspect of the mortgage approval process, you’ll want to be prepared to supply all of the necessary documentation that’s requested.
Being responsive and providing documentation in a timely manner will help limit underwriting delays.
Issues as simple as a missed signature can stretch out underwriting and cause closing delays. So be thorough when signing and reviewing your paperwork.
And keep your communication lines open. If underwriting is taking longer than expected, reach out to your loan officer to see what’s causing the delay and whether anything is needed from you to move the process along.