We recently discussed the fourth step in the home buying process: applying for the loan. Once you apply for a home loan, your Mortgage Loan Originator will submit all of your documentation to Processing, and from there, your loan will be sent to Underwriting. These are crucial steps, and it is important to understand some of the factors that go into getting your home loan approved.
Once you have submitted all of the required documentation for your loan application, your Loan Originator will submit everything to Processing. The Processor puts all of the documentation together for Underwriting, and works closely with the Loan Originator to ensure a smooth process. They will order a title search to make sure that the seller has legal rights to the property, and schedule an appraisal to determine the value of the property. Based on information received, the Processor may reach out to the borrower for any additional documentation needed. Once all of this has been completed, the Processor will send the application to Underwriting.
In the underwriting process, the lender determines the degree of risk involved with lending the consumer money. Here are the “Four C’s” that the Underwriter will evaluate:
- Credit: Your credit score gives the lender an idea of how well you manage debt. The Underwriter will pull a credit report based on information from the three major credit bureaus: Equifax, Transunion, and Experian. They will analyze your credit history, including your credit score, payment history, number of open accounts, and the balances on those accounts
- Capacity: Capacity is a consumer’s ability to make payments on the loan. The Underwriter will evaluate your debt-to-income ratio, which is your monthly debt divided by your gross monthly income. The lower your debt-to-income ratio, the more likely it is that you will be able to make mortgage payments.
- Collateral: Collateral is an item of value that is pledged for repayment of a loan; in this case, the house you are buying. The Underwriter will compare the value of the house based on the appraisal, and comparable properties in the area, to the cost at which the house is being purchased.
- Capital: Capital refers to your income and any verifiable monetary assets you may have, such as retirement funds, checking and savings accounts, etc.
Once the Underwriter has approved all applicable documentation, and determines that the loan is a good fit, a clear-to-close (CTC) will be issued, allowing the loan to move into the final stage of the process: closing on your new home.
If you have any questions about the home buying process, contact one of our licensed Mortgage Loan Originators. If you are ready to buy a home, click here to get started!