Buying a home can be stressful and waiting for your mortgage to be approved can be down-right nerve racking. But much of that unease can be attributed to not knowing or understanding what the underwriter is looking for during their decision-making process – also known as underwriting.

During this phase, the underwriter analyzes the information that you’ve submitted to ensure it meets the guidelines of the mortgage lender and the criteria of the loan you’re applying for. By verifying your documents, the underwriter determines whether you’re a good long-term risk if you’re given the loan. In other words, the lender wants to make sure you’ll eventually repay the loan and make your payments on time.

The three main things, according to PennyMac, that underwriters look at to decide whether or not you’ll be approved for your loan, include:

1.  Capacity

The underwriter wants to know if you have the money to pay your debts. He/she will look at your employment history, income, debt and assets like your bank statements, 401(k) and IRA accounts. He/she will carefully review your debt-to-income ratio to make sure you have enough money to cover your new mortgage as well as your current obligations.

Also, the underwriter wants to determine if you have enough money available to make a down payment, if required. If you don’t have the money to make a large down payment, the lender may require you to have private mortgage insurance on conventional – not FHA or VA – loans.

2.  Credit

The underwriter will review your credit report to see how you’ve handled repaying your debt in the past. He/she will look at the types of credit you’ve obtained, such as auto, school and other loans as well as credit cards. Also, he/she will determine how much credit you’ve taken on and what the terms are/were of your past loans. Basically, the underwriter wants to establish that you can pay your proposed mortgage payments in full and on time based upon your past credit history.

3.  Collateral

The underwriter will look at the type of property you’re wanting to finance. For example, if the home will be an investment property, it may be determined to be more of a risky investment than if you plan to physically live in the home. Often, if the home’s an investment property, a borrower may be more apt to walk away from it if they run into financial difficulties.

Also, the underwriter will determine the home’s value. He/she wants to ensure the lender isn’t loaning more money than what the property’s worth. Therefore, the underwriter will order a home appraisal, which assesses the home’s current value.

Once the underwriter has reviewed all of your information, you’ll be notified of their decision – whether you’ve been approved or not and for what loan amount.

At Grandview Lending, located in Indianapolis, our mortgage specialists will work with you to find the right home loan program that you can qualify for. Contact us today at 1-886-690-4920 or complete our online application form.

Photo credit: iStockphoto/KHZ