Mortgage Application Process
If you are a home buyer or a current homeowner and are applying for a new home purchase mortgage loan or a refinance mortgage loan, you start with completing a mortgage application. The mortgage application, also known as the 1003, asks you information about your income, debts, and assets. It also asks you if you have filed for bankruptcy, had a foreclosure, had a judgment, had tax liens, or have open collection accounts. It is of upmost importance that you answer these questions as accurately and truthfully as possible because all of the information you state on your mortgage application will be verified and letters of explanations to mortgage underwriters will need to submitted.
Prior to processing and underwriting your mortgage loan application, your mortgage loan officer will ask you to supply financial documents such as two years tax returns, 2 months bank statements, W-2’s for the past two years, recent paycheck stubs, bankruptcy papers if it applies to you, foreclosure papers if it applies to you, divorce decree, and other documents such as judgment release and tax release paperwork. Once these documents are submitted, your mortgage loan application will be processed and submitted to underwriting where an underwriter is assigned. It is the job of the underwriter to approve your mortgage loan and issue a clear to close. Your mortgage application and the documents you have submitted along with your credit reports will be scrutinized by the mortgage loan underwriter. The mortgage loan underwriter needs to fully understand your credit and financial profile and any questions, letters of explanations to mortgage underwriters need to be submitted.
Letters of explanations to mortgage underwriters
Once your mortgage loan application is assigned to an underwriter, the underwriter will got through your application, your credit reports, and all of the documents you have submitted. The mortgage loan underwriter will review your tax returns and verify the returns with the Internal Revenue Service. The underwriter will review your W-2’s and will want to see a verification of employment letter from your current employer. The underwriter will also check your bank statements and see if you have any overdrafts in your checking or savings account in the past 12 months. He will also review your bankruptcy papers if you have filed a prior bankruptcy. He will also review your derogatories on your credit report and see the patterns of your credit history. The mortgage underwriter will assess your risk level and if he or she believes you will pay your future mortgage payments, he or she will then issue you a conditional mortgage loan approval.
Types of letters of explanations to mortgage underwriters
Prior to issuing a conditional approval, you may be required to write letters of explanations to mortgage underwriters for questionable items. Letters of explanations to mortgage underwriters need to be brief and to the point and a wrong statement can blow the deal. Your mortgage broker will help you write the letter of explanation and review it prior to submitting it. Some examples of letters of explanations to mortgage underwriters are the following:
1. If you have unsatisfied collection accounts, they will want you to explain why you went into arrears and not paid your debt. Some valid reasons can be that you lost your job, had a divorce, medical issues, identity theft, or other unforeseen circumstances.
2. If you had a bankruptcy, what forced you to file bankruptcy. Some reasons can be that you lost your job, closed your business, medical issues, or divorce.
3. Too many credit inquiries. Every credit inquiry within the past 90 days will need letters of explanations to mortgage underwriters. Some reasons can be shopping for a mortgage, shopping for a lower interest rate credit card, or some other reasonable explanation where it will prove to the mortgage loan underwriter that you were not desperately seeking new credit due to financial troubles.
4. Self employed individuals might need to prove that their business is most likely to continue via letters of explanation to mortgage underwriters.
5. Job gaps. Letters of explanations to mortgage underwriters will need to be submitted if you had job gaps in the past two years or periods of unemployment.
Clear to close
Once you have supplied letters of explanations to mortgage underwriters, you will be issued a conditional approval. There will be conditions that should easily be satisfied. Such conditions may be insurance information, the most recent bank statements, the most recent pay check stubs, and pulling a current credit check on you and/or your coborrower. Once these terms have been satisfied, the mortgage loan underwriter will issue a clear to close which is the clear go ahead for you to schedule your closing.