This article will cover how the mortgage loan underwriting process works. The qualification and the pre-approval process are the most important out of the mortgage process. The mortgage loan underwriter is the person that decides whether or not to approve a mortgage loan application. The mortgage underwriter is also the person who decides to issue a clear to close. Dale Elenteny of Gustan Cho Associates explains the clear-to-close and the home closing process:
A clear to close is when the mortgage loan underwriter signs off on the borrower. CTC is when the lender is ready to send closing documents to the title company and fund the loan. The mortgage loan underwriting process starts after the loan originator issues the pre-approval letter.
Once the home buyer submits the executed real estate purchase contract, the official process starts. Everyone, from the loan officer, realtors, processor, underwriter, and other support staff, is to get clear to close and get to the closing table. Once the loan is closed, the borrower becomes the new homeowner.
Documents Required To Start Processing And Underwriting Mortgages
The following documents need to be provided and processed by the mortgage processor:
- two years’ tax returns
- two years W-2s
- 30 days paycheck stubs
- two months’ bank statements
- bankruptcy paperwork, if applicable
- foreclosure paperwork, if applicable
- short sale paperwork, if applicable
- divorce decree, if applicable
- 401k and retirement accounts, if applicable
- child support paperwork, if applicable
- alimony paperwork, if applicable
- any other documents that the mortgage loan originator may deem necessary
The loan originator’s job is to get the mortgage loan package as complete as possible so he or she can submit it to the processing department of the mortgage company.
Once the loan officer has accumulated all the necessary documents from the borrower, the loan officer will submit documents, loan applications, and credit reports to the mortgage processing department. Angie Torres, the national operations director at Gustan Cho Associates, explains how mortgage processing works:
The mortgage processor is the quarterback of a mortgage borrower’s file from the time the loan estimate gets disclosed to the clear to close. The mortgage processor will take care of the conditions required from the conditional loan approval and supervise the mortgage loan goes smoothly until it closes.
The mortgage file gets assigned to a mortgage loan processor. The mortgage processor’s job is to ensure that all of the documents the loan originator has received from the borrower are as complete as possible. The package needs to be ready and complete so it is ready for the mortgage loan underwriting process.
The Role Of The Mortgage Processor
The mortgage processor will make sure that the following is complete:
- two years of tax returns are complete and signed
- two months’ bank statements contain no overdrafts
- if there are overdrafts, notify the loan officer
- make sure that the borrower writes proper letters of explanation
- LOX explains derogatory credit items and credit inquiries
- get the verification of employment
- get the verification of rent
- get verification of deposit
- perform any other task to make sure that the file is complete for the mortgage underwriter
An experienced processor will have an immaculate file. Once submitted to a mortgage underwriter, the underwriter will have no misunderstanding or questions. The processor will make the job easier for the mortgage underwriter to render his or her decision.
Mortgage Underwriting Loan Process And Role Of Mortgage Underwriters
Once the loan processor feels the file is complete, the processor will then submit the file to the mortgage underwriting department. The file is assigned to a mortgage underwriter. The underwriter will carefully analyze the package. The mortgage underwriter will ensure the borrower meets all lending guidelines and the lender’s overlays. Felix Nicolas, III, the executive assistant to Gustan Cho, explains what a conditional loan approval is:
Once the underwriter is content borrower meets the federal lending guidelines and the mortgage company’s lending requirements, the underwriter will approve a conditional mortgage loan. A conditional mortgage loan approval is that the borrower will get clear to close once the borrower meets all conditions.
A mortgage loan will fund as long as the borrower can provide and meet all the conditions on the conditional loan approval. The file is then sent back to the mortgage processor, where the processor will contact the borrower and explain the conditions the borrower will need to provide.
Typical Common Conditions By Mortgage Underwriters
Examples of conditions can be the following:
- updated paycheck stubs
- updated bank statements
- letters of explanations
- missing pages from documents that were initially provided
- not legible documents
- social security card
- drivers license
- missing pages from a divorce decree or other documents
- other items the underwriter deems necessary to issue a clear to close and fund the loan
Once the processor gathers all of the conditions by the borrower, the processor will submit all of the conditions for a clear to close.
Final Submission To Mortgage Underwriter For A Clear To Close
The file is now back in the hands of the mortgage underwriter. The mortgage underwriter will check off the conditions. Once all the conditions have been satisfied, the underwriter will issue a clear to close. Once the mortgage underwriter issues a clear to close, the lender’s closing department will go to work and prepare the closing docs, says Angie Torres of Gustan Cho Associates:
The mortgage company’s closing department will then arrange the closing date with the title company. The mortgage documents will be sent once the lender has all the numbers and figures.
At closing, the mortgage loan gets funded once the home buyers and home sellers sign the home purchase closing documents.
Mortgage Loan Underwriting Process On Quality Control Underwriting Review
Every mortgage company has a QC Underwriting Review Process where another underwriter reviews the loan application to ensure the original underwriter has not missed anything. Some mortgage companies do a QC Underwriting Review before the original mortgage underwriter issues a clear to close. All mortgage lenders will run a file through the national pubic records background search during the mortgage process, according to Marga Jurilla, national operations manager at Gustan Cho Associates.
Any public records such as bankruptcies, foreclosures, judgments, and federal tax liens that do not show up on the three credit reporting agencies will get discovered during the national public records search by mortgage lenders.
Other mortgage companies will do a QC Underwriting Review right after the underwriter issues a clear to close. QC Underwriter will order a third-party search through Lexis Nexis or Data Verify to ensure no public records, such as judgments and liens, are not showing up on the borrower’s credit report. Once the QC Underwriter feels comfortable and signs off on the mortgage file, the mortgage loan is ready to fund, and docs are ready to be sent to the title company for closing.
May 12, 2023 - 6 min read