This BLOG On What Do Mortgage Underwriters Look For During Review Was UPDATED And PUBLISHED On June 9th, 2020
What Do Mortgage Underwriters Look For Underwriting Review:
The underwriting department of a mortgage company is probably the most important department. Mortgage Underwriters are the people that will approve a loan file and issue a clear to close:
- Underwriting department function is to make sure that every loan underwritten meets both the federal mortgage guidelines as well as the mortgage lender’s overlays
- The role of mortgage underwriters is all the loans they underwrite will not default
- Every document the borrower has submitted is legitimate
- Special emphasis will be placed there is no fraud involved
- Role of mortgage underwriters is to feel confident all borrowers have the ability to repay the mortgage loan
- All proper disclosures to borrowers have been disclosed
In this article, we will discuss and cover What Do Mortgage Underwriters Look For During Review.
What Do Mortgage Underwriters Look For Reviewing Income
Income analysis is one of the most important functions of mortgage underwriters.
- Underwriters will review the income analysis and make sure that borrowers income is qualified income
- They make sure borrower’s debt to income ratios are in line with the maximum debt to income ratios allowed per federal guidelines
- They also check borrowers meet lender’s overlays on debt to income ratios and other credit requirements
- Tax returns will be carefully reviewed, especially the un-reimbursed expenses
- W-2 wage earners effective adjusted gross income will be used to qualify for income
This mean write-offs on tax returns will be deducted from borrower’s gross income.
What Do Mortgage Underwriters Look For Reviewing Qualified Income
Mortgage underwriters will determine whether or not part-time income, bonus income, and other income can be used to qualify borrower’s income calculations.
- Two-years history of part-time income, bonus income, and other income is required to be able to count towards income calculation
- However, underwriters have discretion not to count part-time income, overtime income, bonus income, or other income if the underwriter feels that these incomes will not continue for the next three years
- Reasons, why mortgage underwriters may not accept part-time income, overtime income, bonus income, or other income, can be due to declining income, irregular income
A lot will be dependent on verification of employment by employer comes back and how income likely to be continued is interpreted.
What Do Mortgage Underwriters Look For Reviewing Credit Analysis
Mortgage underwriters will not just look at the credit scores of the mortgage loan borrower. They will also carefully review the overall credit history of the borrower with special emphasis on the payment history of the past 12 months:
- Things underwriters will review will be prior bankruptcy, prior foreclosures, prior deed in lieu of foreclosures, prior short sales and re-established credit history
- They will make sure borrowers meets the mandatory waiting period after bankruptcy and foreclosure guidelines
- They will want to see bankruptcy filing paperwork as well as bankruptcy discharge papers
- Mortgage underwriters will want to see the documentation of the recorded date of foreclosures, deed in lieu of foreclosures
- HUD -1 Settlement Statements will be reviewed if the borrower had a previous short sale
- They will review the credit payment history prior, during, and after the bankruptcy and/or housing event
- Late payments after bankruptcy and/or foreclosure is viewed as a negative
If borrowers have late payments after a bankruptcy and/or foreclosure, the mortgage underwriter will want a written letter of explanation ( LOX ) and supporting documents.
Collection Accounts, Charge Offs, And Late Payments
Unpaid collection accounts, charge offs, and late payments will be carefully reviewed by mortgage underwriters. Lenders categorize derogatory credit items into two categories:
- Medical collections
- Non-medical collections
Types Of Collections
- Lenders treat medical collections differently than non-medical collections
- Medical collections are often ignored by mortgage underwriters and are exempt from debt to income ratios
- Borrowers can still qualify for a mortgage with unpaid non-medical collection accounts without having to pay old collection accounts depending on the lender
- If the aggregate amount is $2,000 or more from all of the non-medical collection accounts, 5% of the outstanding balance will be used to calculate debt to income ratios
This is a hypothetical monthly debt and is calculated as a monthly debt even though they do not have to pay anything.
Credit Disputes Viewed By Underwriters
Mortgage underwriters will carefully look at the credit report and look for credit disputes.
- Credit Disputes is a common strategy used by credit repair companies to contest derogatory information in hopes of having it removed by a consumer’s credit report
- Medical credit disputes are exempt from these mortgage regulations
- Borrowers can have credit disputes on medical collection accounts
- Credit disputes on non-medical collections with zero credit balance is also exempt
- Credit disputes that are non-medical items with balances need to be retracted or the mortgage process will be halted
Loan Officers should not issue pre-qualification and/or pre-approval letters to home buyers with outstanding credit disputes. Credit Scores can drop when consumers retract credit disputes.
Home Buyers who need to qualify for a mortgage with a five-star national mortgage company with no lender overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We have no overlays on FHA, VA, USDA, Conventional Loans. We are also correspondent lenders on non-QM loans and bank statement loans for self-employed borrowers.
