Who is your underwriter in real estate? What do they do?
Income, collateral (the house), credit history (your score). All of these things are part of risk assessment when you’re thinking about a real estate investment or purchase. You may be someone who wants to make a down payment and secure a loan for your real estate transaction…now. Across the desk from you is a person who will make a difference in how the deal unfolds. They will consider your ability to make the monthly payments for the home; they must research your career, your funds, your portfolio. In short, they will do due diligence on you, looking for liabilities. Who in the world is this person? They are the underwriter.
In real estate, the term “underwriting” refers to the process of evaluating a borrower’s financial information and creditworthiness to determine whether they qualify for a mortgage loan. An underwriter is a professional who works for a lender or mortgage company and is responsible for assessing the borrower’s financial information, including their credit score, income, employment history, and debt-to-income ratio, to determine whether they meet the lender’s requirements for approval.
During the underwriting process, the underwriter reviews the borrower’s application, credit report, and supporting documentation, including details like pay stubs and bank statements. They may also request additional documentation from the borrower — or an employer. The underwriter then uses this information to calculate the borrower’s ability to repay the loan and makes a decision on whether to approve or deny the loan application.
Why is underwriting so important?
The underwriting process is an important step in the mortgage lending process because it helps ensure that the lender is making a sound financial decision and that the borrower can afford the mortgage payments. In short, the underwriter’s role is to assess the risk associated with the loan and to determine whether the borrower is a good candidate or likely to default.
All of this can be confusing because the underwriting process involves assessing so many different factors. In addition to the borrower’s creditworthiness, a real estate underwriter has to consider the property appraisal, local market conditions, supply and demand, and vacancy rate, if applicable. A good underwriter calls on experience and sound analysis as they review a lot of facts in addition to their own subjective opinions.
Increase your chances of success with an underwriter
To improve your chances of success with a real estate underwriter follow these best practices:
- Be organized: Prepare and submit all required documentation in an organized and easily accessible manner. Your paperwork should be in order, complete, and accurate.
- Be responsive: Respond promptly to any requests for additional information. As in all things, great communication will help you avoid unnecessary delays.
- Be transparent: Provide honest and accurate information about your financial situation, the property type, and any potential issues. Your underwriter wants to assess the risks accurately, and being honest will build trust and make their work easier.
- Be a team player: Try to maintain good relationships with underwriters and all the others who are part of your lending process. This can facilitate smoother communication and who knows, it may lead to more favorable outcomes.
- Be patient: Underwriting is not for the faint of heart. It can be time-consuming! Remain calm as the underwriter does their job and looks at all the variables.
- Ask questions: If you’re unsure about any aspect of the underwriting process or if you need clarification of any kind, it behooves you to chirp up and ask questions. Open communication will often prevent misunderstandings, and you want to do everything you can to work effectively with an underwriter. Ask your agent or broker questions, too. These people are in the business of giving advice and attention to their clients. Best of luck!