5 Tips for Navigating the Mortgage Underwriting Process During COVID-19
Right now, potential homebuyers can take advantage of current low mortgage interest rates and purchase a home. But the pandemic economy and the rise in unemployment has slowed the underwriting process, a key step that helps determine lending standards and mortgage qualifications.
“Mortgage lenders want to provide loans to consumers that have a tangible benefit to them and ensure they can repay,” says Jared Maxwell, Direct Sales Division Leader at Embrace Home Loans.
Underwriters are taking their time to verify any changes in a borrower’s finances and make sure they meet all the requirements to qualify for a mortgage.
“As a result, many loan officers are having discussions with applicants about whether their hours have been impacted or will be impacted by the pandemic,” adds Maxwell. The slow-down could discourage borrowers from finalizing a deal, though a few proactive steps can make navigating the underwriting process a breeze.
Here’s what you need to do to ensure an easy closing
Be as accurate as possible
Even under normal circumstances, closing on a house is a lot of work. In response to the whirlwind that is the pandemic, the tax deadline was pushed back to July. While this was a good move for consumers, it has made assessing income levels difficult for underwriters and lenders.
So, keep in mind that you’ll want to have all of the necessary paperwork ready to go from the start – this includes tax forms, pay stubs, and bank statements to ensure you have assets to cover all closing costs. If your documents are out of date or incomplete, your lender will contact you to fix it.
Don’t put it off until tomorrow. Because when tomorrow turns to next week, you’ll be slowing down the process even further and potentially padding your bill with extended rate lock fees.
Gather additional documents if self-employed
“If you’re self-employed, this is even more important as they will want current balance sheets and profit and losses,” says Benjamin Schandelson, loan originator at MJS Financial LLC. “This is to see that you are still working and generating income.”
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Fannie Mae and Freddie Mac have issued guidance on how lenders should underwrite loans for self-employed borrowers, Maxwell explains. Self-employed borrowers will need to provide documentation outside of the standard income tax returns.
“Lenders will require either an audited profit and loss statement from a CPA, or an unaudited profit and loss statement within 30 days of closing and two months of the most recent business bank statements which support the income on the profit and loss statement,” says Maxwell.
Don’t take on more debt
When you’re going through the mortgage process it’s a good idea to avoid taking on new debt. Melinda Wilner, EVP, Chief Operating Officer of United Wholesale Mortgage, says to avoid any big purchases during the underwriting phase.
“New debt from large purchases can impact your debt-to-income ratio. Underwriters look at this to ensure that you can qualify for the mortgage payment based on your current debts and income,” Wilner adds.
You want to keep things as simple as possible and avoid any changes if you can help it. Wait for big purchases, and try not to close any credit cards until you close on your home.
Update your loan officer if things change
Your finances could change in the upcoming months. If your income varies during the underwriting process, it’s essential you’re transparent with your loan officer. They’ll be able to tell you if you’re still within the guidelines for the loan you applied for.
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Maxwell explained that your underwriter might ask you to write a letter to detail what has changed. “In many cases where changes have occurred, we have seen that the underwriter is still able to qualify our borrower for the loan with the adjusted income.”
“In cases where borrowers have lost their jobs during the process, we have been able to help them once they have been hired and start a new job,” Maxwell adds.
The economic uncertainty of the pandemic has complicated many parts of the underwriting process. Beyond being prepared and responsive when contacted, there isn’t much you can do to speed it up. So the best advice is to be patient.
“They [underwriters] might require files that make no sense to you. It’s important not to get frustrated and try to give them the necessary paperwork as soon as possible. If you are in a home buying contract, this is especially true since it can take 5 to 7 days before they even look at a file,” notes Schandelson.
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