Ever hear stories in the break room about how difficult it is to get a mortgage? “I have to jump through so many hoops to get my mortgage, it’s ridiculous. They keep asking me for financial information, I swear I already gave it to them.”
Reality check: Obtaining a mortgage is no easy feat these days, no matter how great your credit score is or how good your lender is. By understanding the loan process, however, you can make sure you don’t have to jump through hoops, and more importantly, that your loan closes on time.
The Nature of Mortgage Lending
Lenders have to meet tight federal requirements on your ability to repay. This includes a thorough review and examination of your credit, debt, income and assets, as well as the property and occupancy of the home in which you plan to be financing. Furthermore, lenders operate in a world in which they usually only have a one-time chance to make how you look on paper favorable to the decision-maker, i.e. the underwriter, the person within the mortgage company who issues an approval.
Know this: The role of the lender’s underwriter is to mitigate risk for the mortgage company. They carry out this objective by making sure your full financial picture adheres to Fannie Mae and Freddie Mac guidelines, which serve as the model for other lenders and loan programs.
The reason you’ll often hear stories about all the hoops to jump through is because the loan officer did not properly set the borrower’s expectations at the forefront of the loan process — and/or the loan was not put together correctly. Remember, it’s very difficult to create a second first impression — if your loan officer did not properly package the loan for the underwriter to thoroughly examine and subsequently sign off, then you may have a cumbersome process. That’s if the loan can be approved.
Here’s a typical mortgage loan process:
- Lender gathers your financial documentation.
- Loan officer drafts a cover letter to the underwriter laying out the framework mortgage scenario.
- Underwriter reviews the complete credit package, ensuring the documentation adheres to risk requirements.
- Underwriter issues a disposition — a new loan status, approved with conditions, or at times a suspense.
The ideal outcome is the loan officer provided all of the necessary documentation, preemptively demonstrating how the loan package meets all the lending guidelines of the particular program the borrower is applying for, such as a conventional loan, FHA loan, etc.