Contract Mortgage Underwriting Process: What Factors Do Lenders Consider?

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Mortgage lenders do not just extend loans to prospective borrowers. They follow a systematic procedure to approve a loan. This is the contract mortgage underwriting process. Lenders consider three major areas of underwriting. These are credit reputation, capacity and collateral. Collateral in this case is the house that is being mortgaged. A lender wants to review this house via this criterion: down payment and house value. Down payment, as many of understand it, is the amount of money a borrower pays as deposit. It is usually between ten to twenty percent of the property’s value.

Closing costs which are about 6% of the total home loan amount are also expected to be deposited along with the down payment. During the contract mortgage underwriting process, some lenders consider borrowers who cannot afford ten to twenty percent of their house’s value. They allow them to pay as low as three percent and zero deposit in some rare cases. Borrowers are, however, expected to have private mortgage insurance prior to being approved for smaller down payment house loans. Needless to mention, all lenders investigate or verify the source of borrower’s down payment during the contract mortgage underwriting process. It must come only from the expected sources.

The other thing lenders review is the value of the house. They use real estate appraisers to know the current monetary value of home in question. These professionals consider not only evaluating the value of the home today. They also investigate how the changes in the neighborhood could affect that particular property’s value in future. Contract mortgage underwriting team also aims to ensure that the current price of the property is compatible with the amount of money you want. The amount of mortgage a borrower can get cannot exceed ninety-five percent of the appraised home value. Contract mortgage underwriting exercise also entails evaluation of the borrower’s capacity. When looking into capacity, a lender considers borrowers’ cash reserves and debt-to-income ratio.

So it is important for borrowers to submit all documents that may help lenders verify the above items. The goal of the lender is to find out if the borrower has enough money or financial strength to repay their mortgage loan. The current housing expenses of the home buyer should not exceed twenty-five to twenty-eight percent of their gross monthly income. House expenses include taxes, assessments, mortgage payments and insurance. Additionally, contract mortgage underwriting team will ensure that the borrower’s long-term expenditures (debts that exceed ten months period) do not exceed thirty-three to thirty-six percent of their gross month salary.

If you still do not understand this point, you may want look for more information on the internet. Credit reputation is also another factor that is seriously considered by contract mortgage underwriting experts. They want to know the credit history of each borrower. Those with poor credit reputation stand almost no chance to get a mortgage loan. Some lenders may ask their clients to clarify why they were unable to pay off their financial obligations in the past. They require the clarification in writing. Lenders must also comply completely with the Fair Housing Act and Equal Credit Opportunity Act when checking credit reports.

Mortgage Outsourcing helps many companies cut costs. There are many Contract Mortgage Processor Services that cater to Mortgage Brokers and Lenders nationwide with a structured process to ensure its success.