For borrowers in a still-hot housing market, getting approved for a mortgage can be a challenge. Mortgage rates have soared from pandemic-era lows, home values are near record highs and home price appreciation is outpacing wage growth.
All of that means there’s no guarantee a lender will approve your mortgage application. Here’s a look at how lenders decide to extend credit, and some common obstacles borrowers face.
How does mortgage underwriting work?
Mortgage underwriting is the process of verifying and analyzing the financial information you provide your lender — all with the goal of giving you an answer of yes, no or maybe. As part of the application, you produce bank statements, W-2s and other tax documents, recent pay stubs and any additional documentation the lender requires or requests.
Dispense with any stereotypes about the old days of lending or the movie It’s A Wonderful Life, when a banker determined your creditworthiness by the firmness of your handshake and the crispness of your shirt. In most cases, a loan officer or mortgage broker will collect your information and submit it to an underwriting software system — Desktop Underwriter for a loan that will be sold to Fannie Mae, Loan Product Advisor for Freddie Mac.
These systems don’t allow for much in the way of human judgment — the software determines whether you’re either approved, rejected or asked for additional information. Such automated underwriting, as it’s officially called, is the norm nowadays — part of the reforms to the mortgage financing world developed after the 2007-09 mortgage meltdown and subsequent financial crisis. “Prior to the crisis, there was more leeway,” says Bill Banfield, chief risk officer at Rocket Mortgage. “Now, most of that subjectivity is gone.”
There are many reasons — income, or property type, or something else — that the automated underwriting process might flag your application. And if…
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