For first-time homebuyers, there is a steep learning curve in connection with mortgages. There are several steps to getting loan approval. After you are pre-approved, you will need to provide certain supporting documentation, and this will be submitted to an underwriter for the lender. The underwriter will approve you, approve you conditionally, suspend your application until more documents are submitted, or deny you. At Pulgini & Norton, our Boston real estate attorneys can help you understand the underwriter approval process and work with you to pursue your homeownership objectives.Seeking Underwriter Approval
The primary job of an underwriter is to evaluate the risk of extending a loan to a particular borrower. It is usually assumed that the way that you have managed debt in the past is how you will manage it in the future. If you have ever declared bankruptcy, for example, you will likely be considered a greater risk than someone who has always paid bills on time and has a perfect credit score. Various aspects of your financial life are considered predictive of your ability to make mortgage payments.
Mortgage underwriters usually start by looking at whether you have the ability to pay off your debts. This means looking at your employment, your sources of income, your existing debt, and your property. Among other things, they will look at your savings, IRA accounts, 401(k)s, and checking accounts. They will evaluate whether you have enough to cover existing debts as well as the mortgage for which you are applying.
They will also look at your credit report and how well you have kept up with any debts in the past, such as car loans and student loans. Your credit history is considered predictive of your ability to make mortgage payments in a timely fashion.
They will also look closely at the home that you want to buy. Certain homes carry more risk. For example, if the home is an investment property, it may be considered more risky than a home where you plan to live. The lender will not want to loan you more than what the property is worth because if the loan is worth significantly more than the house, they may not be able to recover the unpaid balance if you default on the loan, and they must foreclose on the house. Accordingly, the underwriter will order a home appraisal to get a sound idea of the home's actual value and keep the amount of the loan within a reasonable range.
Often, loans are sold to Fannie Mae, Freddie Mac, and other organizations, which have their own underwriting rules. Your lender will need to abide by the rules so that they can sell the loans, and they may use underwriting software to make sure that they follow those rules.
Sometimes a mortgage approval will come back with conditions, and you must satisfy those conditions in order to get loan approval. Conditions may include providing alternative documents, providing explanations for anomalies, and making certain verifications. Once you are approved, you will need to lock in your interest rate and terms in writing.Seek Guidance from a Boston Attorney During a Property Transaction
Once you are approved, you can make an offer on a house, but you should be aware that any changes to your credit before the loan is finalized could affect whether you are able to get the loan. At Pulgini & Norton, our Boston lawyers can advise you on securing underwriter approval. Our firm handles real estate transactions in Weymouth, Brookline, and Somerville, as well as other Massachusetts communities. For a consultation with a property transaction attorney, contact us online or call us at 781-843-2200.