Do you remember the Rubik's Cube? The purpose of the game was to get solid colors on each side of the 3D puzzle. Just one wrong move, and one side of the cube will no longer be all a single solid color, taking you further away from your goal. It took many strategic, careful moves to solve, and it was quite the accomplishment when solved.
The underwriting process is similar. Everything needs to line up correctly for your loan to go through smoothly. And just like the Rubik's Cube, it takes patience, accuracy, detail, hard work, and cooperation between the different roles that are key to the loan process, like the sides of the Rubik’s Cube.
In order to solve the home loan puzzle, you need to know how the puzzle works, which can only be done after understanding each of the sides (roles). The roles in the loan process include the following:
Your loan officer is your advocate. They fight for the consumer and gather information needed for the file. The information needed typically goes through a process called "scrubbing or processing," before it ever gets to an underwriter.
The underwriter's job is to review the file. Ideally, it's already put together, and all the underwriter has to do is just check off all the boxes, which would lead to an approval. This is the best-case scenario.
Unfortunately, the mortgage industry is not perfect; it's broken. Most loan officers do not have the training, education, guidelines, or experience to know how to handle all those pieces and parts, like all the squares of a Rubik's Cube. If they don't have this knowledge, then things won't line up, and getting pre-approved for your first home loan or approved to refinance your mortgage might be a long shot rather than a sure thing.
After the information passes through the loan officer, it goes to the processor. Processors are not trained to underwrite a file, so they do what they can to put the file together before passing it to the underwriter. They gather information and build the file, but they do not always analyze the data before providing it to the underwriter, which if done properly, can improve the chances of successfully securing a home loan.
Think of the underwriter as a mix of a detective and a judge. If there are any problems or missing pieces with the file, the underwriter will seek them out and catch them. However, the loan officer or the processor should flag any issues before the file reaches the underwriter. So again, you must make sure you are choosing the best loan officer or team.
If the underwriter finds a problem, he or she might request more information, or make a judgement on the spot that your home loan can't be approved. The problem with this is that the underwriter probably won't get your file until you're anywhere from two to four weeks into the process. So there you are, the homebuyer, thinking that you're near the end of the process, and all of a sudden, here comes the underwriter with all kinds of questions.
The underwriter is looking at four things: capacity, assets, collateral, and credit.
I'm an advocate of the system we use at my company. We train the loan officers and the processors to pre-underwrite the file. That way, when the file goes to underwriting, there is one review and the loan is approved! We call it "one and done” lending.
According to the national average, when a loan officer submits a file to an underwriter, the underwriter typically has a list of 12-17 missing items for each file. The average in my office is less than two items because of the process that we use. My goal is to see a "one and done" system in place across the country. This would transform the industry.
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Every year an average of 21 million people apply for mortgages in the US, and only around 7 million close. I'm on a mission is to change that by spreading mortgage education. Sign up for my newsletter to be a part of my Mortgage Peace Movement!