Mortgage Underwriting

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Mortgage Underwriting deals with the long procedure of determining the worth of the borrower to repay the loan amount. The underwriters presently have the advantage of using softwares that are specially prepared to examine the different segments of a mortgage.

The prerequisite of mortgage underwriting is the complete knowledge about the qualification regarding the acquisition of a specific mortgage. The knowledge about the procedures to be followed for its pre-approval as well as final approval.

Mortgage Underwriting focuses on a large number of key factors in the determination of the worth of the borrower to be eligible for a particular mortgage. The most essential key factor is the knowledge of the credit history of the borrower and the credit score of the borrower. The other major factors involved in the determination of the borrowers capability to qualify for the mortgage include the knowledge about the income of the borrower, the initial down payment made by him, and the rest of the loan amount that remains to be paid off later on.

During mortgage underwriting an examination of the credit history of the borrower, helps the underwriter to understand the pattern of loan repayment followed by the borrower and the number of loans that remain to be disbursed. The credit history thus aids the mortgage underwriter to decide the tenure of the loan as well as the interest appropriate for the borrower.

The calculation of interest rates in mortgage underwriting in the present day is based on two systems-the fixed rate mortgage and variable rate mortgage system. The fixed rate mortgage system is the generally accepted norm, where the rate of interest on the mortgage is predetermined and does not change in the entire loan period. In the variable rate mortgage system on the other hand, a fixed rate o f interest is agreed upon initially for a specific time period, which is altered later on, considering the changes in the market indexes.

During mortgage underwriting, the under writer has to keep track of the worth of the property kept as security for the repayment of the loan and the sum of the loan and then compare the two units and this analysis is called loan to value method. There is also another variation to the loan to value method and this variation is called combined loan to value method.

The most important function of the mortgage underwriter is to understand the income and debt ratio of the borrower. In case the income of the borrower is nearly $ 1,000,00 on an yearly basis and he is engaged in spending nearly $ 90,000 every year for the disbursement of his loans, gives a clear idea of that borrower is presently not in position to take up another loan, which will necessitate repayment of more interests accompanied with partial payments of the principal amounts. But in the case of the borrower whose present loan liability is comparatively less than his income, is in a position to afford more loans.

The procedure of mortgage underwriting starts with the collection of documents, for example the income proofs like bank statements, pay stubs, and the credit history of the borrower. Then the loan officer processes as well as arranges those documents and consequently these document, pass through the underwriting system that examines the qualification of the data provided by these documents. Ultimately, the application for the loan is handed over to the mortgage underwriter together with all the accumulated data and documents. The mortgage underwriter sanctions the loan after going through all the documents and matching with the requirements of the specific mortgage.

Last Updated on 5/26/2011