Overview of the Mortgage Underwriting Process

Underwriting is an important part of the mortgage process in New Jersey. It’s also one of the most “mysterious” stages for first-time home buyers and borrowers. How does the mortgage underwriting process work in New Jersey? What should you, as a borrower, be doing during this stage? These are some of the common questions we’ll answer today.

Basic Steps in the Mortgage Process

To start with, let’s place underwriting into the broader context of the mortgage lending process. While this process can vary slightly from one borrower to the next, it usually follows a series of steps. Underwriting typically falls somewhere in the middle.

Here are the basic steps home buyers go through when getting a mortgage loan:

1. The home buyer / borrower completes a loan application.
2. The home buyer gets pre-approved for a certain loan amount.
3. The buyer locates a suitable property and makes an offer to buy.
4. The mortgage company orders an appraisal to determine the market value.
5. A title search is performed to ensure there aren’t any liens or claims on the home.
6. The mortgage loan file moves into the underwriting state, for a thorough review.
7. The underwriter approves the loan, and the buyer moves on to the closing.
8. The loan is funded at or near the closing day (sometimes a few days later).

So, getting back to the question at hand. What happens during the mortgage underwriting stage in New Jersey? What does the underwriter actually do, and what can you as a borrower expect during this time?

What Happens During the Underwriting Stage

There are several aspects to the underwriting process. The underwriter will review all documents to make sure they are complete. He or she will also perform some basic risk analysis. The goal here is to ensure that the borrower has the capacity to repay the loan, by looking at the borrower’s current financial situation.

In fact, the capacity (or ability) to repay the loan is one of the “four C’s” of mortgage underwriting:

• Capacity: Underwriters evaluate a mortgage applicant’s income, employment history, monthly debts and other factors to determine if the borrower has the ability to take on the monthly mortgage payments.
• Capital: In this context, capital refers to the borrower’s liquid assets (cash) as well as savings, investments, etc.
• Collateral: In a typical mortgage lending scenario, the home being purchased serves as collateral for the loan. So the mortgage underwriter will need to know the value of the property, as determined by the home appraisal.
• Credit: Your credit history and score are another important factor during the mortgage underwriting process in New Jersey. Your credit scores and reports show how you have borrowed and repaid money in the past.

As you can see, underwriters have a lot of things to look at when they review a home loan application. Fortunately, our underwriters are highly skilled and efficient. So they can complete this process in a timely manner, which helps to keep everything on track.

Additional Documents, Letters of Explanation, Etc.

Now you have some idea what a mortgage underwriter does when you apply for a home loan in New Jersey. But what about you? What can you, as a borrower, do during this process to help things stay on track for the closing? Communication is the key!

The underwriting process can vary from one borrower to the next, since there are so many “moving parts” involved. In some cases, all of the documentation will be in order and the borrower will sail right through the process. Other times, the underwriter might need additional documents to complete his or her evaluation.

Letters of explanation are a good example. Sometimes the mortgage underwriter will ask the borrower for a letter of explanation regarding a certain bank deposit, a large withdrawal, or similar items. By handling these requests in a timely fashion, you can help ensure that everything stays on track.