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Mortgage underwriting question.
May 12, 2014 7:57 AM   Subscribe

I am buying a house for the very first time (Virginia, US), and I have a question about the mortgage underwriting process. We have made it through the home inspection, and we are conditionally approved for the mortgage. We are currently waiting for the results of the mortgage appraisal and then, my loan officer tells me, that the mortgage will be resubmitted to the underwriter. I'm not sure exactly what this means.

I guess what I'm asking is how the underwriting process is different after receiving the mortgage appraisal than was before. In other words, are they examining my finances again like they did before, or they doing something different? Any help or insight would be appreciated.

Thanks, as always.
posted by 4ster to Work & Money (12 answers total) 7 users marked this as a favorite
 
They basically want to be sure the house is worth the money they intend to loan. The mortgage process has changed since 2007. Gone are the carefree days of applying for a mortgage, and just sitting back waiting for something to sign. Then new bank or underwriter will be all over you for proof of income, proof of current bank balances, and even going back several months to check if you have deposited large sums of money...where did that come from??? Word of advice, once the actual underwriting process begins do not move any money, spend any more than usual, or deposit anything other than paychecks.
posted by Gungho at 8:04 AM on May 12 [2 favorites]


The mortgage underwriter needs to approve two things: you, as purchaser of the property (to ensure you are solvent to meet you obligations under the proposed loan) and the property itself (to ensure that, if you failed to meet your obligations under the mortgage, the lender would have sufficient security in the property to cover their loan).

The appraiser is an independent contractor engaged by the lender to give his/her assessment of the property. The lender is going to take some time to ensure that they are comfortable with the appraiser's valuation.

Generally, a "good" appraisal comes in at the agreed purchase price--because all the lender needs to be certain of is that the property is worth at least the amount it is financing. On occasion, an appraiser may value the property just over the purchase price--which is "code" for the buyer is getting a good deal. An appraisal that is significantly over the agreed purchase price is a big red flag; the lender will want to know what other off-agreement terms are in the deal (i.e., why is the seller agreeing to take $300,000 for a $800,000 house? Is the seller providing financing to the buyer, etc.?)

The lender will probably also be taking a closer look at your finances at this point, and you may get some requests for additional documentation. Word to the wise: bust your ass to get any documents in or any questions answered ASAP.

Good luck. I am not your mortgage or real estate professional. Talk to your broker or bank rep.
posted by Admiral Haddock at 8:14 AM on May 12 [1 favorite]


Good luck. I am not your mortgage or real estate professional. Talk to your broker or bank rep.


Seconding everything Admiral Haddock said, but especially this part. You should never feel ashamed of asking your bank rep (or even your realtor) what is happening at each step, what happens next, and what you need to be doing (if anything.) This is a very basic question that both persons should be able to answer for you, fully. Don't be afraid to ask 'stupid' questions; this is a large sum of your money and you deserve to protect it.

We literally just closed on our house and if we hadn't had good reps that we trusted and who knew the specifics in our area we would have bee much worse off.
posted by Flamingo at 8:20 AM on May 12


I guess what I'm asking is how the underwriting process is different after receiving the mortgage appraisal than was before.

It isn't, or at least not significantly so. It's doing a part of the underwriting process that hadn't been done before.

Before it approves a mortgage, the bank needs to be convinced of three things: (1) that you are sufficiently creditworthy to justify the amount of money you're asking to borrow, (2) that the house doesn't require a crap ton of work (hence the inspection), and (3) that the size of the loan you're asking to secure with the house is justified by the house's likely market value (hence the appraisal).

It sounds like your bank has given a preliminary OK to (1), and it sounds like they might be okay with (2), but now it's time for (3), and to give final approval to (1).

That essentially entails checking to see that the house is actually worth as much as you're trying to borrow, so that the bank is comfortable that it's likely to get all of its money bank if it has to foreclose.

The underwriter will also upgrade your preliminary credit approval to a final approval, and that may involve some additional analysis and evaluation of your financial situation. But unless there's something wonky about your finances, that shouldn't be much of a problem.
posted by valkyryn at 8:21 AM on May 12


Or, basically, what Admiral Haddock said.
posted by valkyryn at 8:21 AM on May 12


Then new bank or underwriter will be all over you for proof of income, proof of current bank balances, and even going back several months to check if you have deposited large sums of money...where did that come from??? Word of advice, once the actual underwriting process begins do not move any money, spend any more than usual, or deposit anything other than paychecks.

The last time I went through this I had to go through bank records and write up explanations for every transaction over a certain size, maybe $200? It was surprisingly small at any rate, and then they wanted more details on selected transactions within that.

It's a radically different process than it was a few years ago, with all kinds of cross-checks and documentation now.
posted by Dip Flash at 8:38 AM on May 12


Thanks you everyone so much for your help. One quick additional question: I'm expecting the result of the mortgage appraisal this week, and the closing date is June 18. How close to you closing date do you typically get your final mortgage approval?
posted by 4ster at 8:43 AM on May 12


We got our final mortgage approval the day before closing. That was a little close, but I think it's not atypical nowadays for the final approval to come in quite close to closing -- there are a lot of moving pieces and the bank will be addressing them with an eye toward meeting that specific deadline.
posted by devinemissk at 8:52 AM on May 12


Yes, the final numbers will always be hazy until right before the closing. Part of this is because they are computing prepaid interest and other pro-rated charges that will be part of your closing balance (the amount you bring to the table to pay everyone and start the mortgage).

The other part is, well, that's just how that industry works. You'd think all the computers they have could figure out the pro-rated stuff well ahead of time, but no. It's nerve-wracking and very frustrating when the final number doesn't match what you were told in the Good Faith Estimate.

But also know that you don't need to bring the closing funds to the table. There's usually a 2-3 day window after the signing where the funds need to be paid. But don't panic about having a precise-amount check in hand when you walk into the closing.
posted by JoeZydeco at 9:17 AM on May 12


The inspection is for you, not the bank. The bank doesn't care about the inspection: it's for the buyer, to make sure that there's nothing wrong with the house that would make you want to walk away. The appraisal is for the bank to determine if they think the house is worth what they're loaning you--and since the financial crisis, they also want to make sure that even if you never make a single payment on the house, they could turn around and sell it for what they're loaning you (so it can't need repairs). If your accepted offer is $200,000, say, the appraisal needs to come in at or just above that or they won't make the loan (or they'll only make it for the lower price). If the appraiser only values that same house at $180,000, then either you'll have to come up with the difference in cash, requalify for a mortgage with less money down and pay PMI, the seller will have to reduce the price to the appraised value, or some combination of the three.

I personally had a really nasty appraisal situation when I was buying my house when the first appraisal came in with a value OVER our agreed price, but the bank still wouldn't make the loan because the appraiser called out minor repairs (and I'm not talking something major like the roof--they wanted burglar bars removed and minor siding work done). It's a horrible, nasty racket. This was in 2011, in basically the bottom of the market, so maybe things are better now. Sometimes it still blows my mind that I was finally able to buy my house, which I totally love. Feel free to memail me if you want to know more.
posted by Violet Hour at 11:54 AM on May 12


There's usually a 2-3 day window after the signing where the funds need to be paid. But don't panic about having a precise-amount check in hand when you walk into the closing.

I don't think this is true anymore. My closing came down to the wire (see above) and I had to transfer the estimated closing amount the day before, and it turned out to be a bit over, so the lawyers gave me a cashier's check for the difference. You actually have to sit there and wait for the downpayment and closing costs to clear before you can sign off on your close. This was the longest ten minutes of my life.
posted by Violet Hour at 11:59 AM on May 12


At best, two weeks or so before the closing. Part of the Qualified Mortgage (QM) and Ability to Repay guidelines require lenders to verify your employment status (and/or the employment status of anyone who's income is being used to qualify for the loan).

It isn't really spelled out in the guidelines so your lender may be different (and it might be a "non-QM" loan besides) but it usually means that the last step before the final approval is that they'll call up your employer (or use a 3rd party verification service) to make sure that you're still employed where you said you were employed when you submitted the income documentation. This could happen a few weeks before the closing, it might happen the day before the closing but it's usually the last step.

As far as your original question, when you got pre-qualified, they looked at your credit history and they looked at your income (and maybe a few other pieces around your finances). Once you've selected the house you're going to buy, they double check those first things and add a bunch of others such as:

The collateral's value
The collateral's condition
The collateral's title history
If the taxes are up to date
Do you have insurance (and will it meet their requirements)
Does the bank know where to send the tax and insurance payments?
Is the property in a flood zone (they have to document that it is or isn't)

And a bunch of other things that I'm probably forgetting.
posted by VTX at 12:03 PM on May 12


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