September 21, 2018

How Long Does Underwriting Take?

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If you need financing to buy a home, you are at the mercy of your chosen lender. The underwriters have your financing in their hands. They have the power to say "yes" or "no" to your request for a loan. What everyone wants to know is just how long this process takes.

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Many people feel as if the mortgage process takes too long. It can feel that way as you anxiously wait for an answer, but on average, you can expect to be at a closing table within 45 days of applying for the mortgage. Of course, this varies by lender and even by borrower, because even you play a role in the speed at which your loan closes.

So what makes the process take so long? Keep reading to find out.

What Does an Underwriter Do?

The underwriter's job is to determine the level of risk a bank takes if they give you a loan. Underwriters look at the "3 C's of Underwriting." These include:

  • Credit: Your credit history and/or credit score show the lender your level of financial responsibility. Do you pay your bills late? Do you have any foreclosures or bankruptcies in your credit history? Is most of your credit new? Do you overextend yourself, using up all of your available credit?

  • Capacity: This measures your ability to repay the loan. Lenders look at your debt ratio (your debts compared to your income), the number of borrowers on the loan, and the amount of cash you have on hand after making the down payment. Underwriters also consider the loan's term. If you take out a 30-year mortgage, can you feasibly make those payments for the next 30 years?

  • Collateral: This determines the value of the home itself. It needs to be worth at least as much as the purchase price. Underwriters also look at the type of home (single-family, condo, multi-unit) and how you will use it. For example, is this your owner-occupied home or is it an investment?

The underwriter determines how you fit into the 3 C's by collecting proof of your income, assets, debts, and credit history. The process may take a few days or a few weeks. It depends on the complexity of the documents you provide, the thoroughness of the documents you provide, and your level of communication with the underwriter. For example, if the underwriter needs another paystub to verify your employment and you take 2 weeks to get it to him, this would delay the process.

What Is Initial Underwriting Approval?

As you move through the underwriting process, you'll receive several types of approval. The first is the initial underwriting approval. You may also hear it called conditional underwriting approval.

This is the point that the underwriter has cleared the conditions that you provided documents for, such as proof of income or assets. At this point, the underwriter has determined that you are a good candidate for a loan, which is why it's a conditional approval. You are well on your way to securing the final approval, but you may have to satisfy more conditions down the road.

Typically, the outstanding condition pertains to the home itself. Lenders typically wait until the underwriter conditionally approves a borrower for a loan before they order the appraisal. That's because the appraisal costs you, the borrower, money. Whether you get a final approval on your loan or not, you will pay the appraiser for his report. This could run you anywhere from $300 to $500.

Once the underwriter approves the appraisal and/or any remaining conditions they had for the loan, the underwriter will issue the "final approval," or the "clear to close." This means you are free to close on the loan and take possession of the home.

The underwriting that is necessary to clear up a conditional approval usually only takes a matter of a few days. It depends on the lender's workload, though.

How Long Does Underwriting Take for a Home Purchase?

Buying a home is the most common reason borrowers look for a loan. Homebuyers go through the process as discussed above with the same general timeline. However, careful attention will be paid to your assets.

Whether you make a large down payment or you are paying for your closing costs upfront, lenders need to verify that the money you use belongs to you. That might sound strange. If it's in your bank account, shouldn't it belong to you? It might not, though. Lenders need ample proof that the money is yours.

They pay the most attention to recent deposits. By recent, they mean within the last 2 months. If you have any deposits that don't coincide with your income (amounts don't match), they will ask for verification of the deposit's origination. This could increase the time it takes to underwrite your purchase loan. Keeping a paper trail of all deposits over $100 will help you decrease the time you have to wait for the underwriter to clear your loan.

How Long Does Underwriting Take for a Refinance?

Refinancing a mortgage takes around 30 days, on average. Depending on your chosen lender and your situation, though, the process can be a little faster or slower.

For example, if you stick with your current lender, the process may be a little more streamlined. The lender already knows your personal details. They will just need to update your income, assets, and credit information to underwrite your new loan. If you use a new lender, the process may take a little longer, since they are starting from scratch with you.

How Long Does Underwriting Take for an FHA, USDA, or VA Loan?

You may have heard that government loans take longer in underwriting. Many people believe that a government department, whether FHA, USDA, or VA, does the underwriting. This isn't the case for FHA or VA loans, though. It's the same underwriting process as any other loan - the lender does the underwriting. This means the same underwriting timelines often apply to government-backed loans.

The exception to the rule, however, is USDA loans. The USDA doesn't do the primary underwriting of the loan, but they do have the final say in approval. After the lender underwrites your loan, the USDA goes over the file to give their final approval. This could add 2 to 3 weeks to the turnaround time for USDA loans. As long as you use an experienced USDA lender that provides the USDA with a full underwriting package, though, the process should go fairly smoothly.

Ways You Can Help Speed Up the Underwriting Process

You also play a role in the time it takes to underwrite your loan. Without the proper documents from you, underwriters can't review your application. Whether you leave incomplete spaces on the loan application or you don't provide all of the documents the underwriter needs, it slows the process down.

Incomplete or missing information means the underwriter must contact the loan officer, who then contacts you. The quicker this communication goes, the quicker you can get the required information to the underwriter.

You can also help by providing the loan officer/underwriter with a complete package. This includes:

  • Proof of the last two years of income (paystubs, W-2s, and tax returns)
  • Proof of your housing history over the last two years (rent or mortgage)
  • Proof of your assets

You may also want to include a written letter explaining any "odd" circumstances in your loan file. For example, if you had a gap in your employment, you should explain the reasons in a letter. If you have proof to back up the reasons, this may help move your file along even faster.

Bottom Line

So how long can you expect to wait for underwriting? It could be anywhere from two weeks to two months. There are a variety of factors that play a role. If turnaround time is important to you, ask the lenders that you apply with about their average turnaround time. This will give you something else to consider as you decide which lender is right for you.

More from CreditDonkey:

Underwriting Process

Buying Your First Home

How Much to Buy a House

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