Underwriting

Documentation and Verification

Faxed and Internet documents must be verified. If it is not a secured website, this might be a sign of a fraudulent document, especially if it is being provided as evidence of employment, income, or assets.

Some Underwriting Quicksand and Common Pitfalls to Avoid

--Incomplete files with no documents to back up what is stated on the URLA --Inaccurate data. Many times these are just calculation errors in income or not using proper percentages for rental income, non-taxable income, or stocks, bonds, and retirement statements. --Qualifying ratios exceeded without compensating factors given --Insufficient assets to close transaction --Assets not documented --Applicant's income not calculated correctly --Sales contract not fully executed by all buyers and sellers -- Alimony or child support not included in debts

Common "red flags" underwriters are trained to detect

--Repeated or significant changes to applicant information throughout loan processing --The address is a P.O. Box --Contact information for the applicant and employer is the same --Applicant's social security number is invalid or was recently issued --Year-to-date earnings on pay stubs are inconsistent with W-2s --Employment or payroll documents show evidence of alteration

Rental Income Qualifactor %

75% of rental income stated on the rental or lease agreement unless otherwise documented by 1040s

Other Required Inspections

After reviewing the contract and appraisal, the underwriter may ask for verification that repairs were done or require further inspections to be performed. This is all to ensure the collateral of the lender or to meet program guidelines. This may include termite, well, septic, roof, or other inspections noted on the appraisal.

Non Taxable income can be....

Grossed up by as much as 25% for income qualification purposes.

Safety Issues

If the property is a manufactured home, the underwriter will check to make sure that the manufactured home tags required by HUD are noted on the appraisal. Evidence is required to prove that the manufactured home is titled as real property and not personal property. A structural engineer's certificate may also be required. The originator needs to make sure that he/she knows the lender's guidelines regarding manufactured homes prior to submitting the loan file to underwriting to avoid any suspensions or delays in approval.

Assets - Cash to Close the Transaction

The cash investment in the property must equal the difference between the amount of the mortgage and the total cost to acquire the property.

Underwriting

The process of evaluating a loan applicant's financial information and facts about the real estate used to secure a loan to determine whether a potential loan is an acceptable risk for a lender.

The Underwriting Review of the Appraisal

The underwriter looks to confirm that the names, address, and property description are accurate. The underwriter will be looking at the location of the subject property and any possible hazards or deficiencies that may affect the marketability of the property if the lender should have to foreclose. They will also compare the location of the subject property with the location of the comparable properties used.

The Subject Property Collateral

The underwriter must ensure that the property is eligible and meets lender guidelines for collateral. To do this, the underwriter relies on the appraisal report, preliminary title report, and any inspections requested by the prospective borrower or required by the lender.

The Title Report

The underwriter will check if the subject property is a condominium or planned development, that affect the loan documents and what title policy endorsements will be required. The underwriter may ask for the Home Owners Association documentation, Consumer Confidence Report (CCR) on the drinking water, and Deed Restrictions.

Income Analysis

The underwriter will review W-2s and 1040s to evaluate income consistency. This is important when calculating commission and self-employed applicants. If the applicant is self-employed or commissioned, the underwriter will be looking at the 1040s for the non-reimbursed employee expenses or Schedule C and the adjusted gross income.

Flood Zone Verification

The underwriter will verify the flood zone. This is necessary to assure that if the property is in a flood prone area, that proper flood insurance is required to protect the lender's collateral and the prospective borrower's purchase. The appraiser is responsible for determining if a property is located in a flood zone.

The Sales Contract

While reviewing the sales contract, the underwriter will look for credits or personal property included in the sales contract that will affect the value of the collateral. All personal property should be excluded from the sales contract or notated that it is to be sold with no value.

Stocks, bonds, 401Ks, and retirement accounts

are only to be counted at 60% of their face value

If the property being financed is a new home under construction

the underwriter will require a completion notice from the appraiser.