Underwriting is the process of evaluating the risk of a mortgage applicant. The process is completed by the lender. The mortgage lender’s underwriter will assess the risk associated with lending to that applicant. This process can be manual or automated, depending on the type of mortgage that is being applied for.
The goal of an underwriter in Massachusetts mortgage companies is to make sure that they are not lending too much money to an individual who cannot afford to pay back the loan. They also want to make sure that they are not risking too much capital in case the borrower defaults on their loan and goes into foreclosure.
What is Manual Underwriting?
The manual underwriting step involves assessing a borrower’s credit history, income, and other pertinent documents to determine if they are a good candidate for the loan. If it’s determined that the borrower has a low risk of defaulting on their loan, the mortgage process moves further. Manual underwriting is an in-depth process that requires a lot of time and effort. It is also expensive for lenders to hire a team of underwriters.
Manual Underwriting vs. Automated Underwriting
- Manual underwriting involves an underwriter going through each applicant’s credit history, employment history, income, assets, and liabilities. Underwriters need to review all of the information in detail, which takes more time.
- Automated Underwriting relies on algorithms to make decisions about a person’s eligibility for a home loan. The overall process is quick. However, it does not involve in-depth analysis like manual underwriting.
When is Manual Underwriting done?
Manual underwriting is done when there are uncertainties in the application that automated processes cannot resolve.
The mortgage application will be manually underwritten if:
If you are debt-free: It means that you don’t have any outstanding loans or credit card balances. You may have been able to live debt-free because you had a high income and paid off your debts in full, or because you had a low income and were able to avoid taking on new debts.
No credit score yet: Many people don’t take loans. These people are usually known as the “credit invisible”. They usually have limited access to financial services. The lender will verify applicants’ ability to repay in such cases. This is often required in the approval of first-time home buyer programs; MA.
Poor financial history: The mortgage lender will prefer manual underwriting if you have had financial problems in the past like bankruptcy. The reason is that they have to do a thorough examination of your credit history and your ability to repay the loan.
High debt-to-income ratio: The debt-to-income ratio is calculated by dividing your monthly expenses by your gross monthly income. If your debt-to-income ratio is too high, mortgage lenders do manual underwriting when considering whether or not to approve a loan.
Quick Tips To Pass Manual Underwriting Process
- Have sufficient income to afford the monthly payment.
- Maintain your credit score.
- Provide proof of funds for down payment or closing costs.
- Show proof of employment as well as tax returns.
- The loan must be secured for the free and clear property of all liens and encumbrances, except those specifically allowed by law or government regulations.
- The application form is accurate and complete.
The Bottom Line
A home mortgage is complex if you do not meet the guidelines set by the lenders, i.e. Massachusetts mortgage companies. It is a long-term loan. The mortgage underwriting process is the evaluation of a borrower’s creditworthiness to determine the risk of default. It is a key part of the mortgage business. Do not worry if your application goes through the manual underwriting process. Ensure all your documents and shared information are true. Drew Mortgage Associates is the best mortgage lender in Massachusetts. We understand that the manual underwriting process can be a matter of stress for many borrowers. Feel free to share your concerns about it with our certified associates. After all, we are here to make your mortgage approval process smoother and stress-free!
