Understanding the Underwriting Process - Quicken Loans Zing Blog

As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.

If you’re getting a mortgage, it’s the job of the underwriters to make sure the info you’re providing all checks out.

So what are underwriters looking for? They need to analyze your IPAC – income, property, assets and credit – the four key pillars of any mortgage approval.

Let’s go through each of these so you understand what happens during underwriting.

Income

The first thing underwriters need to know is how much income you have and how regularly it’s coming in. This is a huge factor in your ability to pay your mortgage.

There are three types of documents a lender will typically ask for to verify your income:

  • Your W-2s from the last two years
  • Your two most recent pay stubs
  • Your two most recent bank statements

If you’re self-employed or have more than 25% ownership in a business venture, your lender will require different documentation. The requirements may vary depending on the type of loan you’re applying for, but these are some of the documents commonly requested:

  • K-1s
  • Balance sheets
  • Profit and loss statements
  • All pages and schedules of business and personal tax returns

At this point in the process, underwriters will also verify your employment.

Property

While the underwriting process is happening, your lender will order an appraisal, which is usually required when refinancing and is always required for home purchases.

The purpose of the appraisal is twofold: It protects you from overpaying when you’re buying a house, and it protects the lender and investor (Fannie Mae, Freddie Mac, FHA, etc.) from lending more than the value of the house.

Because the house serves as collateral for the loan, it’s necessary that the investor be able to recover invested capital if the borrower defaults on the loan. Because of this, lenders aren’t allowed to loan you more money than the house is worth.

Assets

Underwriters will also take a look at any saved assets you may have such as checking and savings accounts, stocks, bonds and proceeds from the sale of items. When an underwriter reviews your assets, they look to make sure the money is actually yours, and not just a loan from someone else.

Your underwriter may also check to make sure you have cash available for reserves. Reserves are measured in terms of the number of months you could make your mortgage payment if you lost your income.

Some loan programs require reserves. Even if they aren’t mandatory, having reserves makes you more likely to be approved because it demonstrates that you’re prepared for the financial responsibility of homeownership.

Credit

The final big thing underwriters look at is your credit record. Of course, lenders get your score early on. There’s more involved, though. The underwriters look at your credit report to determine how much debt you have compared to your income. This is known as your debt-to-income (DTI) ratio.

This is easier to explain with a real-world scenario, so let’s lay one out.

Say you have a monthly income of $3,500 and a car payment of $400. Your credit cards have a total of $500 in monthly balances, and you have a $600 projected house payment with taxes and insurance. Your total DTI would be around 43% ($1,500/$3,500).

The required DTI ratio varies based on the loan you’re trying to get, but the lower your DTI ratio, the better. A low DTI ratio means you’re likely to have more money available to make your payment every month.

If you’re just looking at basic score requirements, the minimum FICO credit score for FHA is 580, and for conventional loans, it’s 620. There’s no specific minimum for VA loans, but lenders may have their own requirements. (At Quicken Loans, the minimum score for a VA loan is 620.)

Now that you have an idea of what your lender is looking for, here’s more information on the Quicken Loans mortgage process. If you have any other questions about underwriting or any other part of the process, let us know in the comments, and we’ll be sure to answer them.

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This Post Has 4 Comments

  1. Thanks for the useful advice. Any knowledge and advice on some key things to keep in mind to be successful as a intern in the underwriting department with quicken loans?

    1. Hi Roderick:

      I’m going to have someone from our Pulse recruiting team reach out to you regarding further information on our underwriting positions.

      I can tell you that in general, we look for highly motivated individuals who are ready to hit the ground running contribute in a meaningful way. Quicken Loans internship program is not one in which there is a lot of meaningless busywork. If you work hard, there’s a chance to contribute to something real that positively impacts the company and our clients. I would know. I started as an intern on the blog team before eventually moving into a full-time role.

      Thanks,
      Kevin Graham

      1. Thanks and sorry for the late response. I actually just got accepted and will be starting my internship very soon (hence my reason for asking). It’s helpful to know you too started as an intern and established a more flourishing role within the company. Looking forward to seeing where it goes and thanks again for the advice.

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