Underwriting is the decision process which determines whether someone would be eligible for a loan or not.
Lenders use underwriting to determine credibility for such loans as payday loans, mortgages, personal loans or credit cards.
If you are waiting for a loan decision, you may hear that your ‘loan is underwriting’ – essentially meaning that a lender is considering your application and deciding on whether to become your lending partner.
Key Points: The Underwriting Process
- Underwriting refers to the process used to decide whether to grant someone a loan or not.
- The person doing it is known as an ‘underwriter’ – and it is also relevant for insurance premiums and claims.
- Underwriting for loans can be instant if automated, take a few days or weeks if it is a mortgage.
- There are 113,925 mortgage underwriters in the US.
What is Underwriting?
Underwriting is the process of your loan being considered and the lender is deciding to approve you or not.
It is a vital aspect of any un-automated loan enquiry and requires some thought from the underwriter. A mortgage and large personal loan will not be granted until the lender has completed the entire underwriting process.
The lender must verify all forms of income, credit scores, affordability property details and any potential debts to give the approval for a loan. In order to accomplish this, it is possible that the lender will ask for access to additional documents (bank statements, wage slips) and proof of assets.
How Long is The Underwriting Process?
The underwriting process can take anywhere from a few days to a few weeks, depending on whether the underwriter needs additional information from you, what demand is like for the lender and how streamlined the lender’s practices are.
Some underwriting processes are completely automated by technology, so that you can get an instant decision and receive a same day loan if approved.
The quicker you compile your documents and respond to the lender’s requests for information, the smoother and speedier the process can be.
Keep in mind, however, that underwriting is just one part of the overall lending process.
What Will Underwriters Consider When Reviewing My Application?
Underwriters will look at whether certain age groups have higher or lower default rates than others, and whether there is a correlation between age and repayment likelihood. If there proves to be a trend in past data, it may result in certain age groups finding it hard to obtain a loan than others.
Most lenders will have a minimum credit score required to be eligible for a loan. Some lenders have a minimum score to be eligible for the next stage of underwriting.
It is often considered to be safer to issue a loan to somebody who is not self-employed or only working part-time. If you have a reliable monthly income, you are less of a risk to a lender.
This does not mean that you cannot get a loan if you do not have a regular income, it simply suggests that certain loans products such as a guarantor loan may be better suited to your situation.
Some underwriters believe that homeowners are better candidates to lend to since they would have already gone through the rigorous credit and affordability checking to get a mortgage.
Plus, they have security in their home that they could also use to raise finance for repayments such as second mortgages, equity release and remortgaging – but this doesn’t mean that a homeowner could still have debt and be behind on repayment.
An underwriter may study data on loans repayment in different regions of the country in order to find out if there are some areas of the USA that are better at paying on time than others.
Most lenders will usually work these aspects of underwriting into the initial criteria that you see on a website or their basic application. For instance, companies will often say from the outset that applicants need to be over 18 or in employment as a way to quickly narrow down their ideal candidate.[/vc_column_text][/vc_column][/vc_row]