Mortgage Application – It’s All Backwards Now
Applying for a mortgage may not be your favorite thing to do. You may want to visit the dentist first or maybe walk ten miles in the snow. But unless you’ve got a few hundred thousand dollars in your closet to buy a home you’ll need to grin and bear it. Today however, lenders approve loans differently than they used to. It’s completely backwards. And that makes it easier.
As you apply for a mortgage today, you’ll complete the application and forward it to your loan officer or apply at the mortgage company’s website directly. Before applying for your mortgage, your loan officer advised you to begin gathering your documentation, and that’s good advice. There’s no need to wait when you find the home of your dreams.
You’ll need to gather your most recent tax returns and W2s, copies of your most recent paycheck stubs and bank statements as well as providing a copy of your sales contract. But you know that’s just the beginning.
But your loan file doesn’t need all those documents to accompany your loan request. You can do it later. Today, lenders use an automated underwriting system to approve your loan. Much different than the past.
Before an automated underwriting system, a loan application must be 100 percent complete before an underwriter would review the loan for an approval. In addition to the application and your personal information, the appraisal, credit, and title report would need to be ordered and received before the loan package could be approved.
Back then, your loan officer would ask for every possible piece of paperwork that an underwriter might ask for. A loan officer could ask for copies of your cash-value insurance policy or an explanation letter detailing why you were late on a car payment two years ago. Perhaps you experienced an unfortunate divorce several years ago, your loan officer could ask for a copy of the complete, signed decree, all 200 pages of it.
By the time your loan ever got in front of an underwriter for an approval, the loan application file could be six inches thick or more. And only THEN would you find out if you were approved.
Today, it’s all backwards. The approval process did a complete 180. Today, you only need to complete the online mortgage application once. The lender will review the application for errors and omissions, then submit the file electronically to an automated underwriting system. Within seconds, the application is approved along with a list of documents needed to complete the approval.
In other words, the approval is issued first and you document the file later. Not only later, but provide exactly what’s asked for; nothing more and nothing less. If you were divorced five years ago and the lender knew it you wouldn’t have to provide your 200 page divorce decree if the approval didn’t ask for it.
Automated underwriting systems save time as well as money. There really is no guess work with today’s mortgage approval process. Apply first, document later.
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