Overview

Once you have signed a contract with a seller to purchase their home, your loan is submitted to underwriting. The pre-approval is not a guarantee that you will get loan approval, however, it is a major step in the right direction before an underwriter goes through and does thorough due diligence on your file.

Credit History

The underwriter will look at your credit report to evaluate your history of payments on past debts. A consistent pattern of late payments, collections, or other negative items is not looked upon favorably and you will need to explain. If you’ve had a bankruptcy, it needs to at least have been two years and this should be covered early on in the pre-approval process to ensure all the bases are covered.

Income

Your job stability and gross income are critical. Most income must be verified as having been received for at least two years to be considered for qualifying purposes when evaluating your debt-to-income. If you are on commission for 25% or more of your total compensation, you will have to demonstrate two years of consistency.

Assets

The underwriter wants to see your net worth based on the money you have available for a down payment, closing costs, and cash reserves depending on the type of loan and reserve requirements. The underwriter also will want to see your source of funds or where the money for the down payment and closing costs is coming from. Don’t move money around without having a discussion with your lender first as this will cause more questions from the underwriter, further documentation and could delay final loan approval.

Debts

The underwriter will look at the debt you have, how often you use it, and what your monthly payments are in order to evaluate your ability to repay the loan

Work history

stable history of employment in the same line of work is considered ideal, job-hopping is not as it raises red flags if you have gaps in employment and the potential inability to cover your mortgage. If you have switched jobs in the same line of work for advancement, this will not be as problematic.

The Property

The property is the lender’s collateral for the loan in the event you default and they have to take over as owner. The condition and value of the home are imperative as the underwriter will evaluate the appraisal for this information to verify that the appraisal and the purchase price are generally in-line. A higher purchase price over appraised value could mean having to come to the table with more cash if you want to close on the home, otherwise you can walk away from the deal.