The Home Loan Underwriting Process Explained
Last week I attended a class that focused on why so many Central Oregon real estate transactions are closing late. In Part One of my discussion about the class, we tackled one of the main culprits: appraisals. Today we take a closer look at another frequent cause of delays: the loan underwriting process.
It used to be that the amount of documentation required during the underwriting process varied from lender to lender. Now, however, as mortgage broker/banker Larry Wallace of True North Mortgage explains, “Underwriting guidelines are very defined. Your clients have to fit in a very tight box –- and if one lender can’t make them fit in that box, you probably won’t have the option of moving to another lender because all the lenders use the same box.”
Actually, it isn’t that the box got smaller; it just got thicker walls. In other words, today’s lending guidelines aren’t new; however, during the past 15 years (until the mortgage industry self-destructed), lenders began to interpret the long-held guidelines much more loosely –- a situation we had come to see as normal and reasonable.
Now, however, we’ve returned to an environment of adhering to the old guidelines — and, in many cases, adhering strictly to those guidelines. That means that a buyer must not only qualify for a loan, but must also have good credit, cash to put down (in most cases), income to sufficiently qualify for that loan and proof of that income evidenced on their tax return. Consequently, many folks are being asked to jump through many more hoops to secure their loan. Each hoop adds to the timeline.
As Tom Ferrara, senior mortgage loan officer for Bank of America’s Bend office, explains: “Today underwriters are requiring extensive documentation –- they’re dotting all their I’s and crossing their T’s at least three times to make sure there are no indicators that down the road, there might be a problem with the loan. Credit reports are scanned to see if anything shows up that wasn’t disclosed on the loan application. There’s really no wiggle room anymore.”
In other words, folks with lackluster credit need not apply. Everyone else, be prepared to justify (in the form of extensive written documentation) why your lender’s underwriter should approve your loan.
Eight Steps to a Smoother Closing
So what can you do to speed along the escrow process? The following tips should help streamline transactions that require a loan:

  • Most importantly, be proactive. Know what your lender expects from you –- and be willing to provide it — before you make that offer.
  • Order your appraisal as soon as escrow is opened.
  • Don’t schedule your closing for the end of the month (and, whenever possible, schedule at least a 45-day close).
  • If you don’t have a lot of flexibility in your closing date, choose a local lender that funds its own loans; their timelines are typically shorter than the big guys (the ideal scenario: a lender who has its own AMC, which can greatly speed up the appraisal timeline).
  • Allow for holidays when choosing your closing date.
  • Don’t include any repairs in the contract unless the buyer or seller is prepared to pay for them before closing (typically, the lender now requires that repairs be completed before closing)
  • If you have an FHA loan, don’t forget that the utilities must be on during the appraisal (which isn’t always easy, if the property is bank-owned). Also, if the appraiser discovers anything the lender considers a safety or health issue (such as peeling paint, broken windows, a deck in need of repair), those issues will have to be resolved before closing.
  • Don’t include personal property on your Purchase Agreement. If you do, that property may have to be appraised and the price of the home reduced accordingly. (Fannie Mae and Freddie Mac can take credit for instigating this change in policy, which more and more banks are adopting.)

Above all, stay calm! Patience and persistence pay off.

About the Author:
Lisa Broadwater, GRI, CDPE s a Central Oregon-based real estate professional who specializes in listing and selling homes, especially in Sisters, Tumalo, Redmond and Bend.