What Do Underwriters Actually Do Anyway?

By: Scott Shenton, Mortgage Banker

For anyone who’s been through the mortgage process, particularly in the current regulation-heavy environment, they may feel that underwriter’s only purpose is to be difficult. Although it may feel that way sometimes, underwriters actually are the superheroes of the mortgage industry. 

To appreciate why underwriters are so indispensable, it’s important to first understand a few of the underlying processes in the mortgage industry. No matter which institution you choose to do your mortgage, it’s a near certainty that that loan will one day be sold to a different institution. This buying and selling of mortgages is collectively referred to as the “secondary market”. It’s this buying and selling of mortgages, that enables institutions to continue to have funds to lend and without this market, the entire system would come to a screeching halt. For a mortgage to be considered viable on the secondary market, it must be structured and delivered in a way that proves that it is indeed a good investment (adequately low risk) and is consistent with industry standards.

  

This brings us back to the heroes of this story, the underwriters. Loans are delivered to underwriters complete with a large collection of supporting documents intended to prove a borrower’s income, ability to repay the loan, credit worthiness and the circumstances in which they are purchasing the property. An underwriter’s job is to then look at the big picture and ask the difficult questions.  Is the borrower’s income consistent and stable? Are the borrowers using the property as a primary residence, 2^nd home, or investment? Are all debts being taken in to consideration when determining a borrower’s ability to repay the loan? Does the loan make sense, and will it be purchased by an investor?

Underwriters are expected to pose questions that may impact the loan’s marketability and request additional documentation to answer these questions. When an underwriter has done their job well, the loan will easily be sold and will continue on, issue free. It’s this step that keeps the secondary market, and ultimately the mortgage industry plugging along.

So take it easy when answering an underwriter’s request for additional information and thank them. They keep homebuying possible. Want additional information about the homebuying process? Request a copy of our homebuyer’s guide or apply online.

Thinking About Buying An Investment Property? 6 Tips To Ensure You Don't Get Fleeced

Purchasing an investment property is one of the most important decisions that you'll ever be a part of. As such, it's a necessity to make your decisions with only the most careful of consideration.

Here are the six tips that you need to heed in order to ensure that you don't get fleeced.

Find The Right Property At The Right Price

Yes, this is a whole lot easier said than done. However, it's not impossible. All it takes is some patience and research.

You have to determine what everything in your area is selling for in order to be able to spot a bargain! Further, you need to know that various property classes will outperform each other. For example, land and home units will appreciate differently.

Figure Out The Cash Flow

It's always a good idea that you know how to maintain your mortgage repayment obligations over the long term. It's recommended that you analyze the cost of servicing any loan only on an after-tax basis. By taking this approach, you have the power to calculate and put the cost into actual terms that make sense for you.

Look For A Good Property Manager

Finding a good property manager who is a professional in his or her field is vital. Your property manager's job will be to make certain that everything is in order between you and any of your tenants. A good property manager can extract the best possible value for you from your property and help to keep your tenants in line as well.

Choose The Appropriate Type Of Mortgage

There are many options available for financing the investment property that you choose, so it's best to get sound advice. Options such as a variable rate loan and a fixed rate loan are both popular choices, but your specific circumstances will dictate what's most suitable for you. Consider that variable rates often end up being cheaper over time, yet fixed rates at the right time are ideal.

Take Equity From Another Property

Leverage the equity from your residence or another investment property. Doing this is actually an ideal way to purchase your investment property. Equity can be calculated by way of calculating any difference between what you owe on your mortgage and the overall value of your property.

Comprehend Both The Market And Dynamics When Buying

It's best to analyze what other properties are available in the area when you're looking at an investment property. It's very advisable to actually talk to both local people and real estate agents in the neighborhood. They can give you hints on small, yet vital, things like which side of a street is considered more desirable.

These are the six tips to help make sure that you don't ever get fleeced when buying an investment property. They can make the difference between purchasing a great property that has a high return on investment and purchasing a lemon.

Call your trusted mortgage professional today for some answers and more information.