During the loan underwriting process, a potential borrower is assessed to see if he or she will be able to repay the loan. This post will provide you with detailed information about loan underwriting, its types, and tips to smoothen it out. It also evaluates if the property will be able to repay the loan in case of foreclosure.
Prior to approving a loan, lenders use underwriting to determine if a potential borrower’s application is safe. The lender uses underwriting to assess the risk of lending money. As part of the loan underwriting process, a lender checks an applicant’s credit history, income, financial assets, debts, equity investment, and many other factors.
The underwriting process is a key step in the loan approval process. However, it doesn’t mean the applicant has no role to play. There may be additional documents or information the lender requests.
Types of Underwriting: Manual and Automated
In the past, lenders manually assessed an applicant’s financial situation, which was time-consuming and prone to errors.
Today, lenders use software to automate the loan underwriting process, such as solutions offered by BankPoint. Modern underwriting systems speed up the process of making quick decisions. This not only provides peace of mind, but it also helps determine whether a loan application should be approved.
When a lender needs additional information from an applicant in order to determine their financial position, the underwriting process may take several days.
Tips to Speed Up the Loan Underwriting Process
It streamlines the underwriting process, checks documents, and determines whether an application should proceed to the next step in loan approval by using an underwriting software system.
Underwriting happens behind the scenes, but an applicant can speed up the process by following these steps:
01: If the applicant is self-employed, business records and tax returns are required to prove employment.
02: There must be sufficient information regarding finances, credit scores, and savings accounts.
03: An applicant must provide proof of any additional income, such as bonuses or commissions.
If a lender requests additional documents, applicants should arrange them as soon as possible. Many times, a loan origination system (LOS system) takes many weeks to process an application due to insufficient documents proving income.
Although the loan underwriting process is a key part of the loan approval process, there are other steps to follow if an applicant clears it. However, it is a key part of the process. A lender can streamline it by using an automated system, while an applicant can speed it up by providing all the necessary documents as quickly as possible.