Mortgage lenders have started to look beyond the traditional approach to their business. It usually involves concerted efforts to verify the risk associated with every loan approval. They now aim to make meaningful modifications to their business model that would also benefit the borrower as their customer. Upfront mortgage underwriting is a radical change in the mortgage underwriting process that puts the borrower at the center of a lender’s business interest.
Lenders now want to loan seekers to have the best idea of the loan amount they qualify for, before they even begin to look for a home. Upfront mortgage underwriting erases last-minute delays and niggles that usually frustrate borrowers and real estate agents. It makes mortgage underwriting faster, and transparent.
How Have Lenders Achieved Upfront Mortgage Underwriting?
An underwriter’s job is to determine the risk the lender takes when financing a mortgage loan. The effort that goes into document collection, organizing and archival is both time and money intensive. Lenders are constantly under pressure to hasten their mortgage loan approval process without compromising on the quality of risk assessment. To find the ideal balance between these two very important variables, has been a mammoth task.
Lenders have separated the credit verification process is a vital element of the standard mortgage underwriting process. They now start reviewing a borrower’s income, credit history, assets and employment history at the outset. In contrast to a ‘pre-qualification’ where borrowers are given a rough ballpark figure of the loan amount, lenders tell them ‘upfront’ the exact figure they are eligible for.
Borrowers are not caught off guard by underwriters with the upfront approach. Missing documents, inconsistencies in credit, employment and payment history are usually some of the main reasons that cause a delay in loan approval. Every detail that implies that the borrower is a high-risk candidate is identified at the outset, unlike the traditional mortgage underwriting process.
By strategically isolating the credit verification process from the rest of the components of a traditional mortgage underwriting process, lenders have managed to make significant advancements in building the confidence of a borrower.
How Long Does it Take?
What once took nothing short of 45 to 60 days has been reduced to a matter of less than a week, sometimes even a few hours, depending on the lender. The level of ‘detail’ that lenders want to traverse usually determines the duration of their upfront underwriting process.
A lender can choose to verify the credit history of a borrower and provide a commitment. They can also choose to carry out preliminary appraisal functions like damage assessment of the property and then provide a commitment to the borrower, in which case, the total time taken for the approval stretches by a week or two.
The goal of the pre-underwriting process was to enable borrowers with a good credit history to proceed faster through the loan approval process. The traditional approach to mortgage underwriting puts all candidates in one single pool. The ‘upfront’ approach to mortgage underwriting, helps lenders isolate low-risk prospects and improve the performance of their business.