The loan underwriting process helps determine whether or not a potential borrower is able to repay the loan. Also, it evaluates if the property one will buy is capable of repaying the loan in case of foreclosing. In this post, you’ll learn in detail about loan underwriting, its types, and tips to smoothen it.
A lender uses underwriting to assess the risk of lending money. Before approving a loan, the process helps the lender in knowing whether or not the potential borrower’s application is safe to approve the loan. During the loan underwriting process, the lender checks an applicant’s credit history, income, financial assets, debts, equity investment, and many other factors.
Although underwriting is a key step in a loan approval process, it happens behind the scenes. However, it doesn’t mean an applicant has no role to play in it. The lender may contact an applicant for additional documents or information related to finances.
Types of Underwriting: Manual and Automated
A lender requires a range of documents to assess an applicant’s financial situation. Earlier, everything was done manually, which was a time-consuming process. Also, as humans were examining the documents, there were always risks of errors.
Today, lenders use software to automate the loan underwriting process. The modern underwriting system speeds up the process of making quick decisions. It not only provides peace of mind but also helps decide whether or not a loan application should be approved.
In some cases, the underwriting process may take several days. It, generally, happens when a lender needs additional information from an applicant to determine their financial situation.
Tips to Speed Up the Loan Underwriting Process
An underwriting software system enables a lender to speed up the underwriting process. It streamlines the process, checks documents, and matches to decide whether or not an application should proceed with the other steps of loan approval.
Although underwriting happens behind the scenes, an applicant can help speed up the process. Here is how:
01: An applicant must have documents to prove employment. In the case of self-employment, there must be business records and tax returns.
02: There must be sufficient information around finances, credit score, savings accounts, and others.
03: If there is an additional source of income, such as bonuses or commissions, an applicant must have documents to prove them.
Also, if a lender asks for additional documents, an applicant should arrange them quickly. Many times, a loan origination system (LOS system) consumes many weeks only for the underwriting process because applicants do not have sufficient documents to prove their income sources.
Conclusion
Remember, the loan underwriting process is only a step in a loan approval operation. Even if an applicant clears it, there are other steps to follow. However, it is a key process that helps decide whether or not one is capable of repaying the loan. A lender can smoothen it by using an automated system, while an applicant can speed it up by providing all the necessary documents quickly.
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