Between
loan approval and closing, your lender is doing a lot of work behind the scenes
in a process called underwriting. Here are five things the lender does during
underwriting.
Underwriting
verification
After
the housing crisis of the mid-2000s, the Consumer Financial Protection Bureau
enacted rules to protect borrowers. Under these new rules, lenders must be sure
a borrower is qualified. Verifying the information you put on your application
is top priority.
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The
lender's team of underwriters will check the information on your application
and supporting documents. They will call your employer, for example, to confirm
that you work at that job and that you are paid what you said you're paid. If
you're self-employed, you may need to supply a lot more documentation. The
amount of verification involved depends on how risky your lender perceives you
to be.
Credit
surprises are the last thing you want to deal with during the mortgage process.
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Appraisal
The
lender wants to be sure that the price of the property you're buying is
comparable to the values of similar properties. The lender will get an
independent appraisal of the property prior to closing, and the results could
affect the rate and terms of your mortgage. A licensed appraiser will provide
an expert's estimated value based on a physical inspection and comparables, or
"comps" -- prices paid for comparable properties that have recently
sold in the neighborhood. An appraisal typically costs between $300 and $500.
Title search and
title insurance
After
the appraiser has looked at the physical side of your house, a title company
looks at its legal history. Your lender doesn't want to lend money against a
house that may have claims on it. That's why a title company performs a title
search.
The
title company will research the history of the property, looking for
encumbrances such as mortgages, claims, liens, easement rights, zoning
ordinances, pending legal action, unpaid taxes and restrictive covenants.
The
title insurer then issues a policy that guarantees the accuracy of the work.
Your lender will require a title policy that protects the lender. In some cases
two policies are issued -- one to protect the lender and one to protect
the property owner.
Flood certification
Flood
insurance is not part of a standard homeowners insurance policy. If your
property is in a flood zone, your lender wants to know about it. The lender
will hire a specialist to analyze your property and neighboring sites to
determine if the home is in a flood zone; the report is called a flood
certification. If you're in a flood zone, you'll be required to buy flood
insurance.
If
you think you may be in a flood-prone area, you can check out any property on
FloodSmart.gov before you even start searching for your new home.
Survey
Finally,
some lenders will require that a home's property boundaries be verified by a
professional survey.
While
all of this information is being gathered, you can help by taking these steps:
·
Provide
complete documentation with your application.
·
Respond
promptly to your lender's request for more information.
·
Call
your lender and real estate agent to check on your loan application status.
·
Help
contact employers and others who may need to provide documentation.
·
Keep
records of your conversations with your lender.