After you have taken all the steps needed to apply for a USDA home loan program, and even after you have received your pre-approval there are still more steps ahead of you within the loan process. Your lender isn’t the only one looking over all your loan paperwork, you will at some point throughout your loan process have to have your loan processed with an underwriter. If you application isn’t fully complete and if you forgot to cross a few “T’s” and dot a few “I’s” you may be walking out of there with a denial instead of the approval you thought you were getting. Below are few examples of the commonly known underwriting issues that borrowers can run into during their loan process.
Your Employment History and Income
Underwriters in today’s market like to see a 24-month period of employment. Meaning you have had a steady job for a minimum of 2 years or if self-employed, then you have documentation proving your income for at least 2 years. Underwriters are looking for the stability in your finances and life, they want to see that you have a steady job and steady income and that you will continue to have a steady job and steady income years down the road. They do this because they want to see how big of a risk you are to them, they want to be confident in lending you money for a home that you won’t default on the loan, and that you can afford to pay it back. If you changed jobs just before applying that could alter the outcome of your approval. Underwriters want to see the long-term stability in your life. If you’re self-employed, when you make income on your own it can be difficult to document. What you write down on paper may not match your actual received amount. This can also be difficult for those who have a lot of deductions on their taxes and even though paying taxes is no fun, you can’t claim a higher income amount just for loan qualification purposes. If the IRS thinks you make $100,000 a year, which is the only amount you can use to qualify for your loan.
Bank Account Statements and Other Assets
Your bank account statements will be examined very closely, and then examined again, and then a few more times before moving into the next loan process phase. The underwriter will most likely want to go back as far as 2 years to determine your income and where it comes from. If you have large deposits or any questionable transactions, you can bet your bottom dollar you’ll have to have an explanation of them. Underwriters sometimes request that you make these explanations in a formal written letter. Any large deposits are a red flag to underwriters because it can be perceived as the borrower trying to give the effect that they are richer than they are.
Your credit will be pulled by the lender and underwriter as well as your credit history and your entire credit report. Your credit report will be examined very closely, and like your bank statement anything that looks out of the ordinary will be questioned and need to be explained. If the underwriter determines your explanation is not enough you could be turned down for the loan altogether, even if you have a high credit score. If your credit history shows any late payments or any other financial irresponsibility the underwriter will need an explanation in writing and a valid reason for the late payment.
Some acceptable reasons the underwriter would most likely consider valid are;
- Lost your job- not by fault
- Sudden health crisis
- Health crisis in the family
This is just a few of the areas that the underwriters look at when making their decision as to whether or not you are eligible for a home loan. Don’t think that the underwriter doesn’t want you to have a home, they are just doing their job in protecting the lender from a possible default. In the past, too many loans were given out that should not have been and it led to one of the biggest destructions in the housing market. It is now up to the underwriters that a destruction like that never occurs again, so there’s quite a bit of pressure on the underwriters and this means nit-picking at everything they can with every file and even turning down loans.
Need More Help
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