What is a Loan Underwriter?
Loan underwriters are individuals or businesses that evaluate and ultimately approve or reject a loan request submitted by an applicant. As part of the process, the person verifies the data provided by the potential debtor, including his or her employment information, references, and other data requested. Normally, underwriting also involves running credit checks on the applicant. Once the underwriter is satisfied that the applicant is a worthy credit risk, the loan is granted.
Commercial loan underwriting takes place with many types of loans, although the exact process will vary based on factors such as the nature of the loan and current regulations that apply in the jurisdiction where the transaction is taking place. In any situation, the purpose of the underwriter is to determine if the amount of risk associated with a client is low enough to grant the loan. Some will only consider clients with a high credit rating and stable employment, while others may qualify applicants with less than perfect credit for a loan, but at a higher rate of interest.
There are a number of different underwriting jobs in addition to commercial ones. Commercial jobs typically involve the evaluation of loan applications connected with businesses. In this scenario, the underwriter is not investigating an individual’s credit worthiness, but the financial reputation of the company. This will mean looking at the company’s market share, current debt load, profit margin, and cash flow.
Loan underwriting is also part of the process required to approve a mortgage application. In this case, the individual will consider such key factors as the past credit history of the applicant, current credit ratings, and the amount of outstanding credit already available to the person. In addition, the salary and wages of the applicant are also considered very important. It is not unusual for an underwriter to also be interested in how long the applicant has been with his or her current employer.
Underwriting loans helps financial institutions to qualify applicants, making sure they meet the minimum standards for approval that are set in place by the institution. Those standards will vary, with banks usually having the most stringent requirements. Finance companies that specialize in high-risk loans will have broader criteria that the underwriter will use to evaluate the loan, and payday loan companies usually have the broadest standards. It is not unusual for any underwriter to have specific loan officers or others who are authorized to research and evaluate each application before approving or rejecting the request.
Do underwriters normally contact you if there is an issue after the loan was granted?
I am trying to buy a small home that was foreclosed on for my son to live in. I have excellent credit, very stable job and all the skills needed to do the minor repairs the house needs. I personally paid for a home inspection to assure me the electrical and plumbing were operating. The termite letter indicated past termite activity in structural members. I was shown this by the inspector and we agreed there was no problem. The underwriter wanted another inspection and required treatment before they would consider closing. The house is selling 'as is' and we have agreed to buy it "as is" contingent on our satisfactory inspection. It's only $36,000. I could have bought a car for that amount and drove it off the lot! We have $1200 invested in the house for the inspection, termite treatment and insurance required before closing.
I should have written a check and left the underwriter looking for loans. Strict is strict but this is a little bit overboard. If they suggest repairs before approval of the loan, I'm going elsewhere.
My son works in commercial real estate, and the process of commercial loan underwriting has also become more stringent.
With so many companies struggling to make it financially, there aren't as many banks willing to take on as much risk.
There are some major building companies in our area that have folded in recent years. For those companies that have made it through the last few years, they should be in pretty good shape.
You are starting to see some more new construction, so this is usually a sign the market is looking up. When you see new buildings going up, you know that there have been loans approved.
There has probably been a decline in the number of commercial and consumer loan underwriter jobs in the last few years. With so many fewer people and companies applying for loans, there would not be a need for as many underwriters.
When my daughter applied for a car loan, she had to have someone co-sign the loan with her if she wanted the dollar amount she was requesting.
She had a stable job history, but didn't have the greatest credit rating. When the loan processor underwriter looked at all the information, they didn't feel comfortable taking on that risk without some another person having their name on the loan as well.
I think one of the biggest factors in getting a good loan rate is having a high credit rating. If you have good credit, not only do you have no trouble getting a loan, but you will also get the best rate.
@myharley - I think most of the changes in the home loan underwriting guidelines have been positive.
When my son went to buy his first house, they pre-qualified him for an amount that was way above what he could reasonably afford.
He didn't end up buying a home for the amount he was pre-qualified for, but he still ended up losing the home after a few years.
Of course, he didn't have any idea that he was going to lose his job which was the cause for his home going into foreclosure.
If they used the guidelines they use today when he applied for a home loan the first time, they would come up with a much lower figure that he would qualify for.
I know that most home loan underwriters have much stricter guidelines to follow than they did several years ago.
We have always had good credit and stable employment. As the interest rates continued to decline, we refinanced our home.
Each time we did this, I could tell the requirements were harder to meet and they were much more selective in who they granted loans to.
While I understand the need for these qualifications, I also think it has become very hard for young people who are just starting out to own their own home.
One one hand, you don't want them to have more debt than they can handle, but you also don't want them to think they have to rent for the next 10 years or so.
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