Borrowers don’t get to peek behind the closed doors of an underwriter. There are multiple positions within a mortgage company and the underwriter is one of them. Borrowers will work hand-in-hand with their loan officer and loan processor but when the file is handed off to the underwriter there’s no communication with that individual.
The underwriter is the person that verifies the documents included in the loan package are complete and conform to the guidelines required for the loan being applied for. When the file goes to underwriting it’s somewhat of a quiet time, at least from the borrower’s perspective. After providing paycheck stubs and bank statements and all sorts of paperwork, the file is completed and ready for a final approval.
However, borrowers can become a bit rattled when the loan processor calls after the loan has been transferred to underwriter asking more questions. The tendency can be to think there’s a problem with the application and the deal is about to fall through. But typically, that’s not the case. Every loan file will have approval “conditions.”
Essentially the loan approval says, “Okay, you’re approved on the condition that…” and a list of items will be provided. Most often these conditions are date-sensitive and only means the information in the file needs to be updated. Credit documents such as a credit report must be dated 30 days or less at closing. If the loan closes 45 days later, an updated credit report will be needed.
Sometimes however a little more is needed. Perhaps a bank statement is showing a deposit that doesn’t match up an applicant’s regular pay period and the funds are going to be used for the closing. The underwriter will want to know where the funds came from. It’s not panic time, it’s just time to document the source of funds. The answer needs to be simple and direct. “These additional funds came from my parents as a gift to help buy this home.” In this instance, the underwriter will want to document the source and transfer of the funds from the donor to the buyer.
Maybe the underwriter is looking at last years’ W2 form and compares it with a recent paycheck stub. There seems to be a difference. The underwriter will want to know more about the discrepancy. Again, a simple and direct explanation is needed. There is no need to provide any sort of backstory. “I got a raise three months ago and that’s why my income is greater now than it was last year.” That’s really all that’s needed. Any explanation will likely require some sort of third party verification. In this example, the lender might contact the employer directly.
Finally, work with your loan officer to help craft any response. You won’t be speaking directly to the underwriter but when a question does arise, and there will likely be some, your loan officer can help. These “explanation” letters are common in the mortgage industry and your loan officer has seen them all. Your loan officer will know what to say, you just need to provide the loan officer with the additional information. No need to panic, at this stage it just means you’re that much closer to your approval.