Why Do Some Credit Issues Require Mortgage Underwriting?

by HJI Author

Nobody is perfect, and there is absolutely nothing wrong with that, even when it comes to credit issues.  Credit issues can arise from everything ranging from simple mistakes to complications from severe life challenges.  As a result, some credit issues are considered more severe than others.  While some flags on your credit report might be simply overlooked, others may require you to take certain steps in order to assure it doesn’t affect your mortgage rates and terms.

Underwriting is one of the steps that a borrower is likely to need to undergo in order to qualify for a loan; however, the underwriting process may be more detailed and stringent if certain credit issues exist on your credit report.  Underwriting refers to the research process by which a lender attains details about a borrower’s financial past in order to “underwrite” the loan with details that qualify a borrower’s financial trustworthiness.

In the case of issues like high debt-to-income ratios, spotty employment history, and high frequency of missed payments, a lender is likely to expand the underwriting process in order to flesh out these issues.  Each of these three issues, though, require extended underwriting for different reasons.  While there are more credit problems that can cause mortgage underwriting to complicate, these three are some of the leading causes, and, therefore, warrant exploration.

Expanding on Three Common Underwriting Challenges

High Debt-to-Income Ratio:

Borrowers whose credit report contains records of high totals of unresolved debt are likely to require further underwriting, particularly if their income is low in comparison to the total unresolved debt.  The reason this is seen as a significant flag on a credit report is that nearly all unresolved debts are going to be collecting notable interest and requiring payments.  A borrower whose income is comparatively low is unlikely to be able to undertake mortgage payments on top of the responsibilities they have to their current debts.  If they are capable of taking on the mortgage responsibilities, it will have to be investigated more in detail by the lender.

Employment History:

Large gaps or missing employment history are a major issue for lenders.  Lenders naturally expect repayment for their loans, but if a borrower does not have verifiable income or work history, it can become a huge risk for lenders.  Lenders will need to do more in-depth research if a borrower’s employment history isn’t well recorded.

Missed Payments:

If a borrower’s credit report contains records of habitually missed payments, it can reflect poorly on that borrower’s ability to keep up with mortgage payments to the current lender.  While missed payments do not necessarily disqualify a borrower entirely, they certainly do require further investigation, especially because missed payments can become very expensive to lenders.  Also, repeated missed payments can add up and become inescapable to borrowers, which lenders would often rather avoid.

Call Make Caputo for more information on the home-buying process

Mike Caputo is one of the Austin area’s leading realtors, leading the Austin Summit Group in its continual success in the Austin real-estate market.  His understanding of the underwriting process is unmatched, and he is ready to help you get the house you need today.  Contact Mike Caputo at (512) 733-0263 today.

Published on 2017-12-27 00:21:42