Does the Underwriter Approve Your Loan Before or After You Close?

Criteria

The basis for loan approval is a combination of several factors. You must have sufficient income to support the debt, and not have an excessive amount of obligations. Most lenders require a minimum credit score. Different lenders have different criteria. Most are looking for a credit score of 680 or above. A few lenders, such as the Federal Housing Administration, will approve a mortgage loan with a credit score of 500 or above. Most lenders require some cash reserves to ensure that you will be able to make your payments during unexpected financial emergencies. One additional requirement is equity. The value of the security must exceed the loan amount by a certain predetermined percentage.

Documents

After the underwriter approves your loan, the loan funder prepares loan documents. The documents outline all of the terms of the loan, including the interest rate, loan term, monthly payment, first payment date and maturity date. You will be required to review and sign several additional disclosures. The disclosures are legal documents developed to protect you and your lender.

Escrow

An escrow officer will witness your signature and verify your identity. A few of the documents will require notarized signatures. Your escrow officer will review your underwriter's requirements and verify that you have met all of your underwriter's conditions. Your escrow officer will compile all of your documentation and forward it to your funder. Your funder will review all of the documents before the loan closes and funds.

Considerations

A loan cannot close until after an underwriter approves it. The mortgage crisis of 2008 to 2009 tightened up all lending criteria. Credit score requirements went up considerably and equity requirements tightened. Property values dropped appreciably, which made it difficult to borrow. An unusually high level of unemployment made things worse. Before you apply for a loan, review your credit report for accuracy. You can obtain a free copy at the AnnualCreditReport.com website. If you find any errors, ask the credit bureau to correct them. The credit bureau will send you a copy of the corrected report if it verifies the errors. Do not apply for a loan until you receive a corrected copy of your credit report.