Owning your own home certainly has its benefits, and many people spend years saving for a deposit to pay for a place to call their own. But getting a mortgage can be a long-winded process, causing stress and frustration.
If you’ve found the place of your dreams, you’ll be keen to move in as soon as possible and start your new life, but sometimes it’s not that simple. Part of why mortgages take so long to go through is the underwriting process.
Mortgage lenders have the responsibility of assessing the risk involved in lending a large sum of money. In theory this process should be smooth sailing, but it often isn’t, so what takes so long ?
The global pandemic has seen a massive shift in financial security and the economy has taken a massive hit.
Credit companies such as mortgage lenders have become increasingly busy since lockdown as people attempt to make changes due to the financial impact.
Although the stamp duty holiday is slowly being phased out, people have been taking advantage of it as it accounts for a huge chunk of money for those with second homes.
This increase in mortgage applications means there are thousands of transactions in process every day, and so it’s understandably slowing things down.
The situation has also made lenders nervous, and the process has become more complicated than in the pre-COVID-19 world.
Many lenders aren’t offering mortgages to first time buyers, and some are asking for larger deposits than previously.
With the potential for borrowers to default on payments, lenders are operating much stricter requirements increasing the overall time it takes to make a decision.
What actually happens when a mortgage application is made?
Automated Or Manual ?
Some mortgage lenders use automated underwriting to access applications. This should speed up the process, but not always.
It’s a good option for people with simple circumstances, but the limitations mean that if it throws up any inconsistencies it can be slower in the long run.
If you think it may be a possibility, it’s better to use a manual process to reduce processing time. What inconsistencies would slow down an automated application ?
Some discrepancies may occur if your income fluctuates, such as in the case of self-employment.
Any bank statements that don’t show the level of income that you’ve claimed will also mean that you need to provide additional information.
Debt issues that are unresolved or results of a home appraisal that reveals that your home is worth less than the market price can also be a problem.
If any of these flag up, the application will switch to a manual process where the underwriter will go through each page step by step.
The verification process can slow down applications due to the complexities of all that’s required.
Firstly, they need to check certain policy rules that you must satisfy. These may differ depending on the lender but are usually factors like legal status, maximum loan amounts etc.
Generally speaking it is the policies put in place by the mortgage lenders to help them decide how risky it would be giving you a mortgage.
Secondly, all your details need to go through credit scoring. Credit scoring is an important part of establishing how well you have handled credit in the past and the likelihood of you sticking with the repayment plan.
This part should happen swiftly but if you have past issues with credit it will flag up on your credit report, slowing the application down.
Thirdly, they need detailed information to assess affordability through income and outgoing details. They will use their calculations to collect all your income through work, rentals, etc. if you are self-employed they will make the decision based on three years worth of accounts.
This process takes time and can also come down to the experience of the mortgage underwriter as to how long it takes for them to carry out assessments.
They will also calculate outgoings and compare them with income as well as the amount requested in the application. They need to be satisfied that you can meet the payments and still maintain monthly outgoings.
The underwriters will also perform money laundering checks to identify that money you claim is clean and free from any fraudulent activity. They will also check any assets you have that can work in your favor when applying.
Of course, it’s not as simple as filling out an application and providing information. You also have to provide evidence of your claims. If anything is missing during the underwriting process, this can slow down the application process considerably.
In most cases, you and [and your partner if applying for a joint mortgage] must provide:
- Identity proof
- Payslips of 3 yrs worth of self-employed accounts
- Bank statements
- Benefit letters
- Credit report
- Deposit payment proof
All documents need to be in date and have an existing address. Any discrepancies will be flagged up, and the process will be delayed until rectified.
You should also provide proof of any savings you have, the more cash you have stashed away, the better chance you have of being accepted.
As mentioned earlier, the general population is on the move at the moment meaning that everyone involved in the buying and selling process are really busy.
An underwriter will need to contact a surveyor to attend the property, which depends on his availability. Underwriting can be a complex job of negotiations, rescheduling, phone calls and emails dealing with people that have their own time constraints.
If you’re frustrated about the time it’s taking, make sure that you provide the right information from the outset and answer questions swiftly to move things along as best you can.
Buying a home really is an exciting time, and it’s good to stay focused on all the good things to come. As stressful as it can be, it’s wise to stay positive and try to be patient over things you can’t control.
If you don’t get this application approved there are always other houses so don’t lose heart.