How to Understand Underwriting in a PCS Move


Congratulations! You’re PCS-ing and considering a home purchase at your new duty station, and your timing is excellent. Since all housing markets are local, no one can precisely predict the bottom or top of any market, but here’s what you have going for you:

•Historically low interest rates. • Zero-down assumable VA loans with higher loan limits. • Dramatically lower home prices. • Numerous government programs encouraging home ownership such as the $8,000 tax credit for first-time home owners.

How long will this window of opportunity stay open? Very few experts believe interest rates can stay this low for long, and most would expect to see them rise sometime within the year as the recovery and inflation pick up steam. What’s more, U.S. home sales saw a 5.1 percent increase in February 2009, and many predict that home prices have finally bottomed out.

For home purchasers there are subtle, but very significant, changes that you need to understand to facilitate a smooth transaction. Perhaps the most important is the underwriting process. Now this process is about as exciting as watching paint dry, but stay with me on this. It’s critically important, and knowledge is power.

Since “easy money” was the direct cause of the economic meltdown, it should be no surprise that scrutiny for lenders’ and underwriting processes increased. So let’s explore the somewhat mysterious “underworld of underwriting.”

Here’s a question that may come up during the underwriting process: “I’ve completed the loan application, the loan officer pre-approved me for my loan at a great rate on the perfect house, and we will settle exactly when we want. What can possibly go wrong?”

Usually, not much, but, when it does go wrong, the consequences can be significant for both purchaser and seller. All loans are subject to “final underwriting approval.” Loan officers work directly for the borrower in obtaining a mortgage. Their duties include pre-qualification, an initial determination that the client meets the loan approval guidelines, and collecting the required documentation for the underwriter.

However, underwriters always have the prerogative to request additional information, which can cause stress and inconvenience for the borrower.

What is an underwriter and what do they do? They work directly for the lender. The underwriter is on the hook if a buyer defaults on a loan or if it’s later determined that there are fraudulent documents in the loan file. The underwriter has the ultimate responsibility for loan approval. Specifically, they review:

  • Job verification, income, credit, payment history and assets to determine if the loan is a safe investment for the lender, and they ensure that the loan meets applicable Fannie Mae, Freddie Mac, VA or FHA guidelines.
  • The appraised value and any glaring physical property defects noted by the appraiser. The underwriter doesn’t have to accept the appraisal.
  • Property “chain of title” to ensure that it’s sold by the true owners.
  • Borrower’s credit score, credit lines, late payments and monthly obligations.
  • Verify the borrower’s monthly debt-to-income ratio meets guidelines.
  • Borrower’s assets to determine how long they can cover the mortgage if their job is lost.

When does the underwriter make the final approval? An underwriter makes a conditional approval and loan commitment first. This approval commits the lender to loaning the money contingent upon any specified conditions, such as additional or updated information required from the borrower. Once all conditions have been met and reviewed, a final loan approval a “clear to close” is issued to the settlement company.

Based on the workload and document availability, the final approval can be done as close as one day prior (more typical) or as far out as 30 days (rarely) from the closing date. Borrowers should expect last-minute documentation requirements and cooperate with the loan officer’s request.

What can purchasers do to prepare for this “final underwriter” review?

• Provide the loan officer with accurate documentation even if it appears redundant. • Include all pages of requested statements. • Provide accurate employment and rental contact information. • If newly hired, expect the underwriter to request a pay stub from the employer just prior to settlement. • Supporting documentation to show that all income used to qualify the borrower will continue (alimony/child support, bonus or commission income). • Avoid large purchases with revolving payments (show stoppers) between the time of application and settlement such as new furniture for the house.

What are the consequences of not receiving a “Clear to close”? The best case would be a delay in closing while the documentation is obtained. The worst case is loan denial. Either case could place the borrower in default of the contract terms with the potential for loss of earnest money or litigation.

Fraud in mortgage lending in recent years forced underwriters to closely scrutinize all loan applications. Whether you’re working with a mortgage broker or a direct lender, program and guideline changes happen frequently and without notice — even between the time of application and underwriter review.

Ultimately, a close, cooperative effort between client and the loan officer, and rapid and accurate responses to the underwriter’s requirements are the best means to a minimum-stress settlement.

We hope this makes your home purchase or refinance go smoothly. A special thanks to our friend, Senior Loan Consultant Susan Wallace, for her contributions to this article.

To get more PCS tips or information, visit’s PCS/Home Buying Guide.

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