#underwriting process

If you need loans, the best method is to choose a secured loan option like a mortgage loan. By applying for this loan, the borrower can avail funds by providing an immovable asset like a house or commercial property as collateral to the lending institution. The lender uses this collateral for the underwriting mortgage process. If the evaluation matches the loan amount, the borrower can successfully get the loan. If you are looking to apply for a mortgage loan, here are some things that you should not do.

Activities to avoid before applying for a mortgage loan:

Having extra debts

Before applying for a mortgage loan, it is important to make sure that you do not have any extra additional debts in your name. The debt-to-income ratio, which means the debt you have to payoff each month when compared to your income, is an important factor that the lenders will check during the underwriting mortgage process. It should be above the acceptable threshold if you want your mortgage loan application to be approved.

Not checking your credit score

The credit score of the mortgage loan applier is also an important point that will be considered during the mortgage underwriting process. The lending institution will use the credit score to know whether the loan applicant is financially stable and if they can payoff the debt within the stipulated time or not. As the credit score is always checked whenever a borrower applies for a loan, it is a good idea to check it before filling out an loan application to have a smoother underwriting process.

Defaulting on bill payments

Not paying your bills on time can negatively affect the credit score of any individual. Since credit score plays an important role in the underwriting process of a mortgage loan, you should never do anything that lowers it, in this case, never default on your bills. Paying your bills after the due date can easily remove some points off your credit score. If you have a habit of making late bill payments, the lending institution will feel that you may also do it for their mortgage loan payments.

Spending till the max limit of your credit card

For credit card holders, it is generally advised to keep the credit utilization ratio (your  your debt-to-credit ratio) to thirty percent of the maximum limit. Exceeding your credit card limit regularly will hurt your credit score as well. If you are looking to apply for a mortgage loan, it is better to keep the credit utilization ratio as low as possible.

Closing old credit card accounts

Many people think about closing their old credit card accounts if they are not used regularly. This might be a bad decision as it can negatively affect your credit score. An old credit card account has a lot of credit history which can help to boost your credit score. If you close it down, the credit bureau will no longer use the credit history for calculating the credit score. This can badly affect your future loan underwriting prospects. If you need a mortgage, do not close your old credit card accounts.

Switching jobs

If you make a career change just before you want to apply for a mortgage loan, you will face many difficulties in the loan underwriting process. Any lending institution will want to make sure that the borrower has a stable source of income and can afford to pay back the mortgage bill every month. Switching jobs just before you make a mortgage loan application might be a futile exercise.

Are you planning on taking out a loan soon? Are you going to approach the digital lending platform? There are some pointers you have to keep in mind. The digital lending platform functions really fast, and the loan processing gets simpler. But being careful is really important. You just have to keep a couple of pointers in mind before you take out the loan, as these will help you be more in control. Let’s learn more about them here.

Things to know before taking out a loan:

·         The first thing that you have to do is to do your research on the available loans. You can easily access information as all the banks, digital lenders have their websites and so you can easily access the information you need. You have to check out the terms set by the lender, and then the interest rate might also vary. You just have to be sure that you are paying attention to the details.

·         Another pointer to keep in mind would be the fact that you have to pay the EMI every month. You already have your living costs, now the inclusion of the EMIs would only make matters worse. So, before going through the underwriting process you have to make sure that you are absolutely certain about the EMI amount, and confident that you can carry it on.

·         Another useful pointer for you to keep in mind is the fact that your repayment tenure should be suitable. No matter what kind of loan you are taking there would be a repayment tenure, you have to be sure that the tenure has to be absolutely suitable for you. Pay attention to this, if you want to avoid regret later. The best thing would be to compare the digital lenders on the interest rate and the tenure offered by each. This will certainly make things more suitable for you.

·         Another factor that you have to take care of is your credit score which plays a significant role in the underwriting process. Make sure that your credit score is absolutely good. It is essential to track your score, and if it goes down for some reason you should take the right steps to ensure that you are taking it to the acceptable level. If your credit score is low, you might get rejected and also you might have to pay a higher interest rate. A high credit score will go in your favor.

·         One more thing that you should be aware of is that the digital lending platform is popular because there is no need to wait for long to get your loan. In fact, if everything is in your favor, then you will be approved and you will get the amount faster than you could have hoped. So, basically you might feel tempted to take out a huge amount, or, you might also be tempted to take out a number of loans. But this behavior should be checked; when you take out a big amount you will have to pay a bigger EMI. So, what is the point. Keep your specific needs in mind before you approach any lender.

·         Be careful about who you are approaching before you take out the loan. There are many players on the digital lending platform. But not all could be trusted, check out what they have to offer, and also check the documents you need to sign. Also be aware of the processing fees and additional charges, before you take the final leap.  

No matter which type of loan you apply for, you need to go through an underwriting process so that the lending institution can check your creditworthiness before approving the loan amount. This process checks various factors to determine whether the loan applicant can repay the loan in time or not. The time taken by the loan underwriting process can vary a lot, from a few minutes, hours, or even days and weeks depending upon the type of loan and the place where you are applying. Let us look at some key factors that influence the loan underwriting process.

The credit score of the loan applicant

The first thing in the underwriting process that every bank or digital lending platform checks is the credit score of the loan applicant. This score is a report card of your credit history and shows how have you been managing your finance and loans. A high credit score reflects that you follow good habits like timely payment of bills, spending less than thirty percent of your credit limit, etc. On the other hand, you will have a low credit score if you default on loan payments, pay bills after their due dates, etc. Thus having a high credit score will make your credit underwriting process smoother and faster.

Income plays a crucial role in the underwriting process

Before approving any loan, the underwriting process helps to address one of the main concerns of every bank and digital lending platform, whether the applicant can repay the loan amount on time or not. Thus the income of the borrower is a crucial factor that is considered in the loan underwriting process. Most lending institutions implement certain limitations or provide benefits depending upon the income amount of the borrower. They can refuse to give you any loan if your income is below their minimum threshold. The underwriting process of loan applicants with an adequate income has a higher approval chance.

The status of your current loan payments also affects the underwriting process

Most banks and digital lending platforms advise people to take out a single loan at a time. Thus in an emergency, taking out another loan will not make your life too hard. Having too many loans will make it difficult for the borrower to pay back the installments on time as the EMIs will eat up a large chunk of their income. This can even result in the default of some loan repayments which can adversely affect the credit score and credit history of the individual. Thus you should take out only that much loan amount which can at most consume thirty to thirty-five percent of your monthly income.

Evaluation of the collateral in the underwriting process

When you apply for secured loans from banks and other lending institutions, they will ask you to submit some collateral whose evaluation can be as much as the loan amount you are taking out. Thus depending on the type of asset you provide, its evaluation will impact the speed of the credit underwriting process. You may even be asked to submit documents of other collaterals if the one you provided before is insufficient to repay the loan amount in case of a default. Thus to make your underwriting process more streamlined, provide assets that are high in value when you take out secured loans.