How Long Does It Take for Underwriters to Approve a Mortgage Loan?

Are you excited about getting approved for a mortgage for your first home? The time you must wait to hear back from a financial institution may depend on the underwriter. The Equal Housing Opportunity Act (ECOA) gives mortgage lenders 30 days to respond. So, it may also take 30 days for underwriters to approve, reject, or revise a mortgage loan application.

Underwriters look at various factors of the loan and your financial situation. The time for them to do these may vary as each application is unique. The decision of an underwriter is essential in your homeownership dreams. So, if you would like to learn what makes an underwriter approve a mortgage loan, read further. Get the information you need to be confident about your application.

Express Takeaways

• There are manual and automated underwriters. Both of these approve or reject a mortgage loan application.
• Underwriters go through various stages to review the 4 C’s in a mortgage.
• A stable income, down payment, and credit history may help with the loan approval.
• Applicants have 60 days to ask why an underwriter denied their application.
• Hopeful homebuyers may work on their financial profile and apply again.

How long Does It Take for Lenders to Respond to Mortgage Loan Applications?

The ECOA sets a rule for when mortgage lenders must respond to applicants. Companies must reply within 30 days of receiving a complete application. The Equal Housing Opportunity Act also prohibits discrimination based of the following characteristics:

• Race
• Color
• Religion
• Origin
• Sex
• Marital status
• Age

But, it also allows for a longer response time as long as it is reasonable. Statistics show that underwriters take longer than 30 days to close an application.

What Do Underwriters Consider to Complete a Mortgage Loan Application?

A complete mortgage loan application is when underwriters receive the following.

• Identification card
• Proof of monthly income
• Social security number to get a report on credit history
• Address of the property
• Estimated home value  
• Loan amount

A loan officer may ask for extra documents if necessary and a mortgage lender may also use another system to review an application.

What Are the Types of Underwriters Who Approve a Mortgage Loan?

The following systems may help mortgage lenders with the underwriting process.

• Manual underwriting – involves trained underwriters to review mortgage loan applications
• Automated underwriting system – computer software that assesses an applicant’s creditworthiness

Mortgage lenders may use both or either of these systems..

Which Mortgage Lenders Use a Certain Underwriter System?

Fannie Mae and Freddie Mac-bought mortgages go through the automated underwriting system. Government-backed mortgages such as VA loans may also use this software.

How Long Does It Take for Underwriters To Approve a Mortgage Loan?

Underwriters may need the following timeline to review an application.

The closing article provides more information on what may happen in the 30-50 day window. Applicants have an opportunity to reduce this period.

How To Speed Up the Underwriter’s Decision To Approve a Mortgage Loan?

Providing the complete documents may help speed up an underwriter’s job. It is also good if you can submit the follow-up papers they need as soon as possible. Both of these may help quicken the underwriting process.

What do Underwriters Review in a Mortgage Loan Application?

An underwriting process includes a review of the following factors:

• Income or assets available
• Employment
• The monthly payments on the transaction covered, other loans, and mortgage-related obligations
• Obligations to current debts, child support, and alimony
• The monthly debt-to-income ratio
• Credit History

The above items help underwriters assess the 4 Cs of a potential homebuyer’s application.

What Are the 4 C’s Underwriters Check to Approve a Mortgage Loan?

Underwriters may use the following guide to help them make the decision:

• Capacity – if an applicant has enough income to pay the mortgage. All the other financial obligations are also considered.
• Capital – the amount and source of the down payment 
• Collateral – if the home’s value may serve as security for the loan
• Credit – if an applicant has a reasonable credit score and history

A review of the 4 C’s may take many stages.

What Stages Do Underwriters Go through To Approve a Mortgage Loan?

The underwriting process may go through the following stages.

1. The loan originator or the lender first reviews the application. The result of this is whether there is a need for full processing or an immediate decision.
2. The underwriter analyzes whether lending of funds is possible and on what terms.
3. An insurer determines if an applicant is eligible for insurance. It may involve a government agency or government-sponsored enterprise.
4. Investors decide if they will buy the mortgage and at what price.
5. Evaluation of quality and risk through a credit rating agency.

Applicants may take extra steps to get a higher chance of approval.

How to Improve the Chances of a Mortgage Loan Approval?

The following tips may help an applicant get approval.

• Capacity 

1. Having a stable source of income from a verifiable and legitimate source
2. Settling the other debts before applying and refusing to get another one

• Capital

1. Having enough down payment and/or reserves, must come from acceptable sources. The list includes savings, investments, cash gifts, and assistance from down payment programs.
2. Proper documentation of the funds’ transfer.

• Collateral

1. The home sale price must match its appraised value.

• Credit 

1. Apply for a mortgage loan that accepts your credit score.
2. Build a good credit history.

The result of the 4 C’s evaluation dictates an underwriter’s decision.

What are the Possible Outcomes of an Underwriter’s Decision?

The decision of a manual underwriter may result in one of the following:

• Approval by sending a commitment letter to an applicant.  It includes an explanation of what to prepare for the loan closing.
• Modification through sending counteroffer terms that an applicant may accept or reject. If an applicant accepts it, the loan application proceeds. 
• Rejection by a lender or by an applicant to a counteroffer. A lender must inform them of the adverse action in writing and the reason for denial. A company must also provide them with an ECOA notice of nondiscrimination.

But, an automated underwriting system works in a different way. As it provides a recommendation after it receives a soft copy of the documents. It displays an “accept/approve” with a list of documents required at closing or “refer/caution”.

What To Do If an Underwriter Does Not Approve a Mortgage Loan Application?

Rejected applicants have the right to ask for reasons within 60 days. Depending on the cause of denial, they may do the following.

• Ask for information on the following if the reason is the credit report.

1. Numerical credit score
2. The credit reporting company
3. A copy of the report
4. The processes for fixing mistakes or adding details to the report.

• Dispute a credit report if it contains inaccurate data. The company that released it must conduct an investigation. There is also a need for necessary corrections if necessary.
• Learn how to build and maintain good credit if the reason is an insufficient credit file.
• Settle other debts to have fewer financial obligations.
• Get all the documentation in order and apply again to the same lender.
• Get extra funds from other sources such as down payment assistance (DPA) programs. Visit Homebuyer Wallet to find a list of all the financial aid available nationwide.
• Wait a little bit longer to establish a good credit history.

An underwriter may not approve a mortgage loan application at first. But, working on the reason for denial may help your next application get approval.

Conclusion

It may take an underwriter a few minutes to 50 days to respond to a mortgage loan application. Possible outcomes include approval, counteroffer, or rejection. Providing the complete documents may help speed up the process. Underwriters may go through different stages. As there is a need for them to review the capacity, capital, collateral, and credit of an applicant and the loan. 

A good income down payment, sale price, and credit history may help with approval. If a lender does otherwise, applicants may ask for the reason and work on it. An underwriter’s disapproval decision does not end your dreams of owning a home. Applicants may work on their profile and use other financial resources. But, if you are curious about which DPA programs could have helped you. The number of available financial aid throughout the U.S.A. may surprise you. 

Article Sources

Homebuyer Wallet requires its writers to get information from original and reliable resources. Please see our editorial policy to learn more about our standards for producing factual information and content.

1. U.S. Government Publishing Office, “SUBCHAPTER IV—EQUAL CREDIT OPPORTUNITY, https://www.govinfo.gov/content/pkg/USCODE-2011-title15/html/USCODE-2011-title15-chap41-subchapIV.htm”
2. ICE Mortgage Technology, “Days to close, https://www.icemortgagetechnology.com/”
3. Consumer Financial Protection Bureau, “SUMMARY OF THE ABILITY-TO-REPAY AND QUALIFIED MORTGAGE RULE AND THE CONCURRENT PROPOSAL, https://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-summary.pdf”
4. Consumer Financial Protection Bureau, “Definitions, https://www.consumerfinance.gov/rules-policy/regulations/1024/2/”
5. Pinkowish, T. (2021). Residential Mortgage Lending: Principles and Practices, 7th Edition (eTextbook). (S. Glassmeyer, Ed.). Mbition Publishing. https://www.theceshop.com/real-estate-books
6. Freddie Mac, “The 4 Cs of Qualifying for a Mortgage, https://myhome.freddiemac.com/blog/homeownership/20171204-4Cs-qualifying-mortgage”
7. Consumer Financial Protection Bureau, “My credit application was denied because of my credit report. What can I do?, https://www.consumerfinance.gov/ask-cfpb/my-credit-application-was-denied-because-of-my-credit-report-what-can-i-do-en-1253/”
8. Freddie Mac, “What Do Borrowers Do When a Mortgage Application Is Denied?, https://www.freddiemac.com/research/consumer-research/20220817-what-do-borrowers-do-when-mortgage-application-denied”