The Mortgage Underwriting Process in NYC
The Mortgage Underwriting Process
Here’s a scenario that happens all the time: A client says, “My bank just pre-approved me for a million dollars! Let’s go get that expensive loft I’ve been dreaming about!”
As much as I’d like to say it’s that easy, it’s not.
Today’s mortgage underwriting process is complicated, frustrating customers and brokers alike. The process has also dramatically changed in recent years and requires a broker’s constant due diligence and problem-solving ability – two things I pride myself on as a top-selling broker.
When we buy a car, we’re typically drawn to its external beauty, even if we understand it’s really what’s under the hood that matters. It’s not much different when buying a house; it’s easy to get seduced by a mortgage pre-approval without understanding what drives the procedure. So, let’s take a look under the hood of the underwriting process so you can feel prepared and in control.
As we know, the mortgage industry had a terrible decade. Abuses led to sweeping local and federal laws that further obfuscate home lending. And, while these new laws are intended to correct past sins, they’re blanket laws that don’t factor in the unique lending environment of highly specialized (and thriving) urban markets like New York City.
This is why it’s imperative to have a trusted broker and attorney on your team when searching for a new home, and why I’m recommending a third partner as well: a quality lender. Think of this team as a triple threat offering maximum efficiency, security and stability.
Back to a buyer’s pre-approval: This is actually one of the major areas of misunderstanding regarding mortgage underwriting. Just because a buyer is pre-approved for a home loan does not ensure smooth sailing nor a guarantee going forward. It doesn’t offer an immediate Midas touch.
Because regardless of one’s relationship with a bank, the buyer is not the only key to the equation getting a home loan approved.
Your bank might approve you for a large sum of money to buy a home, but unless they’re able to deliver once you’re ready to close – which is precisely when approvals are most tricky – then what good is a pre-approved amount? Zero dollars at the closing table on a competitive interest rate is still zero dollars.
I leverage my relationships with an attorney and a trusted, proven underwriter to guide my customers through what I call a full pre-approval process.
Even if you’re pre-approved, when it comes time to underwrite the loan, they’re going to look for specific financial information, much of it now required by federal law to eliminate lending concerns. For example, they’ll want detailed information about the building you’re buying into. This one issue alone – a building’s financial status and neighborhood market – can raise red flags. So, it’s not unusual for a lender to ask for specific documents, such as:
A building’s financials (up to two years’ worth)
A building questionnaire (which can be expensive and time consuming)
A building’s insurance certificate (which is often not up to date)
And, where applicable, a building’s budget for the upcoming year
This information can be difficult to collect. Especially when time is of the essence and delay can mean losing the place of your dreams. This is why a quality lender fosters relationships with the people managing the underwriting process to develop fully legal “work-around” or “special exceptions” to handle the many diverse building ownership structures.
Finally, the issue of a property’s appraisal is additionally complicated. Lenders can be intimidated by lagging appraisals, which result from a vigorous market. An appraisal in the city can fall as much as one to ten percent below a property’s actual market value. This can spook a lender AND the buyer. How you structure your offer from the beginning of the process can mean the difference between getting a loan approved or not.
This is why having an engaged, educated broker, attorney and quality lender can pay dividends, helping you navigate a complicated lending environment further exacerbated by intensive new government oversight that doesn’t factor in Manhattan’s unique and vibrant market.
I work expeditiously to ensure I have all the necessary documents in place for my clients before we get to the underwriting approval process. Unfortunately, some brokers don’t come to the table similarly prepared. This makes the process less efficient, leading to delays, and worse, broken deals.
Ultimately, the goal is to ensure you’re getting the best value for your money and to position you to obtain the home of your dreams.