Lenders and loan seekers are both familiar with the words, ‘pre- approvals. On the other hand, ‘pre-underwriting’ hardly ever gets a mention. This is because it adopts a progressive approach to a lender’s mortgage underwriting process, an important component of a lender’s risk mitigation strategy and has seen recent adoption by mortgage lenders.
Pre-underwriting is a meticulous and thorough approach to verifying the borrower’s credit worthiness. It scrutinizes specific details about the buyer and sometimes requires them to explain, recent job changes or the opening or closing credit card services. The idea behind this approach is to help loan seekers explore through to the loan fulfillment stage before they even place an offer on a home.
Pre- underwriting gives mortgage lenders a chance to:
- Improve the pace of their loan approval process
- Avoid the redundancy caused by the pre-approval process
- Achieve faster closing times
- Improve customer confidence
- Reduce labor costs by leveraging outsourcing
A Closer Look
The level of detail that goes into pre-underwriting vastly reduces the risk that an underwriter bears at the time of loan approval. Traditionally, the mortgage underwriting process was centered around the judgment and the risk perception skills of an underwriter and the diligence of the property appraiser in determining the market value of a home.
Pre-underwriting has upped the game by taking a tactful approach to risk management. It examines the borrower in much greater detail. It opens up opportunities for a lender to understand the borrower’s ability to pay back the loan like never before. Patterns in the borrower’s spending and past repayment instances reveal if they can expect prompt payments and rock-solid commitment from the borrower.
Borrowers are asked to submit the same documents they would for a pre-approval such as pay stubs, W-2 forms, and bank statements. Only this time, they are dispatched to an underwriter, who evaluates the risk associated with granting a loan to the borrower.
Is it Worth the Effort?
The benefits of mortgage pre-underwriting are obvious right at the outset. The fact that it is helpful for both the borrower and the lender is steadily increasing its adoption by lenders. It is essentially a promise from the lenders that the loan would be approved, considering how it gives them the ability to confidently approve loans. Borrowers who put in the work to furnish all the necessary details and documents to a lender for the mortgage underwriting process can put out offers on homes without the anxiety that usually comes before their loan is approved.
The competition in the mortgage industry is only getting fiercer. Lenders could always use a great way to stand out from the competition. Mortgage pre-underwriting brings process performance gains, improved risk management and better insights into the mortgage underwriting process. Despite being a lot of effort, it puts both the lender and the borrower at an advantage while it makes a standard loan approval more streamlined and efficient. Mortgage pre-underwriting is well worth the effort indeed!