Role of Mortgage Underwriter in The Underwriting Process

Whenever a person goes to a bank, digital lending platform, or any other financial institution for a loan, they have to undergo the underwriting process. During the underwriting of the loan application process, the mortgage underwriter checks everything. The results of this process dictate whether the borrower will get the final loan amount. Before applying for any loan, you should learn everything about the underwriting mortgage process and the role the underwriter plays in this.

What is underwriting?

The underwriting mortgage process is used by the banks or lenders when they are processing the loan application of an individual. In this process, they check the credit score, income, assets, existing debts, properties, and other financial details. With this information, they determine the creditworthiness of the loan applicant. The result of the loan underwriting process affects the final approval of the loan application. The lending institution will ask the loan applicant to submit additional documents and other financial data during the underwriting mortgage process.

What is the work of a mortgage underwriter?

In most types of loans, the applicant has to provide a mortgage for the amount of money they are taking from banks and lending institutions. In such a case, a mortgage underwriter handles the appraisal of the mortgage property. He/She also inspects the finances and other assesses of the loan applicant. Depending upon the creditworthiness of the person, the lender will approve and disperse a suitable loan amount. The underwriter will ask the borrower to complete and submit all the necessary paperwork for the loan underwriting process. It is the job of the underwriter to ensure that the borrower does not get a loan amount that is more than the valuation of the mortgage they have provided. If the loan applicant does not meet the requirements, the mortgage underwriter can deny your loan.

Steps taken by a mortgage underwriter:

● Investigate the credit history of the loan applicant: Underwriters look at the credit score and credit report of the loan applicant. They also look at the overall credit score and search for red flags like late payments, bankruptcies, overuse of credit, etc.
● Appraise the mortgage: During the credit underwriting process, the underwriter has to ensure that the value of the mortgage is not lower than the loan amount provided.
● Verify income and employment: The underwriter will ask the loan applicant to provide proof of income and employment details.
● Inspect the debt-to-income ratio: During the credit underwriting process, the mortgage underwriter will check the debt-to-income ratio of the borrower. An underwriter examines the existing debts and compares them to their income. This percentage tells if the loan applicant has enough cash flow to cover their monthly mortgage payments, taxes, and insurance.

The mortgage underwriter checks the financial details of the borrower and evaluates the mortgage submitted to the lender. If all the information provided meets the loan requirements, the progress of the loan application will be smooth. Thus, it is important to submit all the correct details and documents as soon as possible.

Looking to apply for a digital loan? You should check out these points first

 

Many people gravitate towards digital loans, as these have a quicker loan underwriting and approval process when compared to regular loans given by banks and other lending institutions. Yet, there are some points that we should keep in our minds while applying for a digital loan. These are as follows.

 

You need to remember these points before applyling for a digital loan

●       A high credit score will be helpful: Although most digital lenders put focus on alternative data for a simpler and quicker loan underwriting process, having a high credit score is a bonus here. The loan applicant will get additional benefits during the loan disbursement process if they have a high credit score. A credit score makes it easier for the lenders to inspect the creditworthiness of an individual. A high credit score denotes that the borrower has a good financial record and presents less risk to the lender.

●       You should know your financial limits: Although it has become easier to get a digital loan quickly, one should also remember that paying it back can put financial burden. Most people commit a mistake by not checking beforehand whether they can or cannot pay the equal monthly installment (EMI) of the digital loan. You must always check if you can afford to pay back the digital loan before applying for it. Otherwise if you default on the monthly debt payments, your credit score will get severely affected and even lower your chances for future loan underwriting process.

●       Get only the required amount: While applying for a digital loan, people sometimes take out loans which consist of a much larger amount than the needed money. This can put an additional burden on their finances since the lending institutions are also charging interest on that extra amount. If you take out a large amount of digital loan and choose a long tenure to clear it, you need to pay back more interest to the lender. You should always use an EMI calculator to see the amount you have to pay each month for the digital loan. You should get a digital loan of that much amount whose EMI you can easily payback and can complete the loan repayment as soon as possible.

●       Learn about the use of alternative data: As stated earlier, many digital lenders and other financial institutions have started using multiple data factors for the loan underwriting process. Apart from credit scores, the use of alternative data of the borrowers has become more prominent in the underwriting process. It includes data like the payment history of bills, mobile recharges, online shopping data, social media activity, etc of the borrower. Digital lenders and financial institutions use this data to check the creditworthiness of the digital loan applicant.

 

As the lender checks the credit risk of an individual before giving out a digital loan, it is also the responsibility of the borrower to check the factors mentioned above before applying for a digital loan.

What are the different digital lending models available to customers?

 Digital lending has become widely popular since the beginning of the pandemic when banks and other financial institutions were under lockdown. Both startup fin-tech companies and large tech corporations were able to grow during this period. Even though the lockdown has been lifted and banks have started normally operating again, many people still prefer getting loans and credit from digital lending platforms. Here are the different lending models that customers can look out for.

 

Check out these different digital lending models available on the market:

●       Online lending applications: These digital lending platforms offer their services through online channels or mobile applications. The entire process is digital and automated on these lending applications. Thus, customers do not need the help of any person and can follow the instructions mentioned in the lending application to apply for a digital loan. Many startup fin-tech companies fall in this category and they provide small loans to people for their needs.

●       P2P Platforms: These types of digital lending platforms are more common in the market. A P2P digital platform helps to connect the individual, who is looking to apply for a loan, with the financial lending institution. The platform plays a key role as it becomes a medium for both parties to engage with each other. These platforms also provide additional services like credit risk assessment, payment options, recollection services, etc.

●       Social media and e-commerce platforms: As digital lending became more popular, social media applications and e-commerce platforms also introduced credit systems within their frameworks. Although it was not their main business model, they used their large networks and distribution channels to attract people to use their lending and credit systems although their credit risk assessment and other processes are similar to the online lending platforms.

●       Lender searching platforms: One can also find digital platforms that are dedicated to helping individuals get a suitable digital loan from the correct lenders. These platforms use various algorithms and models on the individual's financial data and then match them with the appropriate financial lending institution. The platform generally charges a fee from both parties for providing this service.

●       Mobile network money lenders: These digital lending platforms are similar to social media and e-commerce credit platforms. The mobile network company collaborates with a lending partner for giving out digital loans to its network users. The mobile network company provides this service to all its users where they can conduct transactions and apply for credit from the mobile network application.

●       Supply chain lender: This lending method is available only to businesses and small companies. They can avail of a loan from their distributors for the purchase of required goods in advance. This helps them to avail goods for their inventory even if they lack some funds for the complete payment of the delivery. They should ensure that they pay back within the allotted timeframe or their next delivery of goods can be put on hold by the distributor. These are some of the different types of digital lending models available that provide credit to people and businesses.

 

Solutions that are helping banks reach out to the unbanked customers

 

India is a vast country that is still in its development phase and a large part of India still lives in semi-urban and rural localities. Moreover, many remote areas do not have proper access to crucial features like banking services. People living in these areas found it hard to get loans because their lack of credit history and uncertain income source failed them in the credit underwriting process.

 

But governments, banks, and other institutions have taken the initiative to implement solutions like alternative data for lending that will help to provide these unbanked populations access to banking and other financial services. Here are some of these steps that are being taken.

 

Removal of strict guidelines related to credit and bank accounts

 

Many banks have removed features like the minimum balance compliance, monthly charges for access to various services. They have also introduced schemes like zero balance accounts that are catered specifically to people from remote areas so that they are encouraged to open bank accounts. Governments have also eased restrictions on loans, the credit underwriting process while also introducing low-cost insurance services to secure the future of these unbanked individuals.

 

Introducing online credit and banking services

 

With the widespread reach of the internet and the easy availability of smartphones, banks and financial institutions are now providing all their services through online channels. These can be accessed through the respective banks' mobile applications or websites. Moreover, banks and other financial institutions are not charging any additional money for providing these services. This feature helps many people to open bank accounts remotely, have access to them, apply for loans, and receive the amount after the loan underwriting process, even if they do not have the bank's branch in their surrounding area.

 

Implementation of alternative solutions for credit and loans

 

The use of alternative data for lending also helps banks and other financial institutions to check the creditworthiness of the individuals even if they lack a proper credit history. This gives people the opportunity to get credit and use it during an emergency. Banks and governments have also made it easier for unbanked customers to avail their first loan from these institutions. Apart from simplifying the loan application, credit underwriting process, and easing the eligibility criteria, many schemes help people from remote areas to get loans for personal or work-related purposes.

 

Increase financial and credit literacy among the masses

 

A large population from rural areas, especially the unbanked people, previously had a deep mistrust of governments and banking institutions. This fear made them believe that these parties will run away with their hard-earned money. But a lot of such misconceptions have been cleared due to the financial literacy campaigns run by the government which gives people an idea of the benefits of using banking services. Moreover, as more people learn about the loan underwriting processes and other bank formalities, they are beginning to understand which factors led to them getting rejected previously. It helps them to build up trust among the banks and other financial institutions again.

 

These are some of the solutions that have helped banks and other financial institutions to reach out to the unbanked people and make them a part of the country's growing economy.

 

How beneficial are digital lenders for customers?

 

It has always been a challenge to get loans from banks and other traditional lending institutions. The lengthy credit underwriting process at these places makes it impossible for individuals, small businesses, and entrepreneurs to get loans quickly for their needs. This is because most of the work related to underwriting and loan approval is done manually at banks and financial institutions. This increases the operating costs and time consumed for sanctioning a loan.

 

Many digital lending platforms have come up to address this situation. Their solutions and services are extremely effective and help to make the credit underwriting process more simple, swift, and transparent to the customers. Let us discuss some of the benefits which a digital lender provides to its customers.

 

The use of alternative data for the credit underwriting process

 

When you apply for loans traditionally, the banks and other lending institutions will check your credit score, income, and financial credit history. They will ascertain your creditworthiness and loan repaying capacity according to these details. This process is detrimental for those individuals and businesses who do not have a long and positive financial credit history.

 

To lower this credit gap, digital lenders have introduced the use of alternative data for the borrower's credit underwriting process. In this process, machine learning models and artificial intelligence algorithms are used to analyze the data points and other forms of big data of the borrower. It can be anything, from the customer's e-commerce shopping history, social media browsing data, online spending patterns, etc. These alternative data are used by the digital lenders to check the borrower's creditworthiness.

 

Having a more effective loan underwriting process

 

Digital lenders have been able to reduce the time and cost of processing a loan through the use of digital solutions which are faster, efficient, and more accurate than the traditional underwriting methods. The use of alternative data, artificial intelligence, and machine learning models have helped them to be ahead of traditional lending channels.

 

Digitization of the loan application process

 

One of the advantages of getting a loan from digital lenders is that their whole application process is digitized.

1. The customer onboarding process is done online through eKYC or video KYC methods. The loan applicant has to provide their basic details and upload the photos or soft copies of the required identification documents.
2. The loan underwriting and approval process are done online with the help of automated solutions used by digital lenders.
3. The loan is sanctioned and the amount is paid to the borrower via online payment channels. The amount gets credited directly into the bank account of the loan applicant.

 

Providing more customized loan options

 

Digital lenders are also known for providing customizable and flexible loan options to their customers. They analyze the details provided by the loan applicant and use various tools to determine the best loan option for them. Thus their credit products are designed to suit the requirements of the borrower.

 

These are the benefits that you can experience if you choose to get loans from digital lenders.

 

What are the points to look out for while applying for a digital loan?

 

Digital loans have become quite popular among people during this pandemic. These have a quicker loan underwriting and approval process when compared to regular loans given by banks and other lending institutions. Although the application process is simpler and the loan amount is released quickly after approval, there are some points to keep in mind while applying for a digital loan.

 

Check out these factors before you apply for a digital loan

●       A high credit score will be helpful: Although most digital lenders put focus on alternative data for ease in the loan underwriting, the high credit score of the loan applicant provides a lot of benefits during the loan disbursement process. A credit score allows the lending body to inspect the creditworthiness of an individual. A high credit score denotes that the borrower has a good financial record and presents less risk to the lender. Thus by having a high credit score, the loan applicant can enjoy benefits like availing of digital loans with slightly lower interest rates.

●       Check your affordability: One can easily get a digital loan quickly but this does not mean that one does not have to pay back the amount or the interest. A major mistake that some people do is not checking beforehand whether they can or cannot pay the equal monthly installment (EMI) of the digital loan. Thus before applying, you must check your affordability criteria. It depends upon the amount of money you have to pay for your debt payments from your monthly income. Check if you have enough money left after paying the EMIs otherwise you may have to default on them to manage your monthly expenses.

●       Get only the required amount: Since getting a digital loan has become easier, people sometimes take out loans that consist of a much larger amount than the needed money. They forget that while having additional money feels good, the lending institutions are also charging interest on that extra amount. Moreover, if you take out a large amount of money as a loan and choose a long tenure to repay it, you are paying back more interest to the lender. Thus use an EMI calculator to see the amount you have to pay each month for the digital loan. Apply for a digital loan of that much amount whose EMI you can easily payback and can complete the loan repayment as soon as possible.

●       Learn about the use of alternative data: Digital lenders and other financial institutions have started focusing on multiple data factors for the loan underwriting process. Apart from credit scores, the use of alternative data of the borrowers has also become more prominent. It includes payment history of bills, mobile recharges, online shopping data, etc. The lenders use this data to check the creditworthiness of the digital loan applicant.

 

These points show us how to get a suitable digital loan from online lending platforms. As the lender checks the credit risk of an individual, it is also the responsibility of the borrower to check the credibility of the lending platform before applying for a digital loan.

 

Why are payday loans so popular?

The concept of payday loans has become popular among the young working generation in the past decade. A payday loan is a short-period loan that charges high interest for the credit the lender provides. The loan term is about a month and it is paid by the borrower as soon as they get their next paycheck. These types of loans have a simple credit underwriting process as only the lenders only ask for proof of your exact monthly income. Let us check some of the reasons which make them popular.

People can easily apply for payday loans

Due to inflation, the expenses of people are rising drastically while their salaries receive very small increments. Thus in times when there is a shortage of money, people can apply for a payday loan from digital lending platform for their necessary expenses. This has resulted in the popularity of payday loans.

The loan underwriting process is very simple

As stated earlier, the payday loan approval process is very fast. The lenders only check the applicant's credit score and the proof of their monthly income. No other assets are required for the loan underwriting of a payday loan. Applicants can easily get the money in a small window of time. This is helpful when credit is needed for some type of unexpected expense or an emergency.

The payday loans are closed within a short-term

Most payday loans are taken out for a month. When the borrower gets their next monthly salary, they can close the payday loan quickly. The absence of any long periods of commitment makes a payday loan an attractive option.

Some of the cons of a payday loan

Along with the benefits, there are also some cons to a payday loan. You should always keep them in your mind.

●       They have an unusually high-interest rate.

●       They have high penalties for defaulting.

●       They do not provide any long-term solutions and depending upon them regularly is considered a bad financial habit.

Although there are some disadvantages of using payday loans, as the loan gets cleared with the next paycheck, people have started to prefer them because of their simple application and loan closure process.