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Wondering about certain types of underwriting for a borrower's home loan application? This is how lenders handle situations where a borrower's credit isn't bad, just nonexistent.
We all know that bad credit leads to higher risk and lender denials. We know that credit scores in the 700 range are usually green light for approval, while scores down in the 500 to 600 range or lower are going to get credit requests denied. But what about when no credit score comes back at all?
In these cases, lenders have to do more research to determine the credit worthiness of someone applying for a home loan for a house.
The Manual Underwriting Process
Instead of accessing a readily available credit score, manual underwriting has to seek out actual concrete debt information in order to be effective. Lender reps will ask for things like utility statements, records of rental payment, and other regular bill payment information. Using things like canceled check images, letters from creditors and other resources, they'll try to build a picture of someone's credit without using the conventional FICO credit score, which takes more time and effort.
A Burden of Data Collection
This manual underwriting takes place in an already troublesome context. Even a conventional mortgage or home loan process involves combing through a lot of data to establish other elements of credit worthiness. This is especially true for any income or assets that are conventional. It's easier to calculate wage and salary information than is to describe self-employed or contractor information to lenders. In some cases, lenders have to collect W9s or actual client checks representing income for the self-employed or 1099 contractors, which may be sporadic.
A Timeline
All of this also has to take place within the timeline between offer and settlement. There's not a lot of time, and smart real estate agents will push settlement back to account for a lending process. But in any case, it's not a good idea to wait to provide credit information, because any delay could lead to a chain of delays where the lending agreement isn't ready at the settlement table. Borrowers and lender reps have to be responsive to complete all of the lending paperwork, while also collecting credit info that can be hard to piece together.
Think about these issues when going through a manual underwriting process, or trying to arrange financing on a home. For more information on this and other home loan topics, contact a professional like MCS Bank.
Share7 July 2015
